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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“Encik Ibrahim Othman asked the Minister for Health whether there are any plans to provide medical services for people living in the northern and eastern parts of Singapore; and, if so, when are they expected to be implemented.”
“Mr Speaker, Sir, the SDF operates three main grant schemes for promoting training, mechanization and development consultancy. Todate more than 7,400 companies have responded. Under the Training Grant Scheme, 3,975 or 61% out of the total of 6,538 successful companies are local. As for the Interest Grant for Mechanization Scheme, 717 or 65% out of the total of 1,103 successful applications are from local companies. The Development Consultancy Scheme is restricted to local companies. It has supported 135 companies with grants for the engagement of external consultants to upgrade their business operations. Under the Training Grant Scheme, the SDF had made grant commitments to support the training of a total of 311,806 trainees. SDF has been actively looking for training opportunities for general workers. Its latest project is the Core Skills for Effectivenss and Change (COSEC) programme which will give workers permanent ownership of a set of five core skills that will prepare them for occupational competence and the capacity to adapt to change. COSEC is likely to have an impact on some 300,000 services, sales and clerical workers who would typically earn less than $800 per month. SDF has been working closely with the VITB in funding all of VITB's continuing education and training programmes. VITB's apprenticeship schemes, joint industrial/VITB courses and the Modular Skills Training scheme have all be granted approval-in-principle support by the SDF. These courses help workers upgrade their educational and technical skills. MEDICAL SERVICES IN NORTHERN AND EASTERN PARTS OF SINGAPORE (Provision) 14.”
“The properties and stocks are held by the GSIC, which exclude the reserves we are talking about here. SKILLS DEVELOPMENT (Particulars) 13. Mr Yeo Toon Chia asked the Minister for Finance (a) how many local companies have applied for and been granted funds from the Skills Development Fund; (b) what is the total number of employees who have benefitted from the Fund; (c) whether there are any training programmes being designed to benefit general workers; and (d) whether any plans are being worked out with the Vocational and Industrial Training Board to provide courses suitable for workers to upgrade their educational and technical skills to help them increase productivity.”
“By the nature of the reserves which are held by the Board of Currency Commissioners and by the MAS, they are entirely abroad.”
“Mr Speaker, Sir, we have absolutely nothing to hide. I can assure the Member for Anson that, in fact the returns on our assets are more than adequate and up to international standards. I am merely refusing to say anything because I want him to come out and say exactly what he means. Mr Jeyaretnam: Why do you not disclose them?”
“There are no reasons that I need give you. If there are any aspersions you want to cast, I would like to hear them before I answer you.”
“I understand the implication of what the Member for Anson says. This is his common practice. If he has any implication, I suggest he says it out loud.”
“Mr Speaker, Sir, Singapore's official foreign reserves on 31st December 1985, was S$27,080.1 million. The reserves are invested in a diversified mix of asset classes, countries and currencies. The main assets would include gold, cash, Treasury bills and Government bonds. The distribution changes from time to time, depending on the expected yields of the various investment instruments. It is not Government's policy to disclose the returns earned on the investments of our national reserves. Most countries have the same policy of not disclosing the returns on their reserves.”
“I have said in the Budget statement that we will review this and try to introduce measures which are likely to attract more companies to develop this area as expeditiously as possible. I do not think I want to spend any more time going into the details and I will leave other questions to be dealt with in the Committee of Supply next week. Question put, "That Parliament approves the financial policy of the Government for the financial year 1st April, 1986 to 31st March, 1987."”
“The Member for Radin Mas was concerned about the slow pace in which revisions of annual values of property were implemented. This is a technical hitch which we recognized. Also statistics figures do not always tell the true picture. The index of owner-occupied accommodation used by the Department of Statistics is based on imputed or notional market rentals. Therefore the Chief Statistician has to use annual values extracted from the valuation lists. It is recognized that this creates problems and we will examine what can be done. The Member for Jalan Kayu had the advantage on me because he used to work for the MAS. So he could quote figures which I could not challenge. However, I accept the criticism that Government's present accounts are somewhat confusing. I was initially confused too. But it is no fault of the Government because these are standard accounting procedures used by governments all round the world, including the United States. Of course, this does not mean that they are good but they are conventional. Government accounts are on what is called a cash basis and it is extremely difficult to consolidate these with the accounts of the statutory boards who often account on an accrual and on a calendar year basis, while Government's are on a fiscal year basis. One is trying to look at two sets of figures where one is on an accrual, calendar year basis, whereas Government accounts are on a cash and fiscal year basis. It is almost impossible. But we will do our best to make future presentations of the Budget more comprehensible to the likes of you and me. I agree that the financial incentives for the financial service sector are probably inadequate at the moment.”
“Again the Member for Rochore - he seems to be popular - has said that the proposed R&D scheme might not work. I would like to assure him that this is unlikely to happen because it will be administered by the EDB and not by CIR, on a case-by-case basis. And I think the EDB will ensure that the funds would be spent correctly. The Member for Chong Boon has said that we should allow foreign stockbroking companies to take equity in local firms. This subject is currently under review by the Stock Exchange of Singapore and the MAS. And there is a possibility that foreign companies will be allowed up to 49% equity in local stockbroking firms. Exceptions might even be considered for this limit to be raised as we cannot insulate ourselves from developments in the external world and rapid changes in this area are taking place in London, New York and Japan. The Member for Buona Vista asked whether estate duty should be abolished. We do not think it is necessary at this time because the remaining death duty is not onerous. It is, in fact, the only form of wealth tax we still have in Singapore. And the exemptions are quite generous.”
