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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“More recently, in the last 10 years, inflation has averaged 1.8% between 1984 and 1993.”
“Sir, pensions in Singapore are calculated on the last drawn salary at the time of retirement and the length of pensionable service as provided for under the Pensions Act and as such are not subject to change. However, since April 1974, as the Member has noted, the Government has been paying a top-up Allowance to those with low pensions. It was introduced at that time to account for the very high inflation which took place after the first oil shock. This Allowance, called the Singapore Allowance, has been revised four times since then, the most recent on 1st April 1993. For those who receive a pension of less than $900 they are now eligible for a Singapore Allowance of up to $130. As an additional measure to help pensioners, half of the pensions of pensioners residing in Singapore were exempted from tax for the Years of Assessment 1977 and 1978. Pensions of resident pensioners have been tax free since the Year of Assessment 1979. The Member has suggested that we do something regularly. I assume that he is talking about some form of indexation. We have avoided doing this because indexation creates many pitfalls. Instead the Government's policy has always been to keep inflation low so as to protect the savings of all Singaporeans instead of just pensioners. This has been a very effective way of keeping costs down and therefore avoiding the problems incidental to indexation. Over the past 20 years, for example, from 1974 to 1993, the average inflation was 3.7%. But this figure included three years of very high inflation induced by the two oil crises. In 1974, inflation was 22%. It was 8.5% in 1980 and 8% in 1981. If inflation rates in these three years were excluded, the average inflation of the other 17 years was just 2.1%.”
“Sir, the procedure for the payment of GST for time-sensitive courier parcels entering Singapore is that the courier company itself will pay the GST first before it is delivered to the customer. They will collect from the customer afterwards. The mechanics can be worked out between the recipient and the courier company. That is to facilitate the speedy delivery without hold-ups at the point of arrival.”
“I will have to give him the details outside the House because it is a specialist activity and I am not a valuation expert.”
“In the case of HDB flats, the valuation process is different from that of ordinary housing because few HDB flats are rented out. So the valuation people use a different formula based on a neighbourhood basis.”
“You are referring to HDB flats in particular.”
“All properties are reassessed from time to time and based on rentals in the neighbourhood. Where upgrading takes place, they would be probably revalued immediately to reflect their enhanced value. This is normally the procedure. Where the property has not been changed or upgraded, it will be revalued from time to time based on the rental values in the neighbourhood.”
“You are talking about HDB flats specifically, or private houses in general?”
“Sir, Mr Chia has raised the subject from time to time. I think the response is going to be the same again. The annual value of a property, as he well knows, is the estimated annual rental which a property can fetch if it were rented out. This theoretically should be done annually. Unfortunately, because of the large numbers of properties in Singapore, the Assessor cannot get around to doing this annually. He has plans to try and do this by 1995, in other words, arrange for annual valuations of all properties by the year 1995. Problems have arisen in the past because of the time lag between the valuations and market changes. There is a lead and lag problem. When property rentals are rising fast, property owners tend to benefit from the delay. When property values decline, as it is doing now for commercial properties, for example, then owners are at a disadvantage if the valuation is delayed. These problems arise because valuations do reflect the actual market conditions because of the delay in making the assessment. Therefore, it is not a change of the system of valuation which is the problem but inability to carry out valuations annually.”
“In answer to Dr Ow's first two questions, it is no. On the question of the petrochemical indusstry, I think their problems have been sorted out directly with them. The 3% GST will be held for at least five years and for as long as possible after that if we do not need the funds.”
“In answer to Mr Lau, it does not include this year's change.”
“Already some parts of their operation are privatised and our intention is that they continue to do so. For SMRT, it will be difficult to find a replacement but their rates will be controlled or regulated. SBC will also be subject to competition. Mr Chew has asked whether the GLCS which are privatised might not lose their advantages overseas. I can assure him that will not be the case because Government will retain a significant shareholding so that Government connections will be maintained. Mr Chia Shi Teck has asked whether we could announce a fixed formula for the disposal of Government surpluses. Of course, we cannot. When the Government has budget surpluses, part of it could be returned to the public in the form of tax rebates. It could also be shared in the form of rebates on HDB S&C charges and rents. It could also be given away in the form of SOTUS or through grants to Edusave, Medifund and so forth. These are the various formulas which we have used. The most widely applicable one, of course, is tax reduction across-the-board. As regards other formulas, we can consider them in the future. But this will be broadly what we are thinking of. As the remaining three items deal with medical benefits and the civil service, I will ask the Minister of State to respond because he has been familiarising himself with these particular matters.”
“Dr Ow Chin Hock and Mr Robert Chua have asked for special incentives to support overseas investments, particularly for the smaller companies. I would like to assure them that we do give special help to the smaller companies. For example, the EDB provides direct financing assistance at attractive rates to the SMEs through the Local Enterprise Finance (Overseas) Scheme. This is a low cost fixed rate loan scheme, administered through our banks. The Government has also set up a venture capital fund, administered by EDB, to provide equity financing to local enterprises venturing overseas in order to promote the entrepreneurial spirit. So special treatment does exist and the TDB and EDB have extensive packages to help the smaller companies go overseas. I said on Tuesday that, for the time being, we are not considering an overseas development bank. Mr Chew Heng Ching and Mr Leong have asked about Government's plans to privatise. We have said in the past, and I will repeat, that our intention is to privatise Government companies and the companies under consideration are Pidemco Land, which is a property company, SMRT, Singapore Broadcasting Corporation (when it is privatised, it will be split up into an operating company and a regulatory body) and PUB. The most immediate one is likely to be Pidemco Land in about two years' time. There will be, of course, repeat issues of equity by Telecom. On the question of competition after privatisation, for PUB, it will be difficult to produce another competitor, but I assure Members that their rates will be sensible because they will be regulated by the Government even after privatisation. Telecom will have their monopoly removed in stages over a number of years.”
