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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“441 - 442) Taking into consideration these concessions as well as declining revenues because of the recession, the FY 86 Consolidated Revenue is projected at $8.66 billion. This is a further drop of 3.3% compared with FY 85's revised estimate of $8.95 billion and FY 84's revenue of $10.06 billion. Appendix I - SUMMARY OF FISCAL INCENTIVES ANNOUNCED IN 1985 WHICH AFFECT THE CENTRAL GOVERNMENT BUDGET (Cols. 441 - 442) This year's accounts are complicated by the inclusion of land transactions between HDB and Government. Both revenue and expenditure accounts are affected. After allowing for these accounting changes, the Government's overall financial position for FY 86 is expected to be in deficit by $3.22 billion. This is more than double the revised deficit estimate of $1.25 billion for FY 85. These deficits will be financed by drawdowns on our reserves and by domestic borrowings as I do not intend to introduce any new taxes or levies this year. At this point, I would like to reassure Members that the taxes which have been temporarily suspended will not be reimposed for as long as it takes the economy to regain its vigour. Government will also not burden the private sector with unnecessary statutory costs. In particular, we will monitor how Government charges impact on our international competitiveness. Of course, our revenue needs depend on our expenditure plans. In the longer term, I expect Government expenditure, particularly development expenditure, to decline. Much of Singapore's infrastructure is already in place and can be expected to stand us in good stead for many years to come. The public housing programme is reaching a plateau while road construction is nearing its limit.”
“These new projects are in the final stages of planning and when implemented can be expected to inject a further $0.37 billion in development expenditure in FY 86 alone. A sum of $8.81 billion, equivalent to 65% of the budgetted development expenditure, is set aside for the public housing programme. The bulk of this provision is to cater for the purchase of land required for public housing. The allocation for economic services is $3.23 billion or 24% of the development outlay. Of this, $2.37 billion is for land reclamation, development of industrial estates, the Mass Rapid Transit System, roads and other infrastructure. Loans and capital assistance grants totalling $0.75 billion will be extended to industrial and commercial enterprises. The development budget for education and manpower training is $0.35 billion. This is for the school and junior college building programme, expansion of the National University of Singapore, Nanyang Technological Institute, Singapore and Ngee Ann Polytechnics as well as vocational and industrial training institutes. III REVENUE AND TAX CHANGES I now move on to the Government's revenue position. The impact of the many tax concessions announced since last year's Budget will be clearly felt on FY 86 Consolidated Revenue. A rebate on property tax for commercial and industrial properties has been granted. Taxes on gas and electricity charges have been suspended. The Government has also reduced or removed various customs and excise duties in the course of the year. These measures are estimated to cost the Government $488 million in revenue per annum. A summary of these measures is being distributed to Members as Appendix I. (Cols.”
“Overall, the reduction in CPF rates and suspension of the incentive payment will result in a total savings of about $230 million in Government's wage bill. Apart from manpower costs, Other Operating Expenditure of Ministries and Organs of State is also projected to fall by $34 million or 6%. This is due to stringent control by Government departments of operating costs. Discretionary expenditures, particularly those which will result in a leakage overseas (eg overseas travel) will be reduced significantly. A modest increase of $26 million or 3% is expected in expenditure on Grants, Subsidies and Other Transfers, the bulk of which is to finance the operating deficits of the tertiary and technical education institutions, aided schools and other non-self-financing statutory boards. The low rate of increase reflects the wage restraint policy and tight control of operating costs. Total development outlay for FY 86 is estimated to be $13.52 billion, an increase of $4.53 billion or 50% over the revised FY 85 expenditure. Expenditure on public housing, education and economic services takes up $12.39 billion or more than 90% of the development budget. As I mentioned earlier, part of the increase in development outlay is due to the provision of loans to HDB for the purchase of land needed for public housing. Even after discounting these loans, development expenditure in FY 86 is expected to register a very substantial increase of $1.91 billion or 33%. The sharp rise is due to the accelerated implementation of major infrastructural projects. Apart from projects included in the FY 86 development budget, Ministries and statutory boards are expected to implement other new projects costing nearly $1.19 billion in total.”
“Government has, therefore, decided that the permanent staff complement of Ministries and Statutory Boards should be reduced by 10% from the current level over the next five years. The 10 per cent target will apply to existing programmes and can be achieved through normal attrition, and more selective recruitment, plus increases in productivity. Manpower requirements for new services will be considered separately. A comprehensive programme of manpower scrutinies will also be instituted in the public sector. The scrutiny programme will involve the critical examination by each Ministry and statutory board of its activities. The scrutinies will determine whether particular activities are necessary and if so whether they could be done at lower cost and with less manpower. Alternative means of achieving objectives including "privatization" of selected services will be examined. I must reiterate that the 10% staff reduction can be achieved through normal attrition and more selective recruitment without the need for retrenchments. Every attempt will be made to retrain and redeploy redundant staff to other areas. Government has accepted the Economic Committee's ? recommendations that the employers' CPF contribution rate be reduced and that there should be no increase in overall wage costs in 1986. With effect from 1 April 1986, the employers' CPF contribution rate in the public sector would be reduced to 10% in the case of non-pensionable officers and to 6% in the case of pensionable officers. The half-month incentive payment will also be suspended. The suspension of the half-month incentive payment will mean a 4% reduction in the wage bill and this will offset increases arising from annual salary increments.”