“And indeed he has done so. I think it is grossly unfair of him to make it appear as if Government's proposed tax changes are regressive in the way he expresses it, because statistically it is inevitable. One might even argue that a person who does not pay tax now should have best grounds for griping because he gets no benefit whatsoever. So it is an absurd notion and the proper way to look at it would be as suggested by the Member for Clementi who has expressed his views quite clearly. We have tried to structure the tax changes so that there is fair and equal treatment. I would like to mention a few statistics to show you how the burden of tax is distributed. We have at the moment about 1,180,000 assessable employed people in Singapore. Only 730,000 persons actually pay tax, so that at the present time 450,000 or 38% of employed persons in Singapore pay no taxes whatsoever. 77% of the total personal taxes paid in Singapore last year were by taxpayers earning $25,000 or more in assessable income per year. This accounts for 12% of the taxpayer population. So you can see that a relatively small component of our tax paying population already pays a very high percentage of total taxes. I do not think we can afford to increase this unduly without forcing emigration. The Member for Rochore again was critical of the STPB's investment in Raffles City. I would like to clarify that it was not done for investment purposes because its interest was very small, about 1r%. Its intention was to encourage and stimulate tourism because Raffles City Complex will be one of the largest hotel complexes and convention centres in this Region. And STPB wanted to show its earnestness by taking a token amount of equity. It was not for investment purposes at all.”
“Well, I might consider giving you a seminar to discuss the details. My apologies, Sir. I am running out of time. So I will sum up the purpose of the 1986 Budget before going on to discuss some individual issues raised by Members. To sum up, I would say that the 1986 Budget was essentially designed to allow us to create jobs for the future. Our main objective is to lower business pre-tax costs by cutting all levies and taxes to tolerable levels. Corporate taxes were also reduced in order to improve the returns on investment for investors. Personal taxes were lowered to stimulate private investment and consumption. And Government recurrent costs are going to be curbed whilst development expenditure is going to be increased in areas where we need them and where they would give us productive returns in the future. I will touch now on a few of the other issues raised by Members. I may not be able to cover many and I will not take them in the order in which they are raised. I think the Member for Henderson asked whether it is Government's intention to restructure the tax system and hoped that there would be tax incentives to encourage children to look after parents. For the present, there is no intention to do this because Government believes that filial piety should be a responsibility for all and should not carry a price tag. Therefore, I do not think we should give an additional tax rebate as an incentive for children to look after their parents. I would hope that my own children would do so without tax incentive. I had not wanted to do this because I have a great deal of respect for the senior Member for Rochore. However, I feel I cannot let him off the hook. As a scientist of some renown, he should know that statistics can be twisted to prove almost anything.”
“We have accumulated over several years money earned by our workers. And now it is treated as something which is completely wrong. I think it is very, very short-sighted thinking - that Government was wrong to have allowed this money to be accumulated by letting wages rise. It is not possible for any Government to make an absolute judgment on the level of wages which is suitable for a country at any particular time. It has to test the upper limits and indeed it did so. But, unfortunately, the transition of our economy from one of conventional old industries to new ones was not fast enough to support the increased wage levels, leading us now to a situation where we have to back track for a couple of years. And I see absolutely nothing wrong with that. If we had not done this we would have been accused of withholding wage increases, despite high GDP growths, which is I think far worse. Sir, what I am suggesting is that this policy was absolutely correct at the time it was introduced but we could not forcast closely enough the developments in external markets. But that is by the nature of things in this real world. That is in answer to one of those so-called criticisms.”
“Precisely, what is wrong with that? You want us to stay in low tech, is it? I am sorry, Speaker. It is not you. No, it was precisely for this reason because the Government recognized we could not sustain ourselves, keep ourselves in the position of employing a lot of people, we needed to upgrade, to push wages up to allow, firstly, our workers to enjoy the benefits of their labours. And they have had five years of this which has gone into CPF because simultaneously, Government also increased the CPF retention rate. None of this has been kept by Government. It is in fact in the coffers of our workers. Now it is treated as though it is a disease.”
“Therefore, it embarked on a high wage policy for about two or three years, although in fact the momentum of the wage increases carried through for four or five years, leading in fact to it to be blamed now for introducing a high wage policy which was designed to give the money back to the workers.”
“Finally, concern has been expressed as to why we have not allowed the employee's portion of CPF to be cut in order to return money to the people to help pay for their needs and as a stimulus to the domestic economy. We have decided not to do this because we do not think the time is yet appropriate. The severity of job losses and unemployment has not reached the stage where such a step is necessary. It is there for it to be tapped. I think the Prime Minister in earlier speeches has said that in the face of a really severe sustained recession these funds will be available, and indeed they will. But we do not think the moment is right. As far as the stimulus to the domestic economy is concerned, we think the better way is to provide a rebate on taxes because this is earned income belonging to the taxpayer and he ought to receive it, if we wish to stimulate the economy. Hopefully, those with larger earned income will return some of these rebates to the economy through investment and through job creation. I was going to make some disparaging remarks about the Opposition but I think I will avoid that. But I would say this. The Member for Anson has said all sorts of nasty things about the Budget but I will pick up one. He has said that it has done nothing for the unemployed, for the worker, and that the Government therefore has got no feeling, no heart. I would ask him to cast his mind back to 1979 at the time where after sustained periods of economic growth, the Government felt it had to return some of these GDP increases back to the worker through enhanced wage increases.”