“Lawyers and accountants, for example, are not allowed to incorporate. The reasons for incorporation are to take advantage of the tax differential if your income is very high, or you may want to limit your liability in the form of a company. This is a tax loophole which we know exists but very few people currently enjoy. It is a situation which we will review from time to time and we may finally close the loophole. He has also said that we should eventually match Hong Kong's tax rates which are currently significantly lower than ours. At the personal level, they have income tax rates of about 15 1/2%. I think he is aware that Hong Kong is not a nation. Therefore their operating budgets are significantly lower than ours because they spend practically nothing on defence and a large proportion of their development expenditure is financed from land sales. In our case, we have a significant defence budget and land sales are put into reserves and not made available for current expenditure. These factors make a big difference and allow Hong Kong to have a low rate of personal tax tax. Singapore's personal tax rate, although nominally higher at the margin, is, in fact, actually lower on average compared to Hong Kong. For example, although Hong Kong's individual income tax rates and relief structure appear to be more favourable, our average tax burden is, in fact, lower. Singapore's effective average tax rate, which is a measure of the total tax assessed over the total assessable income in Singapore, was 7% for the Year of Assessment 1991. The corresponding figure for Hong Kong was 8.9%. This means that the majority of Singaporeans pay less taxes than individuals in Hong Kong.”
“All countries, when introducing GST, have encountered problems and we will simply have to solve them as they come along. Mr Lau Ping Sum has said that in the introduction of GST, we should try and minimise the cost and we should use the electronic transfer system. And he suggests that the IRAS should allow electronic transfer information for companies registered for GST. This is an issue which I am not familiar with, but I will certainly enquire into it and see what can be done. Mr Peh Chin Hua has asked two questions relating to taxation of clan associations. I think we have explained this in the past why it is not possible to give tax relief on interest income. Generally, interest on income is taxable and it will be difficult for us to give special privileges to particular groups even if these groups happen to be doing work of social significance because every other group will also ask for the same privilege which means that, in the end, practically all interest income will have to be declared tax free. He has also asked for property tax relief for clan associations. We have also said, in the past, that this is not possible because clans do not cater to the public in general and tax relief is only allowed for cases where charitable associations are open to everybody, ie, the public at large. No matter how beneficial clan association may be to their own clan members, they do not meet this requirement. Mr Leong Horn Kee has asked whether we can reduce the level of personal tax to equal company tax. There is a differential of 3%. For the time being, we are not proposing to do this. It is recognised, as I said in Parliament last week, that a group of people at the top income levels may incorporate themselves to take advantage of this, but not every individual can do so.”
“It has been said that whilst the tax is theoretically sound, it is practically impossible to implement it. A lot of the problems arise because, under the present income tax system, individuals are required to submit to the tax authorities a full list of their sources of income. Under the expenditure tax system, in addition to supplying information on their sources of income, they also have to supply information on their total savings. And many people resent this because it is a further invasion of privacy and where there is a dispute with the tax authorities under such a system, there will be massive enquiries into how an individual actually spends his money and individuals will have to provide details of every item of expenditure, including every item of savings. I think this is one of the reasons why it has not caught on because it means a wide extension of information which the individual has to provide to the tax authorities. Mr Othman Haron Eusofe has asked what we are doing in explaining the reasons for GST, and how the public can be told of its implications. I think Members would already have noticed that in the newspapers of late, and on television, there has been a series of advertisements. This is only the beginning of a campaign. During the month of March, in the lead up to the GST on 1st April, there will be programmes both on television and in the media, posters on bus backs and in MRT stations explaining the reasons why GST is necessary and why it benefits the individual. The IRAS itself will still be going out to the companies which will have to actually implement GST and to explain individually, if necessary, the steps they have to take to introduce GST. So all that is necessary is in hand. Of course, this does not mean that there will be no hitches.”
“Of course, in a complex exercise like this, there are likely to be problems arising in the first few months of implementation and we are still receiving quite a large number of complaints from businesses about not understanding whether they should or should not register and how the tax itself is going to be implemented. Examples quoted are wrong information being sent out. But these are start-up problems and it is inevitable. The Ministry will ensure that IRAS will handle all mistakes with understanding and the intention is not to penalise people at least during the first three to six months of GST, perhaps even longer. But we cannot extend this grace period indefinitely, of course. But where there are genuine cases of misunderstanding, or inability to implement, it is not the intention to penalise people unnecessarily. Mr Koo Tsai Kee has said that small businesses have problems because they tend to be serviced last by the accountants when they try to get their computer systems upgraded. Indeed, this is unfortunate because small customers tend to be at the end of the queue. But where such problems are identified, IRAS will try and help them as much as they can. He has suggested that eventually the GST system will be transformed into, what he calls, a full scale expenditure tax system. The issue of expenditure tax has been raised in the past from time to time by Mr Heng Chiang Meng. What I can say is that it is theoretically a very attractive tax which achieves a good deal of the objective of GST without its regressiveness and that is its main advantage. However, only two countries have tried it and both have abandoned it. The reason is that it is practically impossible to introduce and administer effectively.”
“Sir, five Members have spoken on the GST implementation issues and I will take them together where they overlap. Dr Ow has asked whether the IRAS has engaged sufficient staff and whether the numbers originally given to the Estimates Committee have been filled. At the present time, IRAS has recruited an additional 170 staff and this is considered sufficient. The original figures were estimates. The staff were not poached from private companies. They were mainly from the polytechnics and their qualifications are sufficient for the purpose of GST implementation. As far as the computer system is concerned, the system is ready to handle GST. IRAS will be installing a more complex system later to integrate the GST collecting system together with the other tax systems, but this is a separate exercise. So for the present, IRAS is quite satisfied that it has all the systems and people ready to introduce GST. As to the status of businesses and whether they are ready to implement GST, about 25,000 businesses have registered for GST and this is pretty near the total number which will be required to do so. There are of course a number of companies which still are in the process of registering for GST or have not started to do so. But these are in the minority. Unfortunately there are some companies, particularly the smaller ones, who tend to procrastinate in these matters. But IRAS is sending out its officers, and by phone and direct visits, to try and persuade them to get them registered before the target deadline. As of now, I am satisfied that the majority of companies will have prepared everything for GST.”
