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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“25 month special bonus that was paid to civil servants last year, the total annual package (14.25 months including a one month annual wage supplement, a one month AVC and 0.25 month special bonus for 1998) is still 0.75 month less than the 15-month package paid in 1997. The decision to restore civil service pay cuts took into account the recovery in the economy, the need to attract and retain talent and to maintain the high quality of public service and Government. Based on CPF records, the average monthly earnings of the entire workforce, including civil servants whose wages fell, grew by 2.7% in 1999, reflecting higher wage adjustments and overtime payments. In fact, in the last quarter of 1999, the average monthly earnings of the workforce was 5.9% higher than in the same period one year ago. The increase in manpower expenditure for FY2000 appears large at 10.8%, because it is compared against a lower base of FY99, which included the CPF and salary cuts for civil servants and political appointments. The partial restoration of these cuts accounted for the bulk of the increase in manpower expenditure by more than 8 percentage points out of the 10.8% increase. Discounting the restoration, the increase in manpower expenditure is only 2%, which is lower than the projected GDP growth. This is mainly due to normal salary increments. Government is committed to keeping the civil service lean and trim and, over the years, has farmed out non-essential services to the private sector and harnessed IT to bring about added efficiencies. This will continue. Corporate tax Mr Tay Beng Chuan has asked why was the corporate tax cut of 0.5% not applied with effect from the Year of Assessment 2000, rather than from the Year of Assessment 2001. As I have explained earlier, the 0.”
“The quantum of the top-up is in line with top-ups given by Government in earlier years. Dr Vasoo has asked that retirees and retrenched workers should be given a grace period to make their one CPF contribution so as to receive the $250 special CPF top-up. I should point out that the special CPF top-up is targeted at those who had been directly affected by the wage and CPF cuts and by retrenchments. It is both reasonable and appropriate that the special CPF top-up should be extended to the Singaporeans who had worked, and therefore contributed to CPF, any time in the 1998 and 1999 period. This will cover those who had been retrenched or retired during this period. Allowing Singaporeans to top up their CPF accounts in order to qualify for the special CPF top-up will detract from the purpose of the exercise. Civil service pay Mr Simon Tay and Mr Low Thia Khiang have expressed concern over civil service pay. Mr Tay asked why, when the CPF cut has not yet been fully reinstated, the civil service should be reinstating its full pay cut. Mr Speaker, Sir, the civil service is only restoring the pay cut made on 1st January last year, when the civil service took the lead in implementing pay cuts. The CPF/pay cut for civil servants is still in place, just like all other Singaporean workers. I also want to point out that contrary to what Mr Tay believes, civil service pay has not been fully restored. The cut to the monthly salaries of civil servants made on 1st January 1999 up to 5% was restored on 1st January 2000. The total annual package has yet to be fully restored. This is because the annual variable component (AVC), which was cut from two months to 0.75 months in 1998, was only built up to one month in 1999. If we include the 0.”
“The higher income tax collection could only come from higher profits and wages, generated by our people having real jobs, producing real goods and services which the world finds worth buying. It is therefore contorted and invidious logic to suggest that the CPF cut is an exercise aimed at transferring monies from the people to the Government's pocket. Ultimately, we should remember that the accumulated reserves belong to the people of Singapore and not to the Government. Mr Ong Ah Heng, Mr Peh Chin Hua and Mr Chiam See Tong have urged that the CPF rate cut should be restored faster. The 10% CPF cut, which took effect from 1st January 1999, was originally planned to stay for two years. This period would allow the economy to regain its cost competitiveness. Once the economy had recovered, the cut will be progressively reduced. Given the faster than expected rebound, restoration of the CPF cut was brought forward to April 2000, instead of after two years. However, in order not to prematurely derail our business competitiveness and the economic recovery, the pace and quantum of the restoration have to be gradual. It took us five years and four months to restore the CPF cut in the 1985 recession, with the first step taken only after 28 months. We are now taking our first step this time after just 15 months. Dr Teo Ho Pin and Mr Peh Chin Hua have asked why the CPF top-up could not have been made bigger. I should point out that the special CPF top-up is not meant to fully or significantly compensate for the CPF cut, as doing so would defeat the purpose of the cut in the first place. Instead, it is given to recognise the sacrifice of the workers in accepting CPF and wage cuts to help lift the economy out of the recession.”