“Their purpose in life is not to make profits unnecessarily but to provide the best possible services and to generate surpluses sufficient to finance their con- tinuing long-term development requirements. This means a profit because if they did not generate surpluses enough to finance their development requirements, I would have to tax you. Would you prefer that? This can be easily arranged! Sir, I would like to say this. We should look at the matter in perspective. We should not go round accusing statutory boards of being pirates or what have you. The next item which is connected with this is the belief that statutory boards' surpluses somehow are very large and can be used to finance Government deficits over the long term. I have a long paper on this subject but I think I will skip it but merely say that this is not true. A lot of the reported surpluses include long-term assets, ownership of shares in companies, subsidiaries which cannot be liquidated. We should be looking only at the liquid assets and if you exclude the reserves of organizations like the MAS which form part of the Government reserves and of the CPF, then the amount which is surplus to requirements other than for long term development would be probably no more than $2 billion. It is Government's intention to use part of this to finance our deficit. On a continuing basis I would hope that statutory boards will not incur surpluses above their long-term development requirements. If they should be lucky enough to be able to afford to generate more surpluses because they are selling services to external parties (like the Port of Singapore Authority or the Telecoms) they should return some of this to local consumers. That would be the policy I would advocate for the operation of statutory boards.”
“It is not something we want to introduce just to allow ourselves to be lambasted by Members of the Opposition. At this point perhaps I should digress a little to talk about profits and whether Government should or should not make profits. When I started to speak I decided to cut short my speech because the Member for Whampoa appears to have pirated most of it. However, it seems to be lasting longer than I thought. I find it incredible that grown people can believe that in a Government like we have in Singapore that Government should not make profits. Profits is a surplus of income over expenditure, no more, no less. If Government did not make profits it would have to tax because it provides services and incurs expenditure which have to be paid for. It ought to make a profit in order to pay for these services. If it does not make profits in this form, then it will have to tax. In the Singapore economy where we do not have access to oil wealth which can be turned on with a tap, every dollar we transfer to a citizen comes from a fellow citizen. We do not have a magic wand, short of printing money, which I think everyone will consider undesirable, or borrowing for that matter. Therefore, everything we ask for has to be paid for and it has to come from someone else. The Member for Whampoa has already said that we could tax the rich but with our liberal emigration policy I think the numbers that would be left behind would be quite small. One should really understand what one is talking about when one accuses the Government of making needless profits. Our statutory boards, as the Member for Whampoa has said, are very efficient.”
“When direct taxes have to be lowered as a result of competitive pressures, the loss of revenue may have to be offset by the levying of consumption taxes. There may not be an immediate need to do so as other factors need be taken into account and two of these factors have been mentioned by Members. On the expenditure side, we have recourse to the cutting of recurrent costs, which we plan to do. In the future, we will require less expenditure on development as much of our infrastructure is already in place. In the longer term I am hopeful that our development requirements will level off and start to decline. With increased economic activity, it may be possible to reduce direct taxes without necessarily introducing consumption taxes. I think you must accept that as a Government we are pragmatic enough not to do something and then stab ourselves on the back. However, to get the idea of a compensatory form of tax accepted by the people if it should prove necessary, it has been decided that we would announce it now because the mechanism for collection could be cumbersome but with the aid of electronic systems nowadays it need not be quite so laborious. But the process of implementation will be time-consuming as we must examine all options and certainly look at all safeguards. I have in the Budget statement said that the needs of the lower income group will be looked after by ensuring that essential commodities will not bear this tax wherever possible. But the idea and the need for it, I think, should be firmly implanted in the minds of our citizens. We are not doing this because we want to make more profits - I will come back to the question of Government profits later - but simply because it is necessary in order to survive.”
“The Economic Committee has recommended lowering the corporate tax to 30% in the initial stages and later to 25% and 20%. I believe the Member for Whampoa also recommends this. We on the Government side were much more conservative. We believe that at this time a 33% rate is sufficiently competitive, provided we ensure that our pre-tax costs are low. Although, in nominal terms, 33% corporate tax seems higher than taxes in Taiwan or South Korea, in fact, in the hands of the dividend holder or the ultimate recipient of profits from a company, our taxes are effectively not higher because we tax on an imputed basis. In Taiwan and in some countries in Europe, they operate a two-tier tax system where tax is paid on his investment in the company in the form of corporate tax and he also has to pay tax in the form of personal tax when he receives the dividend. So taking into account all these factors, we have decided that for the moment 33% is adequate. However, Government has said that we will review our tax position periodically and we will ensure that our taxes remain competitive. The measures we have taken to cut costs and reduce taxes are not something over which we have a monopoly. Other countries may do the same and if in doing so they render our position uncompetitive, we will have to match in order to maintain our exports, and it is in this connection that the Government has raised the possibility of introducing consumption taxes. It is against the future contingency that, in order to remain competitive in the export markets, we may have to reduce the levies of the statutory boards or direct Government taxes to ensure that foreign and domestic investors will have a decent return on capital in order to create jobs for our people.”
“Therefore, we have to remain competitive with those countries which export to the same markets as we do and, as I mentioned earlier, and with other countries potentially lurking in the background. Therefore, the rationale for ensuring that our exports are competitive is to reduce their pre-tax costs to the lowest possible extent. This means reducing manpower costs where this is possible, urging wage restraint, cutting statutory board levies and charges, and taxes which affect pre-tax operating costs, so that companies will at least have a chance to either break even or make a profit. Without that, no one is going to buy our services or goods. Even our domestic sector relies on the foreign exchange earned from export sales to finance the purchases of goods which we do not produce locally. I will give you an example of a restaurant or a hawker stall, which is a very common activity here. The bulk of the food and the energy we consume is imported. Without export services to pay for these goods, the hawker or the restaurant will be unable to buy the raw material with which to cook his char kway teow or whatever to sell to you and me, so that this service will disappear. So even our domestic services depend on our exports to earn the necessary foreign exchange to keep them going. Hence our great emphasis on ensuring that our export services are competitive. After the companies have been helped to at least break even or make money, then they must be taxed at a rate which will make them competitive in the return on investment with other countries who are also recipients of foreign investment; these are well-known, so I need not name them. We also have to ensure that our corporate taxes are competitive with countries with whom we are competing.”