“Mr Speaker, Sir, I beg to move, "That Parliament doth agree with the Committee on the said resolution." Question put, and agreed to. Resolution accordingly agreed to. ESTIMATES OF EXPENDITURE FOR THE FINANCIAL YEAR 1ST APRIL, 1994 TO 31ST MARCH, 1995 (Paper Cmd. 2 of 1994) Order read for consideration in Committee of Supply [1st Allotted Day]. [Mr Speaker in the Chair]”
“We must not be lulled into a sense of security and take progress and prosperity for granted. To remain successful, we must constantly take pre-emptive measures to ensure our international competitiveness. I am confident that as long as we continue to value entrepreneurship, productivity, savings and investments, we will be able to manage the leap into the First League of Nations. [Applause]. Mr Low Thia Khiang rose ---”
“Otherwise, come the next century when large numbers of these people begin to retire, with low educational skills, and probably with inadequate know-how to manage their finances, we do not want a situation to arise when we say, "Okay, I have given you all this money. If you have lost all of it, just too bad. You sleep on the streets." I do not think this is socially acceptable. Hence the scheme to be put up. It is not something which will be raised from $34,600 to $80,000 overnight. It is going to be a scheme introduced over a period of time. And as the Minister for Labour will explain, it does not mean that you cannot withdraw anything at all at 55. It is a phased withdrawal programme. When the details are announced, Prof. Woon may find it is acceptable. On the issue of paternalism and individual initiative, I would also point out that he is, in fact, drafting a law to oblige parents to be looked after by their children. Is that not the ultimate dependency? Mr Peh Chin Hua has also asked about the proposal for a development bank. I think I have answered that question. Finally, Mr Speaker, Sir, allow me to sum up. 1993 has been an exceptionally good year. 1994 should also be a good one as economic growth has been forecast to be between 6-8%. Nevertheless, we cannot afford to rest on our laurels. World economic conditions change rapidly. At the end of 1993, there was euphoria about the successful conclusion of the GATT talks. Two months on, there is growing concern about the potential fall-out from an ongoing Japanese-US trade dispute and there are fears about its escalation into a trade war. We must recognise that Singapore is but a very small point in the world grid. We cannot afford to be complacent.”
“He has proposed the setting up of a joint venture bank to finance external investments, particularly for SMEs. I am not sure exactly what is a joint venture bank. Presumably it is some form of development bank which issues loans at subsidised or low rates. It is a possibility, but I have not heard of any demand for it. But one has to be careful that this does not encourage small companies to go overseas simply because of cheap money. For those who really need it and can demonstrate the projects which are viable, I think we can try and arrange special facilities for them. Assoc. Prof. Walter Woon has expressed great concern over the Government's excessive paternalism and suggested that we should not coddle our people to the extent of trying to make sure that all old and retired people will be looked after. Effectively, if we take his theory to its ultimate limit, we should dismantle the CPF scheme altogether. I hope this is not what he suggests, because that would be the ultimate test of self-reliance. But if he means that we should not do anything to withhold money after 55, I should point out that even with the increase of the Minimum Sum to $80,000, the amount withheld is not very large for a large number of persons on the CPF scheme. It is certainly not a problem for graduates or people with tertiary education who will be quite able to look after themselves and will have savings substantially larger than $80,000 which they can withdraw. Our concern is confined to the older people who have not had the advantage of a good education, because they were born in an unfortunate earlier period, and we have substantial numbers of these people. The Government feels that they should not be left to fend for themselves.”
“The forecast for the fiscal year is a GDP growth of between 6% and 8% which is still above our long-term level of between 4% and 6%, while the development budget estimates for fiscal year 1994 are substantially higher than actual expenditures in fiscal year 1993 due to carry-overs of delayed projects. And this accounts for the more modest surplus forecast. The Government's aim is to maintain strict control over Government expenditures, particularly, recurrent expenditure. The targets we have set ensure that total expenditures should not exceed 20% of GDP. With recurrent expenditure capped at 12% of GDP and the balance of 8% going towards development expenditure, we have consistently maintained overall expenditures below 20%. It has been around 17% in recent years. I will now come to the few issues raised by the more recent speakers. Mr Robert Chua proposes a new scheme to induce employees to attend training on SDF courses using the CPF system. I shall not go into this any further. It is for the Ministry of Labour to consider. I have explained why property tax cuts are not necessarily all offset by increase in annual values. They tend to fluctuate. He has asked for a 4% property tax rate for owner-occupied industrial properties. I think this question has been asked previously, and I have said no, because we do not want to give special preference to owner-occupied industrial premises against rented premises. There is no economic justification for that. I do not think the companies' competitiveness will be affected by not receiving this special grant, or special concession, because basically, for many companies, occupation costs represent quite a small fraction of total costs and, unless the movement is very large, most companies do not find it an unacceptable burden.”
“So the presence of our reserves not only confers specific comfort to us in times of need but also is an important asset which draws foreign investors to Singapore consistently and at a rate much higher than other countries which have much more resources. Fiscal Policy At this time, I would just like to restate and explain to Members about Government's basic fiscal policy. Our Government's fiscal policy is to maintain a balanced budget centred around a long-term sustainable non-inflationary rate of GDP growth of between 4% and 6% per annum. On this basis, revenue and expenditure projections are planned accordingly because there is a strong link between revenue collection and GDP growth. Following from this, it means that in good years when GDP growth exceeds forecasts and expenditures are kept under control, budget surpluses will be realised and these surpluses are set aside in reserves to be drawn upon in times of economic downturn. However, lest we become too complacent, I have to remind Members that economic downturns are bound to happen from time to time due to movements in the business cycle. So far, we have been fortunate to have been insulated from the severe recessions in the United States, Japan and Europe by the boom in the East Asian economies. In fiscal year 1993, a large budget surplus was realised because the economy grew at an exceptionally buoyant 9.9% and there was considerable under-spending in the development budget arising from delays in the implementation of several large projects. For fiscal year 1994, we are forecasting a more modest surplus.”