“However, they have not yet been approved by the Development Planning Committee and are thus classified as new projects. When these projects are approved and initiated in the course of the year, funding has to be provided for them. Viewed in this perspective, the amount set aside for these new programmes is not large, as it constitutes less than 8% of the total development budget for the fiscal year. Restoration of CPF cut and the special CPF top-up Mr Low Thia Khiang has argued that the Government was benefiting at the expense of workers with their CPF cut, and hence Government policy had resulted in a win-win situation for the Government and a lose-lose situation for the people. Mr Speaker, Sir, I think Mr Low Thia Khiang has got the cause and effect all mixed up. The CPF rate was reduced during the crisis to lower our business costs, improve our competitiveness and help to save jobs. That was its primary objective. Every company that decides to relocate out of Singapore because other countries in the region have become significantly cheaper due to the weakening of their currencies relative to the Singapore dollar during the economic crisis, would represent a permanent loss of jobs for Singapore. The CPF cut was the single most important measure necessary to improve our cost competitiveness and to retain jobs. Without the CPF cut, more workers would have suffered as companies retrenched or closed down. The cost cutting package played a critical role in helping to get us out of the crisis quickly. The higher tax collection is the direct result of the strong economic rebound and the timely measures taken by the Government.”
“We have been advocating meritocracy from the very beginning since our independence so that no child will be deprived of the opportunity to go to school and to develop to his or her very best potential just because they come from poor families. We have long sounded the clarion call for our workers to train and retrain, and put in place a full range of supporting schemes. Dr Wang Kai Yuen, Mr Simon Tay and Mr Tay Beng Chuan have urged that Government should bring forward construction projects to support the growth of the economy. Government had, at the beginning of FY99, set aside funds for new projects that may be needed to help stimulate the economy during the course of the year. Such projects involve building infrastructure earlier than they are needed. They would not have been considered under normal circumstances. However, once it became clear in the course of 1999 that the economy was recovering strongly, it did not make sense to implement these projects, as doing so will only incur costs for a marginal gain in the face of an economy which was already turning around. Members of this House may wish to note that for our economy, external demand makes up 75% of total demand. So, stimulating the domestic economy has quite a small effect on our GDP. Dr Wang Kai Yuen again and Mr Lew Syn Pau have commented that the $979 million set aside for new projects in FY 2000 was unusual. I can assure them that there is nothing "unusual" about a provision for new projects. There was a similar provision of about $1 billion in the FY99 budget. I should explain what is meant by new projects. New projects are projects that are already on the drawing board, and for which some details have been drawn up.”
“Our operating revenue, which is strongly correlated to the performance of the economy, turned out to be much higher than we originally expected. This, coupled with the lower tender prices for major development projects and the non-acceleration of some lower priority projects, led to the large swing in the budget position. No magic is involved. Sir, the budget surplus outcome was something we could not have foreseen, but neither is it something that we need to be ashamed of. The budget surplus is a happy outcome as it is the result of the strong and speedy V-shaped recovery from the crisis. There was no reason for the Government to spend frivolously just to avoid showing this surplus. This would not be in the best interest of Singapore and Singaporeans. On Government expenditure on Defence, Education and Training, Mr J B Jeyaretnam said that we are spending more and more on Defence. As I have explained to Mr Jeyaretnam last year, as Singapore's GDP increases over the years, in absolute dollars, we would then spend more on national defence naturally. The safety of our people and all that we have worked for and saved all these years will be at stake if we do not maintain a strong military defence capability. Mr Jeyaretnam also accused the Government of only training the workers when they are old, instead of when they are young. In FY2000, our Budget for the Ministry of Education and the Ministry of Manpower will increase by 70% and 68% respectively. And this is not lip service. This Government has recognised right from the beginning the importance of investing in our children.”
“The Asia Pacific Consensus Forecast, which polls GDP forecast from various private sector sources, had in January 1999 forecast a growth of -0.8% for Singapore for the year. Could we or should we have foreseen that the economy would register a steep V-shaped recovery by the second quarter of 1999? The simple answer has to be no, and neither did anybody else. If Members believe that they have a magic formula for forecasting economic recoveries, I hope that they will share with us. Sir, the Government did not set out to achieve a budget surplus and was prepared to spend much more when necessary to stimulate the economy. As I have said earlier, the Government introduced two off-Budget support packages in June and in November 1998 as our economy slipped into recession. The cost of the $2 billion package in June was entirely borne by the Government, while the $10.5 billion package in November contained substantial cuts in Government taxes and levies. At the same time, a contingency package of additional public sector expenditure was put together to provide support for the economy if conditions worsened in the course of 1999, and additional jobs had to be created to provide employment for retrenched workers. It was this combination of an anticipated low revenue collection in a low-growth economy, coupled with substantial tax and levy cuts and increased provisions for contingency spending which led to the forecast of a budget deficit. However, as it turned out, our economy grew by a respectable 5.4% in 1999 due to the upturn in global electronics demand and the strong rebound of the regional economies. This was an increase of more than 5% in GDP growth over our FY99 Budget forecast.”