“Expenditure by MINDEF is expected to be $176 million lower than in FY 85. This decrease is partly offset by a slight increase in of $46 million in expenditure by the other Ministries and Organs of State. A provision of $3.23 billion is set aside for the operating expenditure of the non-Defence Ministries and Organs of State. Of this, $1.80 billion or 56% is used for Expenditure on Manpower, $0,50 billion or 15% for Other Operating Expenditure, and $0.93 billion or 29% for Grants, Subsidies and Other Transfers. Expenditure on Manpower is projected to increase by $54 million or 3%, much lower than the average annual increase of 16% over the FY 80-84 period. The moderate increase is due to the wage restraint policy and reductions in the authorised staff establishment. These reductions are possible as a result of higher productivity, implementation of mechanization, automation and computerization schemes, organizational reviews and changes in work procedures. Over the FY 80-85 period, the permanent establishment of the public sector, including the self-financing statutory boards, increased by more than 10,000 posts. The public sector's share of total employment also increased. A large part of this increase was due to the expansion of the tertiary and technical education institutions and the stepping up of the public housing programme. Our current public sector employment to population ratio is relatively high. Singapore's public sector employment to population ratio in 1984 was 5.3%, as compared with 3.0% in Japan, 1.6% in South Korea and 3.4% in Hong Kong. The recession and fall in revenues make it more pressing to contain increases in establishment levels and manpower costs.”
“Total Government spending in FY 86 is estimated to be $22.06 billion, about $5.94 billion or 37% higher than the revised FY 85 expenditure. More than 60% of the total budget allocation for FY 86 is for development. As a proportion of GDP, Government expenditure is expected to rise sharply from 43% to nearly 60%. This is largely due to a substantial increase in provision for development expenditure, including loans to HDB for the purchase of land required for public housing. Excluding the funds for HDB land purchases, the expenditure to GDP ratio will rise from 35% to 43%. The allocation for recurrent expenditure in FY 86 is $8.54 billion, about $1.41 billion or nearly 20% more than the revised FY 85 recurrent expenditure. The increase is due to higher public debt servicing and pension costs, and a sharp rise in the Government grant-in-aid to HDB. If this latter item is excluded, the recurrent expenditure for non-Defence Ministries and Organs of State will show a small increase of around 1.4%. Public debt servicing costs are projected to increase by $1.01 billion or 68%. This is largely due to interest payments on new domestic loans that are expected to be raised in FY 86. Pension payments are expected to go up by $33 million or 22% because of the large number of retirees. The grant-in-aid to HDB is increased by nearly $496 million. Following the recent change in HDB's accounting system, the HDB accounts reflect more accurately the difference between the market value of land required for public housing and the lower value used in setting sales prices of flats. The grant-in-aid to HDB is increased to reflect this subsidy. Excluding the grant-in-aid to HDB, the operating expenditure of the non-Defence Ministries and Organs of State is projected to drop by $130 million.”
“In the short term, the Government has and will continue to take measures to overcome this recession. We will continually monitor the economic situation - both domestic and abroad, and prepare for the worst. We must regain our competitive position by ensuring that costs are minimized and red tape cut. In the long term, we must all work together to maximize our potential. New investments must be found and the entire economic environment must be made favourable to business and enterprise. The Government will continue to provide efficient infrastructure, educate and train our population to its fullest potential, and assist private enterprise to identify and seize new opportunities. In this regard, the Economic Committee's Report is timely. It has identified a number of growth areas which we will do well to exploit. If we do so and deal with the present recession correctly, we will be well placed to take off again. II FY 86 BUDGET Mr Speaker, Sir, I now turn to the FY 86 Budget. The Budget Document for the financial year 1986-7 has already been circulated to Members. Members will note that several changes have been made to the format of this year's document. Previously, in addition to the main Budget Document, a Memorandum on the Budget was submitted alongside. This year the two have been merged into one unified document. I have also taken cognizance of Members' request for a more meaningful comparison of estimates. For this reason, the estimates for FY 86 are now compared with the corresponding revised FY 85 estimates and not with the original budget figures. The objectives of this year's expenditure budget are two-fold: (a) To restrain the growth in recurrent expenditure. (b) To stimulate the economy through increased development expenditure.”
“This is mainly due to greater automation and mechanization in factories and speaks well for our drive towards higher productivity. Despite our progress in education, our workforce is still less educated than those in the US, Japan and even Taiwan. Presently, only 5% of our total workforce have tertiary education compared to 19% in the US and Japan and 6% in Taiwan. At the bottom end, about 53% or more than half our workforce have no education or at most primary level education compared with 15% in the US, 35% in Japan and 45% in Taiwan. We must therefore continue to upgrade the education level of our population. This is a necessary prerequisite for future growth as industries increasingly automate and mechanize. There is a limit to the number of graduates and skilled manpower that we can ultimately produce in the long run. Given a declining population growth rate,our workforce is expected to increase by only 1% per annum by the year 2000. It is, therefore, crucial that we educate each individual to his or her maximum potential. What we lack in quantity we must make up for in quality. It is essential that employers realize that they carry the main responsibility for upgrading and retraining workers. The workers must also play their part by being willing to attend retraining and upgrading programmes. Only then can we hope to improve our productivity and be prepared for the next phase of our growth. Concluding Remarks Over the last two decades we have made considerable progress - from a low wage, low skilled, low value-added economy to one based on higher skills and higher value-added. Despite the present setbacks and the urgency to implement measures to restore the health of the economy, we should not ignore the need for a longer term perspective.”