“This company is used extensively by foreign investors to assess the safety of investing in foreign countries. The rating criteria they use include a country's inflation rate, budget status, whether it is positive or negative, and reserve level and external debts. In all these categories, Singapore scores very highly. We have consistent surpluses, large reserves and negligible external debt. As a result, Singapore has been able to maintain its position as an attractive location for foreign investors, notwithstanding our obvious limitation in land and resources. Last year, we were able to attract a record $3.8 billion in new investments against a background in which foreign investments in the region as a whole declined because of recession in the United States, Japan and Europe. I have here with me an extract from the BERI rating comparing Singapore with a country like Nigeria which is unfortunately facing many problems. It is a much larger country but their track record, on the criteria used for assessment, is very poor. It says, "Nigeria: Profit Opportunity Recommendation is: Initiate no business transactions without pre-payment". In the case of Singapore, a summary of Profit Opportunity Recommendation, classified 1A, is: Invest in this low-risk environment. And they show tables giving budget deficit as a percentage of GDP. For Nigeria, it ranged from 11.4% in 1988 to 15% of GDP in 1992; foreign exchange reserve is less than $1 billion; current account balance, negative last year. Singapore, of course, you know all our figures.”
“Like all other Government revenue, collections from COE and road tax are credited to the Consolidated Fund. This forms a common pool that the Government draws on to finance its expenditure. This will ensure that each Government programme is funded on its own merits, taking into account competing claims on Government resources and the total amount that the Government can spend. In this way, all important programmes will be adequately funded. As regards road improvement works, a significant 15% of the Government's development expenditure, or $900 million, is going into road development, road maintenance, MRT construction, bus interchanges, ERP and other public transportation schemes and improvements in fiscal year 1994. This amount is 80% more than what was spent, on average, in the last two years. The Government has also announced its intention to build a network of underground roads to relieve road congestion in the Central Area. When completed, this will allow more COEs to be released. The whole programme is estimated to cost several billion dollars. It clearly demonstrates the Government's commitment in constantly reviewing and improving the public transportation infrastructure. There is, therefore, no need to set up a special road improvement fund. Mr Chiam See Tong has commented that the Government's reserves are too large. He has asked why such large reserves are necessary and of what value are they. I would like to point out to him that our budget surpluses and large reserves are viewed with great favour by international investors. BERI, which is the Business Environment Risk Intelligence organisation in Switzerland, has consistently awarded Singapore its highest 1A category.”
“As these savings are held over the long-term, the Government has decided to pay a higher interest rate for the CPF Special and Retirement Accounts. I have announced that the extra interest rate will be 1.25 percentage points above the normal CPF interest rate. Dr Vasoo has, however, commented that the higher interest rate of 1.25 percentage points is inadequate. He has suggested higher interest rate differentials of between 2% and 2.25%. The additional 1.25 percentage points are considered reasonable and is comparable to what long-term investments in the market would yield above the savings deposit rate. At present, the normal CPF interest rate is 2.5%, and the additional 1.25 percentage points are 50% of the current normal interest rate. Dr John Chen has asked when the Government will announce details of the CPF Minimum Sum Scheme and when will the new scheme take effect. I understand that the Minister for Labour will be announcing details of the revised scheme later this week. In his announcement, he will also address the complaint by Mr Ling How Doong that raising the Minimum Sum will mean that thousands of Singaporeans who earn $1,300 per month or less will not be able to draw out any money at all when they reach the age of 55. Dr John Chen has also suggested that the Government do a Top-Up Scheme for the Minimum Sum to achieve the Minimum Sum amount. This is an interesting proposal which we will have to study very carefully. Mr Chew Heng Ching has asked if the Government will consider setting up a fund with revenue collected from COE and road tax to finance road improvement works. As far as possible, the Government's policy is not to match specific sources of revenue with expenditure.”
“In addition to the major share ownership exercise which the Government will conduct from time to time, other Government-linked companies will continue to be floated on the stock exchange. The SOTUS or Topping-Up Scheme The main objective behind the CPF SOTUS scheme is to encourage Singaporeans to save so that they will be able to participate in the next major share ownership scheme, just as they have done in the last SOTUS exercise. We are aware that not all adult Singapore citizens participated in the last SOTUS. For the coming SOTUS exercise, we have therefore made it easier for them to qualify for the $300 top-up by extending the qualifying period to 18 months. The $750 co-payment needed for citizen CPF members to receive the full $300 top-up amount corresponds to a CPF contribution of about $42 per month over a 18-month period or a salary of about $105 per month. Almost all working class Singaporeans should be able to enjoy a full top-up. Mr Low Thia Khiang has complained that the Government requires a matching contribution for giving the top-up. This is in line with our basic economic philosophy of staying clear from welfarism. Government's approach in the asset enhancement programme is to assist Singaporeans who are able to save to build up their assets. It is based on this fundamental principle that we require co-payment from citizen CPF members. The CPF Minimum Sum Scheme was introduced in 1987 to help employees to set aside a sum of money for their basic needs after the age of 60. It provides a monthly income and acts as a safeguard against their CPF savings running out prematurely. To ensure that the CPF Minimum Sum will be sufficient to meet the needs of old age, the Government has decided to increase the sum gradually from $34,600 to $80,000.”
“Contributing at this rate, CPF members should have adequate savings to support a retirement income of between 20% and 40% of their last take-home pay and have enough Medisave to meet their medical needs after paying for a home commensurate with their income level. The 40% rate of contribution is therefore considered adequate. The Government has no intention of raising the contribution rate beyond 40%. Mr Chin Harn Tong has expressed concern that the privatisation of Government entities might only benefit the Government. He fears that privatised companies will only be profit-motivated and be driven to raise prices and lower performance. His concerns are misplaced. Privatisation should have the opposite effect. It exposes companies to competition and should lead to greater sensitivity for customer needs. Some Members have asked for an update on the Government's privatisation programme. Singapore Telecom was successfully floated in November last year. The public offering of ST shares was by far the largest flotation in Singapore's corporate history. The Government expects to privatise other major Government-owned companies or entities from time to time. The next major exercise would be about two years from now. In order to help Singaporeans build up enough CPF savings for the next exercise, I have announced that the Government will implement a second SOTUS scheme to top up CPF accounts of Singapore citizens aged 21 and above. The Government will pay $300 into the account of a CPF member when he or his employer contributes at least $750 during the 18-month period from 1st March 1994 to 31st August 1995.”