“This is a modest target readily achievable through improvements in work procedures, streamlining of organization structures and greater investment in computers and other labour saving devices. Thirdly, I have advised Permanent Secretaries and Chief Executive Officers of statutory boards to approach this exercise with some degree of flexibility. The overall target remains a 10% reduction over five years. Some organizations might achieve savings exceeding the target, others might fall below the target. The timescale of the implementation for individual departments might also have to be varied depending on actual circumstances. The working group on public sector manpower will coordinate and closely monitor the implementation of the staff review and reduction exercise, and I am sure that there will be no adverse consequences. Finally, the success of this exercise will depend on teamwork. There must be close consultation and cooperation among all involved, top management staff, public sector unions and the general public. The next subject which was of great concern to Members of this House is the issue of consumption tax. In my Budget statement, I chose my words very carefully and I will repeat them. I said the time may come when it will be necessary to impose consumption taxes as a compensatory tax because of possible future needs to reduce direct taxes. Why is this so? Why have we reduced direct taxes in this Budget? The reasons have been given and set out quite clearly by the Economic Committee and I shall only outline them briefly. We are price-takers in this world in the majority of our exports, both goods and services.”
“With declining birth rates, the net annual addition to the labour force will be progressively smaller. It is therefore important that as much of our manpower pool should be channelled to meet the private sector's demands and needs and that our reliance in the longer term on foreign labour should be reduced. The public sector should therefore have to economize on manpower. I should like to stress four points. First, the 10% staff reduction target applies only to existing functions and services. Manpower requirements for new or expanded programmes and services, including expansion of the tertiary and technical education, will be considered separately. There is therefore no contradiction with the Economic Committee's call to upgrade our educational standards. Secondly, it should be possible to achieve the target without retrenchments and without any deterioration in the quality of service. The current annual attrition rate in the public sector is about 6%, and this would mean that 10% reduction can be achieved within five years provided recruitment to fill vacancies is reduced to about half the current level. Staff whose jobs are considered redundant following detailed manpower scrutinies will be offered alternative jobs. Where necessary, retraining programmes will be conducted to fit staff to available jobs. There need be no fears that the exercise will add to the unemployment problem. There should also be no deterioration in public services despite reduced manning levels. A 10% reduction over five years while maintaining current services is more or less equivalent to a 2% annual gain in productivity.”
“I will give the underlying rationale as to why we have decided to place priority in supporting the business community rather than the individual because, as the Member for Whampoa has said, without people creating the jobs, there will be no jobs. I will now move on to addressing the several areas of concern which Members have mentioned over the last two days and these are in four broad categories. First, there has been great concern expressed over the proposed cuts in Government manpower by 10% by 1990. Some Members have expressed reservations about this manpower review and reduction programme. The Member for Chong Boon has commented that the staff reduction targets are inconsistent with some of the recommendations of the Economic Committee and that tertiary and technical education institutions should increase their annual intakes and the education system upgraded. Other Members have expressed concern that the exercise will result in retrenchments, aggravate the unemployment situation and result in a deterioration in the standards of public services. I would like to assure the House that I fully understand and appreciate the concern expressed by Members. The manpower review and reduction programme should not be viewed narrowly as a cost and numbers-cutting exercise. Economizing on public sector manpower usage is necessary not only to reduce the overall tax burden but also to ensure that the productive sectors of our economy, including industries, have adequate skilled manpower for the future. The need for additional labour for industry and other parts of the private sector may not be so pressing now because of the recession, but will become much more apparent when economic growth resumes.”
“I think these facts are often either forgotten or ignored. It does illustrate that if we need to introduce measures to stimulate a recovery in our economy, the first sector we must tackle is the export industries and not through domestic stimulation, although the latter is significant. We are a small country, fortunately, with a small population, completely without resources. We need to maintain maximum flexibility to survive in this changing world when conventional industries are being phased out, and we have to move to areas of high technology - in information technology, microchip technology. The transition is going to be painful because people will lose their jobs in between and this is, in fact, unavoidable in the circumstances. Fortunately, we have adequate resources to tide us through, provided we are prepared to make the changes. We should be looking forward to the longer term solution of our problems, not address ourselves solely to the short and medium term, because what we are facing in the longer term is not just competition from the NICs, like South Korea and Taiwan, but more importantly competition from countries like China and India, with their infinite manpower resources. This means that we must train our people to be flexible and adaptable to keep one technological jump ahead of these people who are pressing from the back. I think this provides the background to our basic problems and it is the underlying philosophy in which the Economic Committee has addressed our problems and forms the basis in which this year's Budget was constructed. I will talk more about the rationale later when I sum up.”
“Many ignore completely the factual circumstances which surround us. We are caught up in a sea change in the world industrial scene. Many have accused the Government of having entered into unwise investments, all of which have gone sour nowadays, including shipyards, oil refineries, offshore oil, etc. Why did we do this? If we had not done this, we would not be in the position we are today. It is like saying, for the industrial countries, that railroads in the United States should never have been built because they are no longer being used now. Or the steam engine should never have been invented because it has been superseded by nuclear power stations. This is a simplistic approach used by some economists or pseudo-economists. What we have really seen is a basic change in the industrial world where the old industrial processes are now so common place that anyone with funds can buy the technology. As a result you have a proliferation of capacity in just about every main industry in the world, including oil refineries, petrochemicals, shipyards, what have you, leading to an implosion, if you like, or a recession, and low prices, in just about every sector of these heavy industrial commodities. The same thing has taken place in the agricultural sector and we now see major recessionary developments in these areas too. And we have been caught up with it. Our problems arise because of a confluence of these events impacting on us because of our very large dependence on external exports. The Acting Minister for Trade and Industry has already mentioned this morning that our exports account for 1r times our GDP and, if we include imports, our total trade accounts for three times our GDP. We import approximately two-thirds of everything we consume.”