“A necessary prerequisite for further growth in any financial market is a sound and stable financial system. Therefore, in pursuing a strategy for growth, we must not lose sight for the need for uncompromising prudential standards. We will continue to monitor and maintain such standards. The Property Market The Property Market Consultative Committee (PMCC) was formed to look specifically into the ills of the property sector. They have identified three major causes of the present slump, namely, unpredictable demand, excessive supply and a loss of market confidence. They have made a number of recommendations to nurse the property market back to health. These proposals are now under active consideration by my ministry. While property value will generally rise, given the scarcity of land in Singapore, one should expect it to peak and trough in accordance with the economic cycles. In time, the property glut will be absorbed. I would nevertheless like to assure the House that the Government will not do anything to aggravate the situation. Manpower Development The development strategy of many newly industrialized countries has shifted from the cheap "sweet-shop" type labour policy to one of cheap but high quality skills. We must, therefore, prepare ourselves for the competition. How have we fared so far? Are our workers better educated? Do they have the expertise necessary to cope with technological changes? The proportion of professional, technical and skilled manpower has risen steadily from 13.6% in 1980 to 16.2% in 1985. At the same time, the proportion of production and related workers, and transport equipment operators declined from 38.8% in 1980 to 36.3% in 1985.”
“Financial Services The demand for financial services in this region will continue to expand, considering that the Asia Pacific Region has been identified as a high growth area in the coming decades. Financial services, identified as having potential for growth, centre around fee-based activities,such as fund management, and new financial instruments, such as financial futures. Fiscal incentives have been implemented to encourage the fund management industry, and these will be augmented by further incentives which I will shortly announce. The Singapore International Monetary Exchange has progressed satisfactorily and currently lists four financial futures contracts. Later this year, a stock index futures contract will be introduced. SIMEX is also expected to introduce options trading early next year. On the domestic front, steps will be taken by the Government to develop a fixed rate securities market so as to pave the way for companies to raise fixed rate funds. In the equity market, the resolution of the problems currently facing the local stockbroking industry and the introduction of a new Securities Industry Act will mark a new chapter in the annals of our stock market. The corporatization of the industry has begun with the big four local banks gaining membership on the Stock Exchange of Singapore. This increased institutional participation will strengthen the industry and help regain investors' confidence in our stock market. Later this year, the unlisted securities market is expected to begin operations. This will provide an avenue for companies with good potential for growth, but which are unable to obtain a listing on the main board because of their limited track record, to raise capital.”
“For example, third country trade in commodities such as crude oil, rice, sugar and other products is estimated to be worth some $45 billion annually. Countertrade is another area which will grow in importance. A recent study has estimated that countertrade currently accounts for between 8% and 10% of world trade. Firms must grasp the complexities of these new trading activities quickly and translate them into realizable gains. It has been observed time and again that our entrepreneurs are not as quick to sense changes in demand and tastes and keep in step with these changes. It has been said that if a new product is showed in Japan today, it will be on sale in Hong Kong tomorrow, (the very next day) and Singapore stores will only have it the following week. Our traders must be much more aggressive in their marketing strategies. They must know who their competitors are and what their consumers want. The Trade Development Board (TDB) will spearhead the Government's drive to expand and seek new markets for our traders. More export promotion activities will be devised and tailored to meet the needs of local exporters. The TDB will also help disseminate information to traders so as to assist them in penetrating non-traditional markets such as Latin America, Africa and South Asia. Greater efforts will be made at the same time to expand our traditional markets closer to home. The Government will also minimize trade restrictions, simplify trade documentation and weed out bureaucratic red tape. Ultimately, however, it is the drive and the business acumen of our manufacturers and traders that will determine whether they succeed in the world.”
“In this respect, the National University of Singapore (NUS) and Nanyang Technological Institute (NTI) should not let up in their efforts to train and acquire a wider pool of scientific experts. The Government will continue to assist by providing tax incentives and R&D grants to encourage private firms to undertake applied R&D activities. I will elaborate on this further when I come to the section on tax changes. The structural changes accompanying the rapid rate of technological innovation in the developed countries will impact significantly on our future industrial development. Foreign companies that are currently automating their plants and operations will have insufficient resources to undertake any new investments overseas. Moreover, given the increased productivity from automation, there will be less economic advantage in establishing new facilities abroad simply to take advantage of lower wage costs. It is, therefore, all the more critical that our manufacturers continually upgrade their operations and diversify their products. They should be more outward looking and seek out opportunities overseas. Being a small economy, we can never provide them with a big enough domestic market for them to survive and thrive. Trade Development Until the industrialized countries restore the health of their economies and increase employment, protectionism will continue to be rife. Last year, we were not spared. There was no letting-up in countervailing duties and anti-dumping investigations on our exports. Our best defence is to increase our productivity. At the same time, we must be nimble and adapt to changes in world markets and in demand and supply.”
“I would, however, like to emphasize that we do have considerable control over internal factors. Measures to reduce cost can and have been taken. We have among other things suspended payroll tax, cut skills development levy, and reduced CPF contributions. This will restore the international competitiveness of our firms and traders to a considerable extent. We can supplement these measures by striving hard to increase our productivity and the quality of our products and services. In essence, how we overcome the internal problems depends on ourselves and the sacrifices we are prepared to make. The external factors we have little control over. We are a price taker in world markets. How we fare will depend on the world economy in general and the US economy in particular. The recent fall in world oil prices will hopefully quicken the upturn in activities expected for the US and other industrial economies. Restoring economic growth must be the priority for the coming financial year. But while we tackle our present problems, we must not lose sight of longer term issues, in particular our future place in the world economy. Industrial Development Our industrial development in the years ahead will depend on the pace of auto- mation, and, increasingly, on research and development. The present level of R&D expenditure is not high, accounting for only 0.6% of our GNP in 1984, although it has actually more than doubled since 1982. This increasing trend should be encouraged to continue. More specialized research-oriented institutions along the lines of the Institute of Systems Science and the Institute of Molecular and Cell Biology must be established. However, this is only feasible if we have the necessary manpower.”