“What the policy does is to try and balance the increases in one area against reductions elsewhere so as to achieve overall zero growth. In this connection, manpower increases have been allowed for functions like the senior managers of community centres which have little scope for automation. A total of nine senior manager and senior Community Development Officer posts have thus been added since fiscal year 1990. Mr Ling How Doong and Mrs Yu-Foo Yee Shoon have asked several questions relating to the Government's revised civil service salary and medical benefits scheme. As they touch on matters of detail, I will respond to them during the Committee of Supply discussions on the estimates of the Ministry of Finance. Dr Vasoo has urged the Government to review the Singapore Allowance for pensioners in the light of the increase in the cost of living. The Government has already increased the Singapore Allowance with effect from 1st April 1993. The specified pension limit was also raised by $50 per month to $900 per month from the same date, so that a larger number of pensioners would benefit from it. The changes cost the Government $3.8 million per annum and benefit 10,600 pensioners. Long-term CPF contribution rates Mr Zulkifli Mohammed has asked whether the CPF contribution rate will be restored to 50% in the long term. In 1987, after a thorough study of the old age and housing and medical needs of our workers, the Government decided that the long-term CPF contribution rate should be 40% (20% each from the employer and the employee).”
“Last year, I gave commercial/industrial properties a one-off 25% rebate on property tax. However, the feedback I have received is that most private sector owners did not share the rebate with their tenants. I have, therefore, decided to reduce the property tax rate over a number of years to lower the cost of doing business in Singapore. The certainty of tax cuts should give tenants greater scope to negotiate better rental rates with their landlords, and thus benefit directly from the cuts. Some Members have also commented that the property tax rate cut does not reduce business cost because it is negated by rising annual values. I would like to point out that the annual value of a property is the estimated annual rental the property can fetch if it is rented out. This is determined by market forces. Just as annual values are reassessed upwards when the property market is buoyant, they are adjusted downwards when rentals fall. Market rentals for commercial and industrial properties have softened in the last year and they are expected to stabilise this year. Annual values should come down correspondingly. This, together with the cut in property tax from 16% to 15% and ultimately to 12% over the next few years, should help reduce the property tax burden of businesses. Zero growth in manpower policy Mrs Yu-Foo Yee Shoon has asked the Government not to impose the zero growth on manpower policy in specific areas such as community development. The Government is flexible in implementing the zero growth in manpower policy. It does not mean that no manpower increases are allowed. Indeed, increases are allowed where there is good justification for additional positions.”
“Concerns have also been expressed about the effect of the 1.5 percentage points rise in the employer's CPF contribution rate and the increase in income ceiling for the SDF levy on business cost. Employers should remember that employees accepted a 15 percentage points slash in the CPF contribution rate in 1986, as many Members have pointed out. Employees have therefore waited eight years for the rate to be restored to 20%. As for the SDF levy, it is used for the training of workers. Raising the qualifying salary to $1,000 from $750 is estimated to raise an additional $15 million a year. This is not a large sum and employers will benefit directly from the productivity gains of better trained workers. Last year's economic growth at 9.9% was exceptionally buoyant. The unit labour cost consisting of wages, employers' CPF contributions, staff benefits, foreign workers' levy and SDF levy fell by 0.5%. The unit business cost in the manufacturing sector also fell by 1.2%. In addition, this year's growth estimate of 6% to 8% exceeds the medium-term target of 4% to 6%. Most employers should, therefore, be able to absorb the CPF cost increase relatively well. Moreover, the CPF increase should be factored into wage negotiations. Mr Leong Horn Kee has commented that the CPF and SDF increases will raise labour cost by 2%. The Department of Statistics has, however, estimated that the unit labour cost for the manufacturing sector would only increase by 1%. At this juncture, I wish to reassure employers that the Government will always do what is necessary to ensure that the business environment in Singapore remains competitive. I have given a commitment to reduce the property tax rate from 16% to 12% over the next few years, with a cut of 1% effective 1st July this year.”
“Mr Leong Horn Kee has also suggested allowing CPF funds to be used for overseas investments. In order to safeguard CPF members' savings, we have not allowed them to invest their savings abroad. Even with the recent liberalisation of CPF investment schemes, members are not allowed to invest their CPF savings abroad. They are only allowed to invest their CPF savings locally. The objective of the CPF investment schemes is to help Singaporeans take a stake in Singapore. Allowing CPF for direct overseas investments will not achieve this purpose. Another consideration is the risks involved. Because of the distance, individual CPF members might not be able to monitor the overseas markets closely. Besides, different markets behave differently and are governed by different laws. There are also foreign exchange risks involved. I believe we should continue to allow CPF to be used for investment in Singapore companies only. By allowing members to invest in Singapore companies which are investing abroad, we are indirectly allowing them to play a part in Singapore's regionalisation and to derive benefits from the extension of our economy outside Singapore. At this point, I would like to merely say that in the Government's regionalisation drive, the intention is not to induce every Singapore company to open up overseas, whatever their financial, commercial or technical capacity. Only companies well placed in terms of finances, technical know-how, business connections, with surplus funds, should undertake these relatively risky businesses. For the rest, unless they have nowhere to place their funds, other than in the stock market, it is probably more prudent for them to remain in Singapore for the time being until overseas markets mature.”
“If it is true that GLCs are too bureaucratic in their decision-making process and take too long to evaluate projects, their regionalisation efforts will not succeed and their bottom-lines will be affected. Nevertheless, the Government's preference in our regionalisation effort is for the private sector to take the lead. To help local enterprises regionalise, the Government has implemented the Local Industries Upgrading Programme whereby Government agencies like the PSA can help upgrade their capabilities. GLCs will also partner private companies where it is in their mutual interest to do so. Dr Ow and several other Members have also commented that some companies are unhappy about Singapore banks requiring local collateral for overseas ventures. Entrepreneurs were asking whether this is a regulatory requirement imposed by the MAS. I would like to point out that there are no legal restrictions on our banks providing loans for the purpose of investing overseas. These are commercial decisions to be made entirely by the banks. As banks accept deposits from the public, they are fiduciaries of public funds. They, therefore, have a responsibility to their depositors and shareholders to extend credit facilities in a prudent manner by ensuring that the borrowers are creditworthy and adequate collateral is provided, if necessary. Banks may require the borrower to provide assets in Singapore as collateral, particularly if the borrower is not able to provide adequate collateral overseas or if the laws in the foreign country concerned do not allow legal mortgages to be given. Such collateral may also be needed in countries where the legal system is not well established and does not provide adequate protection of the rights of the mortgagee company.”