“If you look around, you will see most of it lying around you. We have built up an extremely modern infrastructure - housing for our people, roads, harbours, and these are not to be denigrated. So I would strongly recommend to Members that we should look at things in perspective, and not worry too much about the short-term and look at our prospects in the long term. Why have we encountered this recession? Certain Members have suggested that the only solution is for the Government to get down on its knees and pray to the population and the workers to beg forgiveness and all would be solved. I think that is too laughable to contemplate.”
“Mr Speaker, Sir, I would like to begin by thanking the Members in this House who have spoken over the last two days, particularly those who have supported the motion and even those who have criticized it, provided their opinions are held honestly. Time will probably not permit me to answer all the individual queries in detail and I intend to carry over some of these into the Committee of Supply. However, there are several main concerns which run through Members' speeches over the last two days, which I will address directly, before moving on to some specific issues. But before doing that I would like to say something about the economy in general, to lay the background to the rationale for this year's Budget. In my Budget statement I said that we often forget where we started from and we seem to over-react when we encounter difficulties. I fear that if we continue to do this, we are going to be considered "cry babies" by the inter- national community. So let us look at our record. Since separation in 1965, over this 25-year period to 1985, our average GDP growth in real terms was 9.2%. Indeed we have now, as I said, entered into a major recession. We have had a negative growth last year and the growth this year is likely to be zero. Let us postulate that things got really bad and we have to suffer two years of zero growth, this year and next. Taking the period from 1965 to 1987, our average growth rate would still be 8.4% per annum, a record which I think most countries will be extremely proud of. So what are we crying about? The moment we encounter a setback, we seem to be running in circles, accusing the Government of the most dastardly things. I think most countries would be happy to be in our circumstance. What have we achieved over the last 25 years?”
“Mr Heng Chiang Meng asked the Acting Minister for Labour whether a Central Provident Fund member, having borrowed from a financial institution, such as a bank, based on a mortgage on his private residential property, will be allowed to use his CPF balance and/or contributions to repay and/or finance his bank loan.”
“Mr Speaker, Sir, I did not say that I had told everything about the Pan El case in Parliament. A lot of the facts involved on the criminal charges will, in fact, come out in court when the proceedings begin so that the public will be aware of what criminal charges are involved. As to the second question on whether the Government considers it necessary to call an inquiry after the proceedings, the answer is no. Just as we have not in fact convened a Commission of Inquiry into the Abalone case, as it is well-known, or into many other cases of corporate failures. As to the last question, I would suggest that the Member for Anson should be rather careful of what he says here, because if he has any evidence, he should bring it forth. To imply that the Government has anything to hide, I think, is highly unethical. Some hon. Members: Hear, hear! CPF CONTRIBUTION CEILING (Implementation of raise) 14. Mr Chiam See Tong asked the Acting Minister for Labour whether he intends to implement the announcement made in July 1985 of the Government's intention to raise the ceiling of Central Provident Fund contribution from the current $6,000 to $7,000 in July this year. The Acting Minister for Labour (Mr Lee Yock Suan): Mr Speaker, Sir, my Ministry has already announced that the current salary ceilings on CPF contributions in the private and public sectors will be frozen at their existing levels in view of the present economic conditions. CPF SAVINGS/CONTRIBUTIONS (Use for financing bank loans on mortgages of private residential properties) 15.”
“Neither is one considered necessary for the Pan-El case. It is generally known that Pan-El had been adversely affected by difficult business conditions in about all of its businesses. Poor business aside, the company's involvement in stock market activities also contributed to its financial problems. The Commercial Affairs Investigation Department has been investigating into the affairs of Pan-El. Charges have been brought against the responsible parties and criminal proceedings are before the Court. It is clearly inappropriate to establish a separate body to conduct another investigation into the matter.”
“Mr Speaker, Sir, I have said that this issue is still under consultation. COLLAPSE OF PAN-ELECTRIC INDUSTRIES AND SUSPENSION OF TRADING ON THE STOCK EXCHANGE OF SINGAPORE (Appointment of Commission of Inquiry) 13. Mr J.B. Jeyaretnam asked the Minister for Finance whether he will recommend to the President to appoint a Commission of Inquiry to enquire fully into all the events leading to the collapse of Pan-Electric Industries and the suspension of trading on the Stock Exchange of Singapore on the 2nd of December 1985. Dr Hu Tsu Tau: Mr Speaker, Sir, I will first deal with the second part of the question posed by the Member for Anson, namely, the events which led to the suspension of trading in the Stock Exchange of Singapore on 2nd December 1985 and the reasons for the suspension. The answer to this question has been fully dealt with by me in reply to an Oral Question on the same issue submitted by the Member for Radin Mas at the Parliamentary sitting on 10th January 1986. I can supply the Member for Anson with a copy of this reply if he wishes. As for the collapse of Pan-El, the Government is naturally concerned about it because of its effects on not only the stock market but also the company's shareholders, creditors and employees. It is for this reason that the Government has taken a keen interest in the negotiations between the company's principal shareholders and its creditor banks with a view to resolving the financial problems of the company. It is regrettable that discussions and negotiations had not led to agreement that would resuscitate the company. But, having said that, the Government does not view the Pan-El collapse as being different from other corporate failures. In all these corporate failures, no Commission of Inquiry had been appointed.”
“Mr Speaker, Sir, there is no present intention.”