“Mr Speaker, Sir, I beg to move, That Parliament approves the financial policy of the Government for the financial year 1st April, 1986 to 31st March, 1987. My Budget Statement this year will be somewhat different from those of previous years. For one, it has been more than a decade since a budget has had to be presented to deal with a severe recession. For another, it will be shorter. This is because, unlike in previous years, Parliament has already debated at great length on the state of the Singapore economy and the recommendations of the Economic Committee. I, therefore, propose only to highlight the salient points of the Economic Committee's Report and elaborate on the measures which the Government intends to take in the next financial year to help us pull through the present economic recession. I REVIEW OF THE ECONOMY The causes of the present recession have been well documented in the Economic Committee's Report. Externally, we have had to contend with a slowdown in international trade as a result of growing protectionism as well as structural changes in global demand and supply conditions affecting key sectors of our economy. The low and falling commodity prices which adversely affected the growth of our ASEAN neighbours have also resulted in less trade and tourist arrivals for us. Internally, profit margins have been steadily eroded as wage costs outstripped increases in productivity. This has been aggravated by a sharp decline in construction and related activities following the completion of major private sector projects and the scaling down of our public housing programme. The basic thrust of the Government's response to these problems has been elaborated by the First Deputy Prime Minister and I shall not repeat them.”
“Mr Speaker, Sir, the additional fund required is for the purchase of a replacement vehicle for the President, whose present Rolls Royce, I believe, is over 20 years old and is beyond economic repair.”
“Mr Speaker, Sir, I beg to move the Motion standing in my name under item No. 2* in the Order Paper. *The Motion reads as follows: That this Parliament, pursuant to section 7 of the Civil List and Pension Act (Chapter 52), resolves that the Schedule to that Act be varied by deleting the figures "$478,300", "$39,000", "$2,123,700", "$388,900" and "$29,600" in the second column and substituting the figures "$440,000", "$38,400", "$1,806,000", "$342,700" and "$359,300", respectively. Sir, it is proposed to reduce the provisions for the Privy Purse and Salaries of personal staff to $440,000 and $1,806,000 respectively. The reduction in provision for the Privy Purse is mainly because a contingency provision for the NWC wage increase is not required. The decrease of $317,700 in provision for Salaries of personal staff is largely due to a reduction of 24 posts on the Istana establishment. The allocation for Entertainment is reduced marginally by $600 because of lower anticipated expenditure on receptions. A sum of $342,700 is required to meet Expenses of the Istana household. This is a decrease of $46,200 and is due to lower expenditure on public utilities. These reductions are partly offset by an increase in allocation for Special services from $29,600 to $359,300. The increase in provision is for replacement of a vehicle. It is, therefore, necessary to vary the provisions in the Schedule to the Civil List as follows: for "The Privy Purse" from $478,300 to $440,000; for "Entertainment allowance" from $39,000 to $38,400; for "Salaries of personal staff" from $2,123,700 to $1,806,000; for "Expenses of household" from $388,900 to $342,700; and for "Special services" from $29,600 to $359,300. Sir, I beg to move. Question proposed.”
“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. CIVIL LIST”
“Mr Speaker, Sir, I beg to report that the Committee of Supply have come to a certain resolution. Resolution reported - "The sum of $3,330,000 shall be supplied to the Government under the head of expenditure for the public services shown in the First Supplementary Main Estimates of Expenditure for the financial year 1st April, 1985 to 31st March, 1986 contained in Paper Cmd. 4 of 1986."”
“Mr Speaker, Sir, I cannot speak on behalf of the Civil Aviation Authority. I have to assume that the retrenchment action was taken after due consideration of its impact but I would certainly convey his sentiment to the Authority.”
“They have to be met from funds voted by Parliament under the Pensions head of expenditure. As to the comment made by the Member for Punggol about the statement issued together with the announcement of the Singapore Allowance, I regret, Mr Speaker, Sir, that I am somewhat mystified at his emotional response to the one sentence which explained the technical grounds for making the change. If it has conveyed the feeling which he seems to express, then I would tender my apologies, but it was certainly not intended in that way. It was merely introduced to explain the reasons why the pension payments could not be varied but that, on compassionate grounds, even though the inflation over the intervening period was not large, an adjustment upwards of the Singapore Allowance was permitted.”
“Sir, the Pensions head of expenditure needs to be supplemented mainly because of payment of ex-gratia retrenchment benefits to former daily-rated employees of the Public Works Department (PWD). The services of 179 PWD DREs were no longer required following the completion of the second runway project at Changi Airport and following the contracting out by the Civil Aviation Authority of Singapore of maintenance works at the airport. Another 59 DREs became redundant after the implementation of the scheme to decentralize responsibility for minor works and repairs to user departments. Retrenchment action was only taken after all efforts have been made to redeploy the redundant staff to other departments and statutory boards. My colleague, the Minister for Labour, has during the recent debate on the President's Address given this House a detailed account of the steps taken to emplace the redundant staff in other jobs. It is therefore not necessary for me to elaborate further on this. Retrenchment action was taken well after the fiscal year 1985 budget for the Pensions head of expenditure has been finalized. In fact, of those retrenched, 108 were served notice of termination in December 1985. Funds are therefore not available in the fiscal year 1985 budget to meet the retrenchment payments and supplementary provision has to be approved by Parliament. These ex-gratia retrenchment benefits, like pensions, gratuities and all other superannuation benefits, are chargeable to the Pensions head of expenditure. However, unlike pensions and gratuity payments which are statutory expenditure chargeable directly to the Consolidated Fund, the ex-gratia payments are not provided for under the Pensions Act or related legislation.”