“Mr Lau Ping Sum has suggested that we bring forward the implementation date of the CPF-related personal income tax change to the Year of Assessment 1994. I think this is not necessary. Individuals and companies can only act upon the tax change after it has been announced, that is, from 1994 onwards. The Member should note that the Year of Assessment 1995 refers to income earned in the year of 1994. Dr Ow Chin Hock has commented that factor income from abroad declined between 1992 and 1993. I must point out that it was net factor income and not factor income from abroad, which declined between 1992 and 1993. The decline was due to lower foreign nominal interest rates which dampened public sector investment income from abroad. Dr Ow has also offered an interesting view that GLCs might be more a hindrance to projects in our efforts to regionalise. This differs from the other view that GLCs are better suited to undertake large-scale infrastructure type projects that require substantial investments, expertise and resources which reside in GLCs. The fact is that GLCs are private companies run on a purely commercial basis. The Government does not interfere with their day-to-day operations. Neither does the Government favour them in projects vis-a-vis the other private sector companies. Like such companies, GLCs are responsible for their own investment decisions. They have to compete with the rest of the private sector for business. They have to seek out opportunities and seize them quickly before it is too late. Many of the GLCs are listed on the Stock Exchange of Singapore and are thus accountable to shareholders for their performance.”
“The Committee on Profiteering and Inflation has been set up under the Ministry of Trade and Industry to monitor price increases on the back of GST. The Minister for Trade and Industry will elaborate on the projected inflation rate and the measures his Ministry has taken to prevent profiteering during the Committee of Supply proceedings. It is important to note that while we may guess that many prices are being increased, the overall figure to look at is the monthly CPI changes because that gives you an assessment of what is the true cost of prices of baskets of goods which affect the people. So whilst we will look at individual items of costs, we should also closely watch the CPI movement. On the issue of tax incentives, I have already put in place a comprehensive package of tax incentives for various sectors. From now on, I will concentrate on fine-tuning the existing incentives to make them more attractive instead of introducing new ones. As for tax incentives to promote regionalisation, I announced seven of these for companies in last year's budget. It is much too soon to add any new ones. I intend to allow the existing incentives to work through first. However, I have introduced two personal income tax changes to complement those for companies. One will help lower the tax burden for Singaporeans working overseas who opt for non-resident tax status. The other will help reduce the tax burden of those who declare residential status. The objective of both changes is to encourage more Singaporeans to accept overseas postings from their employers. This will in turn facilitate Singapore companies and entrepreneurs to venture abroad.”
“For this reason, we have exempted businesses with annual turnover below $1 million. Only bigger businesses with proper accounting systems will have to collect the tax. Businesses should also note that expenses incurred in the implementation of GST are deductible for income tax purposes. Nevertheless, the anxiety expressed by businessmen is understandable. GST is a new tax. The actual compliance costs are not known. IRAS will therefore undertake a study on the compliance costs of businesses one year after the implementation of GST. Should it be necessary, we will take further appropriate measures to minimise the costs. Dr Ow Chin Hock has suggested that in view of the implementation of GST, the Government should impose a two-year moratorium on Government and statutory board fees and charges. This is not wise. Fee increases are necessary when manpower, material or operating costs have risen significantly. The Government's policy is to recover unavoidable manpower and material-related costs through gradual and periodic fee increases in order to minimise their impact on inflation. Delaying such increases would only result in larger and more painful adjustments later on. I should also point out that the introduction of GST does not mean that there should be no price increases whatsoever for whatever reason. In the normal course of business, material and wage cost changes can lead to legitimate price increases. What is not acceptable, however, is for unscrupulous businessmen to use GST as an excuse to raise prices and profiteer at the expense of the public, and then to blame the Government for it. Where this can be demonstrated, I can assure the House that severe sanctions will be considered.”
“We launched our consumer education programme earlier this month. Consumers are being made aware of GST through TV and press advertisements, cartoons in the press, radio programmes, advertisements in the MRT and bus backs and videos in schools and public libraries. We will intensify the programme closer to the GST implementation date. This is to make consumers understand the rationale of GST and assure them that they will be better off. Cost of implementing GST I am surprised that so many businessmen expected a corporate tax rate cut to be announced in the budget to help them offset the start-up and operating costs of GST implementation. They have obviously forgotten about the three percentage points reduction, as Members have pointed out, which was announced in last year's budget. My intention then was to give businesses the tax savings ahead of the GST implementation date in order to help them offset the initial cost of implementing GST. On hindsight, as someone has suggested, perhaps we should have kept the tax cut allowance until this year. Doing so would have made it easier for businesses to see the connection between the reduction of the corporate tax and GST. As for the on-going expenses incurred by businesses in collecting GST, experiences elsewhere, especially in the United Kingdom and New Zealand, have shown that compliance costs are low. They range from a fraction of a percent for companies with turnover of $10 million and above to only 0.2% for companies with turnover between $1 million and $2 million. In Singapore, we expect the cost of compliance to be low because our GST system is a simple one without complex exemptions and zero-ratings. However, we recognise that compliance costs will fall more heavily on small businesses.”
“In any case, if a strict means test is needed to control such a scheme, it in fact reduces this negative income tax proposal to our existing social welfare scheme, or to our CCC Fund Scheme, to help the lower income group cope with GST. Mr Cheo has argued that some countries which have introduced GST have not become competitive. I find that this is a very naive statement. These countries are not competitive not because of the introduction of GST but because they have extensive welfare systems which led to extremely high business cost and therefore they are not competitive. It has nothing whatsoever to do with GST. Mr Chiam See Tong also said that more than 75% of our taxpayers are no longer in the tax net, that they will not be able to benefit from the tax cut. Mr Chiam should remember that with economic growth, these taxpayers will, in the course of time, graduate into higher income groups that allow them to enjoy income tax savings. I hope that he does not believe that no one's income will rise permanently. Public education for GST We have embarked on an intensive on-going taxpayer education programme. To-date, the IRAS has conducted nearly 300 seminars involving 44,000 participants and held 380 dialogues with various trade associations. It has also visited 3,670 traders at their own premises. In addition, it has handled 40,000 enquiries through the telephone helpline. The assistance given has helped business understand and prepare for GST. IRAS has also reviewed its procedures based on feedback received. This is to make it easier for businesses to comply with the procedures for the collection and accounting of the tax. For businesses with specific difficulties, IRAS will continue to work with them to overcome these difficulties.”