“Mr Speaker, Sir, following consultations with the public sector unions, the Government had recently announced that the incentive pay for 1986 will be withdrawn in respect of monthly-rated public employees. The matter will continue to be pursued with the daily-rated unions. The estimated number of public sector employees affected, including both monthly-rated and daily-rated employees, would be 142,444. The total savings is estimated to be $113,158,530. Withdrawal of the incentive payment is a form of wage restraint adopted by Government following consultation with the public sector unions. This measure would keep the public sector wage bill at its current level. It is presently a preferred form of wage restraint to freezing of annual increments. The incentive payment amounts to 4% of the annual wage bill and is equivalent to the annual increment in the public sector. Hence, withdrawing the incentive payment would hold down the public sector wage cost at its current level to the same extent as cessation of the annual increments. It is a measure preferred by the Government and the unions. Since withdrawal of the incentive payment does not really reduce public sector wage costs, there should in fact be no reduction in purchasing power of the public officers.”
“Mr Speaker, Sir, Ministers, like all other members of the public, are required to pay income tax on their salaries. They are not accorded any special treatment. Three Ministers and four former Ministers who are Members of this House receive their parliamentary pensions in addition to their salaries and allowances. All pensionable employees in the public sector, whether civil servants or Ministers, receive their pension entitlements when they reach retirement age. Those civil servants or Ministers who are re-employed receive the emoluments of the jobs they hold. This is also the customary practice in the private sector. DEBATE ON THE BUDGET STATEMENT (Additional Day) Resolved, That, notwithstanding the Standing Orders, an additional day, namely, Tuesday, 18th March, 1986, be allotted for the debate on the motion for approval of the financial policy of the Government for FY 1986/87, moved by the Minister for Finance on 7th March, 1986. - [Dr Hu Tsu Tau]. DEBATE ON THE BUDGET STATEMENT (Exempted Business Motion) Resolved, That, notwithstanding the Standing Orders as modified by resolution of Parliament on the 1st of March 1985, the debate on the motion for approval of the financial policy of the Government for FY 1986/87 be continued after 4.30 p.m. until 5.30 p.m. on the days allotted for the debate and the proceedings thereon be exempted from the provisions of Standing Order No. 1 until 5.30 p.m. on each day. - [Dr Hu Tsu Tau]. ANNUAL BUDGET STATEMENT 12.15 pm Order read for Resumption of Debate on Question [7th March, 1986]. That Parliament approves the financial policy of the Government for the financial year 1st April, 1986 to 31st March, 1987.". - [Minister for Finance]. Question again proposed.”
“Mr Speaker, Sir, I understand the implied company is Singapore Airlines. As to the reason for share price fluctuations, in this particular case, the shares were rather unfortunately listed during the period when there was a bear market. So they fell below the issue price. Those who sold at that time, I think, had reason to regret because it was obvious that the shares were fundamentally sound and ought to have been held. So their recovery was no surprise. ACADEMIC FREEDOM IN NATIONAL UNIVERSITY OF SINGAPORE (Policy) 15. Mr J.B. Jeyaretnam asked the Minister for Education whether he will say what the Government's policy is towards academic freedom in the University and on the right of the academic staff to criticize any policy or action of the Government.”
“Mr Speaker, Sir, the percentage distribution of equity in Singapore Airlines as at 25th February 1986 is as follows: Temasek Holdings - 62.95% SIA Staff - 18.30% Overseas Holdings - 14.13% Others - 4.62% ------- Total 100.00% -------”
“The Ministry is working with various insurance companies on a medical insurance scheme to cover certain major, high cost medical conditions. This catastrophic medical insurance scheme will complement the Medisave Scheme, and policy holders will use part of their Medisave contributions to pay the prescribed premiums. Details of the scheme are expected to be finalised by the end of this year. RETRENCHMENT BENEFITS 5. Mr Chiam See Tong asked the Acting Minister for Labour whether the Government will make provision for retrenchment benefits to be paid to Singapore workers who have been retrenched and to those who will be retrenched in 1986.”
“The Monetary Authority of Singapore (MAS) first became aware of the practice of forward trading in January 1985. This arose as a result of information received by the MAS on malpractices within the stockbroking company, Alfa-Pacific. In the course of investigations into the financial affairs of the firm, Alfa-Pacific was found to have over-traded and had poor credit and internal controls. The firm was also found to have entered into a number of forward contracts. This was referred to the Stock Exchange of Singapore (SES) for action. The SES' view at that time was that Alfa-Pacific's forward trading was not against SES rules. MAS had no powers to intervene in changing SES rules, but would have such powers in the proposed new Securities Industry Act which was then being drafted. MEDICAL INSURANCE SCHEME 4. Mr S. Vasoo asked the Minister for Health if there are plans to introduce a medical insurance scheme through the Medisave contributions.”
“We should therefore not be overly sanguine about the pace of our recovery. However, I see no cause for despondency either, as there is much that we can do to help ourselves. We have excellent infrastructure already in place, adequate financial resources and negligible foreign debt; a very comfortable position from which to face adversity. What we now need is for all Singaporeans to join together in launching the next phase of our economic development. I am certain that we will be able to overcome our temporary setbacks. We often forget that we started with very little. Since Independence, we have been fortunate and able to build up a significant inheritance for the next generation. The evidence is all around us. This was in no small measure due to a dedicated Government that could mobilize a committed people. I feel confident that a younger generation, led by a younger leadership, will be equally successful. Mr Speaker, Sir, I beg to move.”