“May I respond to the Member. Indeed, the composition of the basket, of course, is a matter of judgment, and perhaps we can discuss this outside the House. However, the strong linkage to the US dollar, I think, is almost inevitable because not only is the US our major trading partner but it is also the currency of denomination of a lot of our imports. So it has a strong influence in the basket weighting, obviously. But whether there should be more weighting or less weighting, and whether we should depart more or less from the US dollar, is a matter of judgment, and I do not think I want to enter into a public debate on this. Whether we should have intervened more, again, it is a matter of judgment. I think one has to balance the strength of the currency and its weakness on the overall impact on the economy. In a country like Singapore which does not have a large agricultural base or a large domestic resource base, a weak currency has more negative effects than positive effects. Weakening your currency such as a major devaluation will not generally benefit you other than very, very marginally. Its undesirable effects are much more, in that it will invite inflation and almost inevitably cause a rise in domestic interest rate which is something we do not wish to do. 11.47 am”
“The Hong Kong dollar until it was pegged to the US dollar depreciated very, very severely because of its uncertain political situation. That has not in any way affected Hong Kong's status as a financial centre. Similarly for London, which the Sterling Pound has depreciated substantially; no one has suggested that London has declined as a financial centre. Again, for the United States, the US dollar has depreciated substantially. Is anyone suggesting that New York is no longer a financial centre? Again, you see, these are misconceptions which are unfortunate and are based on a lack of understanding of the real situation. Dr Augustine H.H. Tan (Whampoa): Just two points of clarification on the Ministerial statement, Sir. The first question is whether in the period between 1980 and mid-1985 the MAS intervened sufficiently? Nobody questioned that the MAS intervened to keep the Singapore dollar down or to keep the Singapore dollar from being too strong. The question is whether it intervened sufficiently. The evidence seems to show, from the presentation of the Minister, that we are very much tied to the fortunes of the US dollar because in a period when the US dollar was very strong our currency was also very strong, against virtually most of the other currencies. Now that the US dollar has been going down since last September, we also have been going down vis-a-vis a whole host of other currencies. Sir, the other question that must be posed is whether the basket of currencies and the weights assigned to the different currencies are appropriate enough for Singapore? If not, can we do something about it? Do we not have a little degree of freedom to decide the degree of monetary expansion in Singapore? Do we want more liquidity or less liquidity domestically?”
“Against the Swiss Franc it has declined by -17.2%. Against the Malaysian Ringgit it has risen by 5.1%. Against the Rupiah it has risen by 13.4%. It has weakened against the Hong Kong dollar by -0.7% because the Hong Kong dollar is linked to the US dollar. Finally it has weakened against the Taiwan Yuan by -6.5%. This shows quite clearly that the Monetary Authority does not artificially prop up the Singapore dollar against the currencies of its major trading partners. In fact, the policy of the Monetary Authority is to ensure that there is a stable market condition for the Singapore dollar exchange rate and it intervenes where necessary in order to ensure that there will be no disorderly movements either upwards or downwards which will disrupt the market and to stop unnecessary speculation. In order to do this, it monitors the movement of the Singapore dollar against a basket of currencies of its major trading partners. Unfortunately the market tends to focus on one currency alone, and that is the US dollar. In this connection, as I have said, the Singapore dollar has only weakened by 0.7% against the US dollar, simply because the US dollar over this period has itself weakened considerably against most other major currencies. Surely the market does not expect the Singapore dollar to fall even further. I hope this will be sufficient to dispel any rumours or beliefs that the MAS pursues a policy independent of the Government to satisfy its own whims. Finally, there is a misconception that the MAS is determined to uphold the value of the Singapore dollar in order to protect the status of Singapore as a financial centre. Again this is not true. Why is it so? Take Hong Kong, for example.”
“Another important factor determining rates would be the position of the Government's finances or fiscal position, budget surpluses, whether a country runs a surplus or a deficit, whether it needs to borrow externally or has either nothing or large external reserves. In all these aspects, Singapore's fundamentals have always been and still remain very strong. Finally there is the more general situation in which foreigners' confidence in the country is determined by political stability in the country and its investment climate. Again, I think Singapore excels in this area. For a combination of these reasons, up to at least the middle of 1985 probably, the Singapore dollar has been steadily appreciating against most currencies of its trading partners. During this period, the MAS policy has been, in fact primarily, to intervene in the market in order to keep down the rise of the Singapore dollar. It did this by purchasing US dollars in the market place, and thus adding to our external reserves. So there was no question of propping up the Singapore dollar. In fact, we were trying to keep it down. Since then, of course, with the weakening of the economy of Singapore, the Singapore exchange rate has, in fact, adjusted itself to market realities. I will give you some examples. Taking the exchange rate for the period 1st January 1984 to the rate prevailing yesterday, a period of roughly two years. In early of 1984, Singapore's economy and its fundamentals were very strong. It has weakened since then. Against the US dollar, it has weakened marginally by 0.7%. However, against the Deutsche Mark it has declined by -21.8%. Against the Sterling Pound it has declined by -6%. Against the Yen by -24.5%. Against the French Franc it has declined by -21.3%.”