“The Government fully intends to implement the GST in a revenue neutral manner. In fact, in fiscal year 1994, the tax offsets granted add up to some $1,200 million compared to an estimated GST collection of $960 million. While I am on the subject of GST-related offsets, I would like Members to note especially that the income tax changes take effect from the Year of Assessment 1994. This means that individuals and companies are already enjoying lower income taxes on income earned in 1993, even though GST will only be implemented from 1st April 1994. As I have said, the GST-related tax and non-tax offsets will ensure that Singaporeans are no worse off after the introduction of GST. The majority will in fact be better off. Nevertheless, for this year, I have decided on some extra measures to further benefit the lower income groups. They are the additional S&C and rental rebates for one- and two-room flat dwellers and S&C rebates for three- to five-room HDB residents. These extra measures are possible because the Singapore economy is flourishing and the Government's revenue position is strong. Despite the offsets, some still believe that they will be worse off after the introduction of GST. Let me reassure the House that this should not be the case. When GST is in place and the individuals know their actual tax and non-tax offsets, they can do their own sums. Every taxpayer will be told how much tax is saved as a result of the GST-related income tax changes. The tax savings will be shown in all Notices of Assessment this year. Mr Heng Chiang Meng has suggested that we should consider a negative income tax. I have said before, and I say it again, I am not in favour of such a scheme. It is but a first step towards a welfare state.”
“Mr Speaker, Sir, I would like to thank all Members of the House who have spoken on the Budget over the past two days. Criticisms there have been, but they have been all very mild, even from Members of the Opposition for which I am grateful. So I must be improving. Time will not permit me to address the Members' concerns point by point and I will therefore focus on major issues and leave matters of detail to be dealt with during the Committee of Supply. This year, I am building on the tenets which I introduced in my previous budget. One is the reform of our tax system through the introduction of a broad-based Goods and Services Tax (GST) and, two, the strengthening of our external economy. These moves are vital to our long term economic growth and development. I will now address the specific major concerns. Rationale for GST For a start, the Government's rationale for introducing GST is worth restating. GST will give the Government greater scope to lower income taxes. In other words, the Government would take a smaller share of every dollar earned by companies and individuals in the form of direct tax. This strengthens the linkage between work and reward and will encourage greater effort, enterprise, investments and savings. The aim is to achieve a better balance between income tax, which is a tax on the factors of production, and GST, which is a tax on consumption. GST is definitely not introduced to raise additional revenues. The restructuring of the tax system is not an exercise by a profit-driven Government to enrich its coffers at the expense of the people, as many wrongly believe. This was why I announced the reduction of corporate and personal income taxes as well as non-tax rebates to offset the revenues collected through the GST system.”
“The share education programme was to help Singaporeans make informed decisions about whether to invest in shares, taking into consideration their family circumstances and financial resources. They must learn that share prices can go up and down, and choose carefully which companies to invest in. They should take a long term view, and not enter the stock market for quick gains. Most importantly, they should avoid buying more shares than they can afford, or borrow to speculate. Investors must recognise that the higher potential return from stocks and shares reflects the greater risks involved, and should therefore be prepared to risk losses when markets turn down or companies get into difficulties. However, investors who buy good quality shares in markets with strong fundamentals should be able to ride through market fluctuations, provided they have not bought beyond their means with borrowed money. UNUSED/EXCESS MOTOR CYCLE CERTIFICATES OF ENTITLEMENT (Allotment to other categories of vehicles) 4. Mr Chia Shi Teck asked the Minister for Communications whether he has decided on how the unused/excess motor cycle Certificates of Entitlement are to be allotted to the other categories; and if he will allot a good proportion of these COEs to goods vehicles and buses.”
“I think this must be the case. SHARE INVESTMENT (Education and publicity) 3. Mr Chia Shi Teck asked the Minister for Finance, now that the Government has succeeded in getting over 1.4 million people interested in shares, whether it will spend money to further educate the population on proper share investment as against share speculation through a sustained publicity blitz. Dr Richard Hu Tsu Tau: Mr Speaker, Sir, as part of Government's programme to promote widespread ownership of valuable national assets, Government ran a month-long share education programme just before the flotation of Singapore Telecom. The programme was aimed at educating Singaporeans on the essentials of share ownership. Its key message was that while shares would broaden an individual's range of assets and could be valuable long-term investments, there were risks involved and prudence should be exercised in selecting the companies to invest in. The programme was successful in encouraging more Singaporeans to own shares. Before the ST flotation, only 250,000 out of 1.9 million adult Singaporeans had ever bought any shares. Of the 700,000 CPF members who qualified for the CPF Approved Investment Scheme, only 120,000 had actually bought shares under the Scheme. For the ST flotation, 1.4 million Singaporeans subscribed for and were allocated shares in the company. In view of the coverage and success of the programme, there is no need for Government to launch another programme on share investment in the immediate future. If there is a need to, it can be done again when other Government agencies are subsequently privatised. Let me stress again that Government is not compelling or inducing anyone to buy shares.”
“The answer is yes. ICS itself is 49.8% owned by DBS Bank and not by the Government directly.”
“As at 11th September 1991, the date of suspension, 2,120 CPF members used their CPF savings to purchase a total of 5.423 million RMCA Reinsurance shares. The shares were traded at 90 cents per share just before its suspension. After the suspension of RMCA Reinsurance shares from trading on 11th September 1991, the company ceased writing new business and conducted a review of its operations. The company concluded that it has no reasonable prospect of returning to profitability. On 1st October 1991, it appointed a run-off manager, RMCA Pte Ltd, to oversee an orderly run-off of the company's reinsurance liabilities. Subsequently, the company engaged insolvency expert Messrs Cork Gully of Coopers & Lybrand to independently assess the company's position and find ways to resolve its financial predicament. On 20th September 1993, upon the advice of Messrs Cork Gully, the company's board proposed to its shareholders a Scheme of Arrangement under section 210 of the Companies Act. The Scheme sought to avert an involuntary liquidation of the company and provide an early commutation of all claims against the company. Although RMCA Reinsurance would have no assets left after the Scheme is implemented, it will preserve the company as a corporate entity with a listing status. The Scheme was approved by the shareholders at an Extraordinary General Meeting on 6th October 1993. It has also been approved by the company's creditors and is now subject to the approval of the court. Although RMCA Reinsurance is not to be wound up, it will have no assets left after the Scheme is implemented. Its shareholders will not receive any distribution. Thus, their RMCA Reinsurance shares are likely to be worthless.”