“Other details are being worked out by my Ministry in consultation with EDB and these will be announced soon. Future Incentives The Government agrees with the Economic Committee that companies should be encouraged to establish their operational headquarters in Singapore. It also supports the recommendation that foreign income, particularly from the export of services and third country trading, should be taxed at a reduced rate in Singapore. I have asked my officials to study the most appropriate fiscal measures to promote these activities. Details are being worked out and will be announced expeditiously. The Economic Committee has also made a number of other tax recommendations. These relate to incentive schemes of one form or another. We recognize that incentives are still useful and necessary at this stage of our economic development. At the same time, I should emphasize that our intention isto eventually move towards a broad based low-tax regime. My Ministry will consider the other tax recommendations in the light of these ? considerations. Conclusion Finally, Mr Speaker, Sir, we are in the midst of a severe recession. My priority in this Budget has therefore been economic recovery. Expenditure plans and tax changes were structured with this in mind. Not surprisingly, I have focussed primarily on the business sector. I have also paid special emphasis in the tax incentives to areas where there is good market potential overseas. I believe that once growth returns to those sectors of our economy which trade with the world, prosperity will be restored to those sectors that do not. Despite what the Government is doing, much of the success of our policies will depend on the world economic situation, over which we have little control.”
“Details of the scheme are presently being worked out. Tax Deferred R&D Reserve The Economic Committee has identified the promotion of applied R&D as a cornerstone of our policy for industrial upgrading. I have, therefore, agreed to its recommendation that approved companies be allowed to set aside up to 20% of their taxable income as an R&D reserve which will be tax-exempt if spent within three years. Presently available incentive schemes for R&D, that is, the 50% Investment Allowance on capital expenditure and the double deduction on operating expenses, will continue to be granted to approved companies. These amounts will, however, be offset against the 20 per cent reserve. Any part of the reserve remaining after three years will be taxed and interest charged on the amount of tax deferred. This incentive will take effect from Year of Assessment 1987. Venture Capital Incentive In the l984 Budget Statement, the House was informed of an incentive scheme to encourage enterprising local companies to invest in non-traditional areas and new technologies. Investments in these new fields are risky but nevertheless necessary if we are to progress ahead. Under the incentive scheme, a local company can write-off up to 50% of the equity invested in approved venture capital projects if the project incurs cumulative losses over three years. I propose to improve upon the scheme. The investing company may now deduct, up to the full amount of its investment, any loss arising from the sale of shares in an approved project company. At the same time, the approved project company may carry-forward its losses for write-off against future profits. The scheme will also be extended to individuals. These improvements to the scheme will apply to investments made after 1 April 1986.”
“In view of this, I have decided to extend the incentive scheme for fund management to include: (i) Investments in local stocks and shares, and (ii) Fund managers who do not have ACU licences ? but are approved for the purpose by MAS. This will take immediate effect. The scheme essentially removes any Singapore tax liability that may arise as a result of the non-resident having his funds managed in Singapore. As before, the incentive will be confined to non-resident investors. Presently, these investors are required to make a signed declaration of their non-resident status. This will no longer be necessary. Instead, the fund managers will have to affirm the non-resident status of their clients. Investment management is one area which Singapore can develop effectively. We have the necessary financial infrastructure and an efficient international telecommunications network. Singapore is also well placed to service regional investors seeking world markets and global investors seeking regional investments. I am sure that these additional incentives will facilitate further growth of the fund management industry in Singapore. Post-Pioneer Incentive Pioneer incentives have been an important and useful tool in attracting high-value added investments to Singapore. Companies presently enjoying pioneer status pay no corporate tax. However, upon expiry of their pioneer period, they are taxed at the full corporate tax rate. This can lead to difficulties of adjustment when the full tax rate is levied. To ease the transition, the Expansion Incentive scheme will be suitably modified to enable such companies to enjoy an effective company tax rate of as low as 10%. This will encourage pioneer com- panies to continue their operations in Singapore upon expiry of their pioneer status.”
“From Year of Assessment 85, capital expenditure incurred on all plant and machinery could be written off in three years. In addition, equipment such as computers, robots and automation equipment can be fully written off in one year. We must allow the effects of these incentives to work their way through the system, before we consider new ? concessions. The investment allowance proposal also has substantial revenue implications which must be carefully studied. It will alter the base of deductions for the computation of taxable profits and can affect income tax revenue collections permanently. It is for these reasons that we have not supported the proposal. The EDB, however, administers an incentive scheme whereby investment allowance of up to 50% of capital expenditure can be enjoyed on investments in certain plant and equipment. As earlier announced, the EDB will be more liberal in granting allowances under their scheme, particularly to trading and service companies. Fund Management The present tax incentive scheme for fund management confers exemption from Singapore taxes on investment gains from funds managed on behalf of non- resident investors by approved fund managers in Singapore. These fund managers need to have Asian Currency Unit (ACU) licences and must be approved by the MAS for purposes of the scheme. In addition, the fees they earn are taxed at a concessionary rate of 10%. To enjoy the incentive, however, the funds have to be invested in overseas markets. The feedback from fund managers is that it is difficult for the fund management industry in Singapore to thrive if local stocks and shares are not included in the scheme. Specialized fund managers who do not possess ACU licences have also indicated that they would like to participate in the scheme.”
“I have, therefore, agreed to allow property tax on guest rooms, restaurants and function rooms in gazetted hotels to be assessed based on actual annual gross receipts. The property tax will then more accurately reflect the actual tariff and occupancy rate of each hotel. With effect from l July 1986, their annual value will be pegged at l5% of gross receipts from room sales. Similarly, the annual value of food and beverage outlets in these hotels will be pegged at 5% of their gross sales. The other parts of the hotel, such as management offices, shopping arcades and carparks, will continue to be assessed using the present method of assessment. I am also pleased to say that the Inland Revenue Department is looking into the feasibility of extending this method of assessment to other properties where it is appropriate to do so. Third, to ease the cashflow of all property owners, I propose to allow payment of property tax by monthly instalments. This will take effect from l July 1986. Instalment payments will, however, only be allowed through GIRO, including Inter-bank GIRO. This is so as not to increase the cost of collection. To sum up, the above property and individual income tax concessions will result in a further loss in revenue of about $440 million in FY 86. The projected $3.22 billion FY 86 Budget deficit can therefore be expected to widen ? further. Investment Allowance The Economic Committee has recommended the introduction of a 30% across-the-board Investment Allowance for expenditure on capital equipment and machinery. The Committee feels that this will encourage continued investments in plant and equipment. My Ministry does not disagree with the need to stimulate capital investment. However, we feel that the existing capital allowances are more than adequate.”