“Mr Chiam See Tong claimed that the budget surplus was not based on the total revenue received by Government and that the budget balance should include investment income and proceeds from land sales. Our budget surplus is indeed defined as operating revenue made up of operating and development expenditure and excludes specifically investment income and proceeds from land sales. The budget surplus is defined in this manner to ensure that Government lives within its means and does not live off the past. Trying to live off investment income and proceeds on land sales is both unwise and unsustainable. We have a limited amount of land in land scarce Singapore and investment income is needed to preserve the real value of our reserves. Using up all the investment income will, over time, result in a diminution of the value of our reserves. Reliance on land sales as a source of current revenue is a two-edged sword, as Hong Kong's experience has shown. To ensure the sustainability of Government's budget, Government's expenditure each year must be supported by the operating revenue collected, barring recessionary conditions. No amount of reserves would be enough to sustain a Government that perpetually lives off the past. Dr Wang Kai Yuen, Mr Leong Horn Kee, Mr Iswaran, Mr Noris Ong and Mr Tay Beng Chuan had all asked why Government ended with a budget surplus in FY99. The FY99 Budget was originally planned based on the circumstances at the beginning of 1999. As I said earlier, the outlook then was quite pessimistic. The Government projected 1999 growth was within the range of -1 to 1% and we were not alone in expecting a weak growth at that time.”
“The 5% personal tax rebate this year takes into account the modest FY2000 budget surplus of $2.5 billion, which is significantly less than the budget surpluses before the economic crisis. Let me stress that the Government fully recognises that our workers had lived with the difficult years of 1998 and 1999, when some were retrenched and all have to take a CPF cut under the cost-cutting package. We are particularly grateful to the trade unions for their solidarity and supporting the CPF tax cut. The Special CPF top-up announced in the Budget does not make up for all that they had forgone in CPF contributions, but is a gesture of appreciation and recognition. This top-up will amount to $385 million. The unexpected FY99 budget surplus has made it possible for the Government to make this top-up. The Government will also make transfers of $100 million and $200 million into the Medifund and the ElderCare fund respectively to help the poor and the aged with their medical expenses. After taking into account the top-up and the transfer, the FY1999 budget surplus is expected to be $2.5 billion. Sir, as the economy recovers, we should revert to a prudent fiscal stance. The Asian crisis has taught us an important lesson. Other countries can turn to their assured large domestic economic hinterland and natural resources for livelihood in times of hardship. Singapore only has its financial reserves to fall back upon. We need to build up our financial reserves when we can, to make sure that when hard times hit, we have the wherewithal to deal with and get ourselves out of the economic crisis quickly. I will now proceed to address the other major issues raised.”
“With the recession largely behind us, we have to focus our attention to repositioning our economy in response to the challenges of globalisation and technology, while easing our way out of the special cost-cutting measures. We must not forget that the cost-cutting packages were meant to be temporary measures to help companies and individuals during the economic crisis. They were not meant to be the norm. The tax measures should not be seen in isolation. We have not totally withdrawn the cost-cutting package. Reductions in foreign worker levy have been left unchanged for another year, to the year 2000. Jurong Town Corporation and HDB will also maintain the rental concessions for another year to the end of this year. The property tax concession, which was already extended for one year earlier, continues for another year, though at a lower rate of 25% instead of 55%. Even at 25%, the rebate is still significant, amounting to an effective cut in the property tax rate by 3 percentage points. The GST offset for individuals and utilities rate revision offset for households continue. We will also continue with the assistance schemes under the HDB as well as the CPF bridging loan scheme and the use of CPF Special Account to help home buyers meet shortfalls in mortgage repayments caused by the CPF cut. The 10% corporate tax rebate was meant to help companies during the crisis. There is no need to carry on with this crisis measure. However, we should position ourselves for strategic international competitiveness in tax. The corporate tax cut of 0.5% is a cautious next move to maintain this tax competitiveness. The 10% personal income tax rebate last year was given as a measure of relief. The pressure for relief has diminished.”