“RMCA Reinsurance was admitted to the Stock Exchange Main Board in 1988 and became a CPF trustee stock in the same year. At that time, the company had a paid-up capital of $20 million and a three-year profit record which met the SES listing requirements fully. On 11th September 1991, RMCA Reinsurance requested the Stock Exchange to suspend its shares from trading pending the announcement of its results for the financial year which ended on 30th June 1991. The company had incurred a loss of $56 million in that year due to heavy claims for damages caused by natural disasters, including the Hurricane Hugo in the United States and Storm Daria in Europe and losses in its Asian reinsurance business. Insurance companies worldwide suffered losses on their reinsurance contracts as a result of the unusual severity and frequency of natural disasters in recent years. The $56 million loss reduced RMCA Reinsurance's equity to $9.6 million which was far short of the US$25 million considered adequate in the international reinsurance market. As RMCA Reinsurance was liable for claims on various reinsurance contracts still in force, the $9.6 million equity was insufficient to cover the potential claims. The company therefore requested the Stock Exchange to continue the suspension of trading of its shares while it re-assessed its future direction. Since then, the company has stopped writing new businesses and the suspension of its shares has remained till today. The company lost another $82 million in FY 92 and $10 million in FY 93. RMCA Reinsurance is 30% owned by the Insurance Corporation of Singapore (ICS) and 20% by Sime Darby Singapore Ltd. The remaining 50% of the shares are held by the public.”
“Dr Kanwaljit Soin asked the Minister for Health if he will explain the decreased attendance at family planning clinics of new and existing acceptors of family planning; and whether he will give an economic profile of the acceptors. BG George Yong-Boon Yeo: Attendances at Government family planning clinics have dropped because with rising incomes, more women are obtaining their contraceptive supplies from the private sector. Secondly, over the years the condom has become the most popular method of contraception. As it is easily available in many retail outlets, couples do not need to obtain their supplies from family planning clinics. Although attendances at Government family planning clinics have dropped, the contraceptive practice rate in Singapore has remained more or less constant at 65% in 1992 as compared to 67% in 1987. As to the economic profile of acceptors at government family planning clinics, 11% have a combined family income of under $800, 43% between $800 and $1,500 and 46% above $1,500. CERTIFICATES OF ENTITLEMENT FROM THE OPEN CATEGORY 5. Dr Kanwaljit Soin asked the Minister for Communications whether the open catgory of Certificates of Entitlement will set the trend towards bigger cars which cause more pollution, and if he will scrap this category.”
“It is recognised that the three percentage point difference between the prospective top marginal rate of personal income tax of 30% and the company tax rate of 27% could provide an incentive for high income persons to incorporate. But in practice, only very few high income individuals could benefit from incorporation. Under our personal tax regime, the effective tax rate will only rise to 27% for individuals at a chargeable income of $823,333, after taking into account the $700 GST rebate. Furthermore, the costs of incorporation have to be considered, together with the need to meet regulatory requirements under the Companies Act. I can assure the Member that the Inland Revenue Authority of Singapore keeps all tax planning devices under constant review and will take steps to close the loophole should it prove necessary. INCREASE IN FUNDS FOR MINISTRY OF HEALTH 3. Dr Kanwaljit Soin asked the Minister for Health whether there has been an increase in funds to his Ministry resulting from its taking over from the Ministry of Community Development the responsibility for nursing homes, day care centres for the elderly sick, care for the terminally ill, etc. BG George Yong-Boon Yeo: Yes, the budget of the Ministry of Health (MOH) has been increased following its taking over of responsibility for nursing homes and day care centres for the elderly sick from the Ministry of Community Development (MCD). In FY93, a sum of $5.1 million was added to MOH's recurrent budget for the nursing homes and day care centres taken over from MCD. Another sum of $18.4 million was provided for the development of new homes and day care centres, including a centre for the care of terminally ill patients. FAMILY PLANNING 4.”
“We, in Singapore, can prosper and grow together with our neighbours and trading partners, if we remain competitive and productive. This, I am confident, we can achieve if we continue to prize diligence, effort and enterprise above luck and quick gains. Mr Speaker, Sir, I beg to move. [Applause].”
“Details are set forth in Appendix 3 (Cols. 447 - 451). Appendix 3 (Cols. 447 - 451) Duties on Motor Vehicles As announced in my 1993 Budget Statement, import duties on motor vehicles will be reduced to nullify the effects of GST. Hence with effect from 1st April 1994, import duties on cars, taxis and motor cycles will be 41%, 17% and 12% respectively. To meet GATT requirements, import duties on motor vehicles will be revised and replaced by excise duties with effect from 1st July 1994. Duties on Petrol Excise duties on petrol will also be reduced to nullify the effects of GST. Duties on leaded premium, intermediate and regular grades petrol will be reduced to the higher of 46% of pump price plus 7.8 cents or 71 cents, 68 cents, and 63 cents per litre respectively. Duties on unleaded premium, intermediate and regular grades petrol will be reduced to the higher of 46% of pump price or 57 cents, 54 cents and 49 cents per litre respectively. Duties on kerosene, lubricating oil, liquified petroleum gas and aviation spirit will be suspended. The revised duty rates for petrol will come into effect on 1st April 1994. Details of the duty changes are in Appendix 4 (Cols. 453 - 456). With these changes, the total tax collected per litre of petrol, inclusive of GST will remain unchanged from 1st April 1994. Appendix 4 (Cols. 453 - 456) CONCLUSION Mr. Speaker, Sir, after three years of slow growth, the world economy is expected to perform better in 1994. The signs are optimistic. The US economic expansion will remain strong. After last year's dismal performance, this year's outlook in Western Europe is comparatively brighter. Japan is also expected to improve this year. Again, the expanding economies of Asia will lead the pack.”