“Mr Speaker, Sir, may I have your permission to say a few words concerning the Singapore dollar exchange rate. This is because a number of questions have been raised in the House on the subject, particularly the misconceptions which seem to have arisen about MAS's policy which it is believed would tend to contradict the recommendations of the Economic Committee. I can assure the House, Sir, that this is totally untrue. To quote the recommendations of the Economic Committee. It says: 'The Committee is of the view that the Singapore Dollar exchange rate should be set by market forces. The Dollars should, as far as possible, be allowed to find its own appropriate level and one which reflects fundamental economic trends.' This is precisely the policy of the MAS. And I have said this in public several times in the past. However, I think Members of the House may still remain skeptical, so I will explain. The strength of a country's currency is determined by a number of fundamental factors, and these include its basic balance of payments position which is a reflection of the demand for a country's currency by its trading partners, investment flows into the country and short-term capital movements for financing of trade. In this area, Singapore's fundamentals have always been very strong. Another important factor determining exchange rate differentials is the relative inflation rates between countries which determines the comparative purchasing power of currencies. Again, in this respect, Singapore has always enjoyed very low inflation rates relative to its major trading partners.”
“Mr Speaker, Sir, I would like to defer the presentation of the Bills until a later date.”
“In fact, it was declared at the press conference that all trades were guaranteed. Rather than issuing grandiose statements about boosting market prices and encouraging people not to sell which is manifestly useless because the market is not going to believe you anyway, it was considered vital that the mechanism was put in place to ensure that no panic took place. [Interruption]. Would you please not interrupt? It was clearly a priority to ensure the mechanism was put in place to ensure that there was no panic and that was MAS' priority and it was also announced in the press conference on that day.”
“Yes, I gave the consent simply because it was clearly impractical to insist that the Stock Exchange remain open when they clearly were not able to do so. I think that does not require a lot of logic. If we had insisted that the Stock Exchange remain open in the circumstances, does the Member for Anson believe that the prices would not have dropped? I believe that the prices in fact would have dropped twice as large.”
“I am answering for your benefit now. There is an advisory body provided under the Securities Industry Council in which MAS is represented. That body's sole function, in fact, is to advise the Minister on new listings of companies. It also advises the Minister on administration of the Code on Takeovers and Mergers on stock exchange matters. If the Member for Anson wants details, we can give him facts which clearly establish that MAS has no powers which we would like to have and which are embodied in the new Securities Industry Act. Under a self-regulation system, the Stock Exchange Committee makes its own decisions and consults the MAS on these decisions on matters of importance because it is a regulatory body for the financial system. As far as the suspension of the Stock Exchange was concerned, the decision was taken entirely independently by the Committee of the Stock Exchange after consulting with MAS and the banks.”
“But many who sold could equally have made some money except they probably did not make as much as they would have hoped to if they had bought considerably below the market. In fact, the realistic way to look at prices on the Stock Exchange is how the international investor values it, and one of the most important criteria is the price earnings ratio placed on shares by investors, both domestic and international. Even at current day prices, with the Straits Times Industrial Index standing at about 640 today, the valuation placed by international investors and the investors in general still place an average price earning ratio of 21 for Singapore stocks compared to an average of 17 in Hong Kong, 25 in Japan and 13 in the United States. So confidence in the value of our companies' assets has not evaporated by any means. Fluctuations do take place. I think I have already talked about this in my ministerial address. Perhaps I should explain to the Member for Anson that a self-regulatory system, as practised here and until the change in the Securities Industry Act and as practised in the United Kingdom, places full responsibility on the Committee of the Stock Exchange to manage its own affairs. The MAS has no legal powers to enter into or inquire and demand information, and that is the defect we are trying to rectify by the new Act.”
“Mr Deputy Speaker, Sir, I have always been considerably impressed by the oratory of the Member for Anson, except in this instance I find that his speech on this subject 7207consists of 1% substance, about 95% meandering, and 4% of hot air. The issues undoubtedly were important but they should not be taken out of context in terms of the size, the impact and seriousness of Singapore as a financial centre. Let me deal briefly with his vast sweeping statements in saying that millions of dollars have been wiped out from the Stock Exchange capitalization. I think this is an extremely naive and simplistic way of looking at prices on the Stock Exchange. I think he is referring to the one-day loss when prices dropped upon opening. I think he should realize that most of these have been recovered. So where it has evaporated, it has congealed again. Prices in the stock markets move every day and it is in the nature of prices of stocks that they fluctuate. As an example, it is reported today that the Dow Jones (US Stock Exchange) fell by its largest single-day drop since 1929. In the process, due to a statement made by an Investment Counsellor, $40 billion was wiped off the value of shares on the New York Stock Exchange. Is that a real loss? By that standard, the fluctuations which have taken place over the years in the Stock Exchange of Singapore will have wiped out billions of dollars and recovered equally billions of dollars within a short time. So it is extremely naive to look at price changes over one day as wiping out the underlying assets, which is what we should be looking at. For those who may have sold on the day in question, indeed if they had sold and lost some money, this was unfortunate.”