“Property Tax A rebate of 30% on the property tax rate of 23% is presently given in respect of the following properties: (i) All industrial and commercial properties, (ii) Industrial and commercial lands which are vacant or under development, but including residential lands owned by development companies, and (iii) Let-out URA, HDB and JTC properties. As announced by the First Deputy Prime Minister, the rebate will now be deepened to 50% from 1 July 1986, and extended for a further two years until end 1988. Property owners are expected to pass on the additional 20% rebate to tenants, as in the previous exercise. I now propose to introduce three additional changes to the property tax system. First, with effect from l July 1986, all lands under private development will be fully exempt from property tax. The exemption will apply from the time construction begins to the time that TOL is granted. Details of the scheme are being worked out between my Ministry and the Ministry of National Development and these will be announced shortly. Second, I propose to allow a change in the method of assessment of property tax for hotels. Presently guest rooms, restaurants and function rooms in hotels are assessed based on industry-wide indices such as occupancy rate and tariff averages. This has led to some rigidity in the system. For example, if the occupancy rate of a particular hotel falls, this is not accompanied by a reduction in the property tax payable unless the occupancy rates of other hotels also fall. Consequently, a hotel with low occupancy ends up paying more than its due share of property tax, whilst one with high occupancy ends up paying less.”
“Appendix II - REDUCTION IN PERSONAL INCOME TAX RATES WITH EFFECT FROM YEAR OF ASSESSMENT 1987 (Cols. 443 - 444) Members will not that the top marginal rate has been brought down to 33% in line with the cut in the company tax rate whilst the lowest marginal rate has been reduced to 3.5% Under the new rates, taxpayers will enjoy a tax reduction of between 16.3% and 21.7%. As Members will also note, I have given a larger tax reduction to the middle-income group whose chargeable income falls within $15,000 to $100,000. This group currently bears nearly 50% of the total individual income tax burden. This should further motivate our skilled workers and young professionals to work even harder and earn more. But I have not forgotten those in the lower income brackets. On top of the reduced rates, I intend to increase the rebate on the tax payable on the first $10,000 of chargeable income from 10% to 15%. This will further alleviate their tax burden. The revenue loss as a result of the reduction in tax rates is estimated at $193 million per annum. I would like to reiterate that the Government will strive to lower income tax rates whenever possible. Being an open economy, dependent mainly on our human resources, we must never allow our tax burden to be so high as to become a ? disincentive to work and enterprise. Company Income Tax The reduction in company tax rate to 33%. with effect from Year of Assessment 1987, will increase after-tax yields. The Government feels that a 33% tax rate, when compared with the rate in other countries, is sufficiently competitive to attract and retain investors. I would, however, like to assure Members that we will continue to monitor our position and company tax rates will be reduced to meet competition whenever this proves necessary.”
“It is intended that we begin to put into place this year, the machinery needed for the collection of consumption taxes. An early start is necessary as we need time to evaluate alternatives and instal the administrative ? machinery. Already, the proposal has sparked off keen interest and quick response from Members of this House and the public. I am well aware that consumption taxes will be unpopular. They are seen to be unwieldy, inflationary and bad for tourism. Whilst some aspects of these claims are undoubtedly true, my Ministry officials who are studying the issue will make every effort to ensure that the less desirable side-effects are mitigated. Nonetheless, the need for consumption taxes must be seen in the larger context of Singapore's economic imperatives. If Singapore is to survive as an economic entity, its productive sectors must be competitive. As direct taxes are lowered to meet competition, a point may be reached when consumption taxes will have to be brought in to provide a compensatory source of revenue. Tax Changes I now move on to details of tax changes which were announced by the First Deputy Prime Minister in Parliament last week. I shall also deal with some of the other recommendations of the Economic Committee. Individuald Income Tax In order to provide immediate relief to taxpayers, the Government has decided to give an across-the-board exceptional rebate of 25% on personal income tax for Year of Assessment 1986. Revenue loss is estimated at $250 million. For Year of Assessment 1987, I have decided to revise the personal income tax rates downwards. With your permission, Sir, I would like to table a schedule showing the revised rates (Appendix II) (Cols. 443 - 444).”
“Our strategy in the past has been to rely on economic growth to bring in sufficient revenue to meet Government's expenditure needs. As a result, rising incomes for companies and individuals have led to the growing importance of income tax as a source of revenue. Income tax collection yielded 33% of total revenue in l985 compared to 25% in l972. This was despite the fact that individual tax rates have been reduced four times and tax rebates given twice since l978. The future revenue position, however, is not so certain. Already, the drop in company profits has reduced income tax collections from $3.4 billion in FY 84, to about $2.8 billion in FY 85. In addition, the three-year accelerated depreciation allowance introduced last year is expected to reduce taxable profits further. The recently announced reductions in company and individual tax rates will further erode this revenue. However, these cuts are vital to the Government's longer term strategy to stimulate economic growth. High taxes stifle initiative and enterprise. They also blunt our competitive edge. It is therefore necessary to reduce taxes to as low a level as we can possibly sustain. However, prudent financial management is essential in an open economy without natural resources. This Government is therefore committed to avoid getting into a permanent budget deficit. On this, I hope I have the support of all Members of this House. Much will, of course, depend on the economic situation and the actual Budget position in the years ahead. But there may come a time when we need to look for new ways to raise revenue. The First Deputy Prime Minister has already announced that some form of consumption tax is being considered.”