“He suggested that the MAS had shown bias in giving special conditions or allowances to the Committee of the Stock Exchange to take considerable time for consideration of the proposed SI amendments. It is normal practice for the MAS to conduct extended consultations with people affected by proposed changes in law. It is essential in our view that such consultation should take place because it is clearly impractical to impose legislation which is unworkable or would destroy the industry it is designed to promote. Question put, and agreed to. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. - [Dr Hu Tsu Tau]. Bill considered in Committee. 7.16 pm [Mr Deputy Speaker in the Chair] Clause 1 -”
“Mr Deputy Speaker, Sir, to the questions by the Member for Whampoa on how the law will be applied, I can give him the assurance that the intention is not to apply it arbitrarily because that clearly would not be in the interest of the Singapore industry and that it will be applied with discretion because the intention is not to kill the industry but rather to develop it. That is an assurance I can give categorically. As to the right of appeal to the Minister which appears to have been withdrawn, I just would like to mention that the Minister also happens to be the Chairman of the Authority. So the appeal is almost automatic in this case. I am both Minister for Finance and Chairman of the Monetary Authority of Singapore. In fact, the Monetary Authority of Singapore is part of the portfolio of the Minister for Finance. As to the right of appeal generally, this is not a constitutional provision for any Ministry or authority to give automatic appeal in cases where a licence to operate a business is not granted. It is much like saying that there should be a right of appeal if request for a banking licence should be refused. There is no such provision currently under the Banking Act. The decision is made by the MAS using its best judgment on the qualifications of the applicant and the same applies to the insurance industry. I would like to mention in general terms that the provisions under these amendments have been thoroughly discussed with the members of the insurance industry as part of our consultative process, and it has taken many months to achieve the present result. And in this connection, I would like to respond to the insinuations of the Member for Anson during the debate on the Betting (Amendment) Bill.”
“Significantly, in 1984, 35% of premium income of general insurers was derived from outside Singapore. Offshore insurance business written by the industry in 1975 was negligible. The professional reinsurers contributed to more than half of the total offshore business. It is against such a background of developments in the insurance scene that the proposed amendments to the Insurance Act should be viewed. The Insurance (Amendment) Bill seeks to: (1) strengthen the financial position of insurers and their ability to meet their liabilities to policy owners and claimants; (2) improve the system of insurance supervision and control with the necessary flexibility for promoting insurance industry development; (3) protect policy owners' interests in cases of insolvencies; and, (4) reflect the transfer of the administration of the Insurance Act to the Authority. Sir, I beg to move. Question proposed.”
“Before I proceed to describe the main provisions of the Bill, I would like to briefly describe the present market structure and size of the Singapore insurance industry and how it has grown over the years. There are presently 84 insurers registered to carry on insurance business in Singapore. Of these, 63 are direct insurers which sell insurance to the general public, 16 are termed "professional" reinsurers and five are captive insurers. The "professional" reinsurers represent a new breed of insurers established over the last 12 years to promote Singapore as a reinsurance centre. Professional reinsurers provide insurance cover to other insurance companies. They operate principally on a regional or international basis. The captive insurers are of an even more recent development in Singapore. They are set up by foreign multinationals to provide in-house insurance services for their group of companies. It is our intention to promote Singapore as an attractive home for captive insurers. In addition to the registered insurers, insurance agents and insurance brokers are part and parcel of the insurance industry. These insurance intermediaries are not formally regulated under the present Insurance Act, except for 11 brokers and agents who are registered to deal with the Lloyd's market. In 1984, the total gross premiums written by the industry amounted to $964 million for general business and $333 million for life business. This compares with a premium income of $232 million for general business and $73 million for life business in 1975. In terms of growth, general business premium income grew at an average of 17% per annum over the last decade, while life business grew at 18%.”
“Mr Deputy Speaker, Sir, I beg to move, "That the Bill be now read a Second time". Since the Insurance Act was last amended in 1973, significant changes have taken place in the insurance industry both here and abroad which necessitate a review and updating of the Insurance Act to ensure its relevance and effectiveness. The Singapore insurance market has grown in size and capacity. Larger and more complex risks are being written, reflecting the growth and development of our economy. The character of business has also changed substantially with offshore insurance business becoming increasingly important for the industry. Internationally, the general insurance and reinsurance market has been experiencing a prolonged period of difficult market conditions. Over-capacity and high interest rates had resulted in very keen competition at uneconomic rates. Many insurers and reinsurers in Europe and the United States had suffered substantial underwriting losses. Some had even incurred net operating losses after investment income. In addition, London, the world's leading insurance centre, was troubled by scandals of fraudulent practices at the Lloyd's of London. In view of such developments, insurance supervisory authorities have become increasingly concerned with the security of insurers and reinsurers. The nature of the insurance business is such that no market can isolate itself from other markets. This is especially true of general insurance risks which can run into hundreds of millions of dollars in sums insured. For prudent reasons, each market has to reinsure with other markets to spread its risks. The supervisory authority has therefore, to watch developments in other major insurance markets which could impact on the security of reinsurers.”
“The question really is this: the predictability of foreign investors' confidence is the pragmatic flexibility of this Government. Question put, and agreed to. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. - [Dr Hu Tsu Tau]. Bill considered in Committee. [Mr Deputy Speaker in the Chair] Clause 1 -”
“It is not a blank cheque. As I have mentioned earlier, you can always change the law. If the Government wishes to impose a tax it could, to meet the request of the Members for Potong Pasir and Anson, abolish I suppose, the payroll tax, and impose another tax called labour tax. It would have precisely the same effect.”
“The powers will not be used unless they are necessary. This is merely a provision which allows us to change the tax system as we can do.”
“I know what you mean. If Parliament decides that the law is inopportune or not practical, it can always legislate to remove it by a majority of the House. Coming down to the question of the Member for Anson on Dr Tan's commitment to abolish the tax, I think the word he used was "suspend". The Oxford Dictionary will define "suspension" as a temporary measure and not a permanent change. As to the question of abdication of Parliament, I just mentioned the fact that Parliament always has the power to change the law by a majority. I do not think I need to go into a debate on this issue. Finally, the questions raised by the Member for Potong Pasir. He said, "What is the limit of the tax?" The present limit is zero, as I have no intention of imposing the payroll tax and neither will I consider doing it if the economy cannot possibly stand it. In fact, it was suspended for precisely this reason. I think one must accept that the Government is not irrational. In fact, the best signal that the Government can give to foreign investors is precisely that we are willing to change our laws, our impositions, to meet circumstances. And everything we have done to date, in fact, illustrates this. [Interruption]. Is zero a killing? An hon. Member: You have the powers.”
“That is the point. That is exactly the point.”
“Mr Deputy Speaker, Sir, as to the question by the Member for Whampoa, I can assure you that the present Minister for Finance and future Ministers for Finance would not be so foolish as to impose taxes which obviously the community cannot bear.”
“Mr Deputy Speaker, Sir, I beg to move, "That the Bill be now read a Second time." The Finance (Amendment) Bill 1985 seeks to give legislative authority to the suspension of payroll tax with effect from 1st April 1985, as announced in the fiscal year 1985 Budget statement. Presently, the rate of payroll tax is stipulated in the Finance Act (Chapter 139) of the Revised Edition. It does not provide for suspension of tax collection. Clause 2 of the Bill empowers the Minister for Finance to prescribe the rate of payroll tax by an Order. The suspension of payroll tax would be effected if no rate of tax is subsequently prescribed. Sir, I beg to move. Question proposed.”
“Mr Speaker, Sir, I understand from the Leader of the House that Parliament will be prorogued after today's sitting. The intention therefore is to re-introduce the Bill at the first sitting of the new Session of Parliament. The presentation of the Bill at this time is to provide the public with an early oppportunity to consider the implications of the Bill.”
“Mr Speaker, Sir, I beg to introduce a Bill intitled "An Act to consolidate and amend the law relating to the securities industry and for purposes connected therewith and to repeal the Securities Industry Act 1973 (No. 17 of 1973) and section 158 of the Companies Act (Chapter 185 of the Revised Edition)". Bill read the First time. Second Reading”
“Unfortunately, in the case of Pan-El, one of the directors is no longer in Singapore and he is currently being looked for by Interpol. Without his presence, investigation into the affairs of Pan-El is very difficult but nevertheless it is being done. On the issue of forward contracts, the matter is being investigated by the supervisory committee and if there are any violations, they will be attended to. BILLS INTRODUCED SECURITIES INDUSTRY BILL First Reading 12.38 pm”
“First, the question from the Member for Whampoa in regard to the three problems involved. Regulations, as I said, will be covered under the new Act. Foreign manipulations, it is difficult to trace. Indeed this is a problem although I would point out that it is not necessarily foreign manipulation. I think Singaporeans are equally capable of manipulations. So it is a general problem. Disclosure by directors and reporting to the auditors, that is indeed something which is being looked into - whether the auditors might not be more liable for not, in fact, getting all the facts to the attention of the shareholders. It is not a local problem. It is a world-wide problem. I think there have been a lot of suits involving auditors and directors for mismanagement. It is a complex and difficult problem. One of the provisions of the new Securities Industry Act will be to require auditors to report much more fully on all matters of interest to shareholders. This is similar to the provision under the Banking Act. This requirement is a Singapore innovation and initially it received quite adverse publicity. But now it is beginning to be generally accepted by regulatory authorities world-wide including, I think, both the UK and Hong Kong. External auditors are now required to report much more fully on the affairs of the companies which they are auditing. In this connection, I think the responsibility of directors is important. The matter is, in fact, under investigation. In the case of Pan-El, it is by the Commercial Affairs Investigation Department of the Ministry of Finance. When violations of the Companies Act or the Securities Industry Act are discovered, the law will take its normal course.”
“Our understanding is that Malaysia also intends to introduce legislative changes probably around April this year. Their provisions are not dissimilar to ours. Finally, the question of the Member for Potong Pasir. Indeed, now that we know the size of the contracts, it is quite evident that this was a device used by some speculators as a source of fund raising. And this is the reason why it has now been stopped by the supervisory committee and will not be allowed under the rules of the new Securities Industry Act.”
“And this is one of the facts which the MAS was very unhappy with and prompted a review of the regulations which led to the drafting of the new Securities Industry Act because it was patently difficult for brokers to regulate themselves where self-interest was involved. It is a totally contradictory situation which is very difficult to resolve. Although it has been commonly used and quite successfully in other parts of the world, particularly in UK, this is one of the reasons why we continue to allow it here because there were no obvious transgressions until recent years. It may be that we should have imposed regulations earlier but it is often easy to be wise after the event. Although we and the MAS have been accused of being far too tough on regulations, this is one area where perhaps we will want to toughen up, in time anyway. Why was the Securities Industry Bill which was drafted not implemented? I think the reasons were that the draft was circulated to brokers in end May/early June last year and the complaints were vociferous because they saw that this would tie their hands and would impose regulations. And there was generally the fear that MAS would again, like people accuse us of doing, introduce overkill. As a result, we had to go back to them and talk extensively and it is this consultative process which makes introduction of legislation time consuming. We could, of course, have rammed it through but you can imagine the uproar which would have occurred had it taken place. We would have been accused for different reasons. The Member for Rochore's question. Has MAS consulted Malaysia on amendments to the Securities Industry Act? We have not consulted our counterparts in Malaysia directly on the changes although we have kept them informed.”