“Sir, first, let me thank all the Members of the House who have spoken on the Budget yesterday and today. But in view of the time constraint, I can only focus on major issues raised and leave matters of detail to the Committee of Supply. First, on tax cuts. Members such as Mr Ang Mong Seng, Mr Heng Chiang Meng, Mdm Claire Chiang, Mr Kenneth Chen and Mr Chiam See Tong have commented that the Government had been too quick to scale down the tax cuts given during the economic crisis. There is disappointment that the 10% corporate tax rebate will be discontinued, and that the personal tax rebate and the property tax rebate for commercial and industrial properties are cut back from 10% to 5% and from 55% to 25% respectively. Sir, when I presented the FY99 Budget last year, the outlook for our economy was very uncertain, with GDP growth for the year 1999 forecasted at between -1 and 1%. The Government had taken decisive actions in introducing the $10.5 billion cost-cutting package in November, following a $2 billion off-Budget package in June 1998. We would have been prepared to do more if this was necessary. As events turned out, the timely restoration of our cost-competitiveness had kept businesses intact, while an improvement in external demand paved the way for a recovery which gained momentum and became broad-based in the second half of 1999. Most sectors, barring construction in particular, are out of the woods. Retrenchments have gone down drastically. In 1998, 29,100 workers were retrenched. This year, this fell sharply by 50% to 14,600 retrenched workers in 1999. Based on CPF records, the average monthly earnings of the workforce in fact grew by 2.7% in 1999, reflecting higher wage adjustments and overtime payments.”
“We have to face up to the challenges of a globalised economic system and keep pace with changes in technology to remain relevant and useful. We need to accelerate the pace of economic restructuring. Our costs must remain competitive. We must have world-class infrastructure and strong reserves and our workforce must be continually upgraded. Most important of all, we have to work on preserving our social cohesion, without which we will be much weaker as a nation in weathering a future crisis. Mr Speaker, Sir, I beg to move. [Applause.]”
“TAX CHANGES FOR THE PROPERTY SECTOR Property Tax Exemption for Land under Development The property tax exemption for land under development was introduced in the FY98 Budget to address difficulties faced by developers during the economic crisis. The property development market has shown signs of recovery since. Property transaction volume and the property price index have seen a pick-up. Government has also decided to resume residential land sales this year. Tax exemption on property tax for land under development will therefore be withdrawn with effect from today. The change will only affect new projects. Projects which have been granted tax exemption will continue to enjoy the concession for a maximum period of 5 years or upon completion, whichever is earlier. TAX CHANGES ON PERSONAL CONSUMPTION Duties on Cigarettes Duties on cigarettes were last revised in February 1998. In support of the continuing national effort to discourage smoking, especially among the young, the excise duty on cigarettes will be raised from $130 to $150 per kilogram. Details of the changes are in Annex A. (Cols. 1123-4). The changes will take effect from today. There will be a revenue gain of about $64 million annually. CONCLUSION Mr Speaker, Sir, barring any major external shocks, the recovery momentum is expected to continue in 2000 and beyond. We have come through the economic crisis well because of our strong fundamentals and sound principles of governance. We are well placed for future growth, provided we do not become complacent. The economic crisis has also taught us valuable lessons on the post crisis economic environment and strategies needed for future growth.”
“Extension of the Asian Currency Unit (ACU) Scheme to All Offshore Financial Derivatives At present, ACUs are taxed at a concessionary rate of 10% on income from transactions in certain specified derivatives, including interest rate and currency swaps in non-Singapore dollars, with offshore counterparties and other ACUs. The trading of financial products other than plain vanilla swaps has expanded considerably. To further develop this area of business, the 10% tax rate will be extended to income derived by ACUs from all other offshore derivative transactions in non-Singapore dollars. This extension will take effect from Year of Assessment 2001 and will apply for 5 years. Goods and Services Tax on Trustee Services Provided to a Trust with Non-Resident Settlors and Beneficiaries A cardinal principle underlying the GST is that it is a tax on domestic consumption of goods and services. Under present tax rules, the provision of trustee services by a trustee to the trust is standard-rated if the trustee representing the trust is situated in Singapore. This treatment applies even where the settlors and beneficiaries of a trust are all or mostly foreign. In order to put Singapore trustees on a more competitive footing with offshore trustees, I have decided to zero-rate trustee services in cases where at least 80% of the settlors and beneficiaries are non-resident, and at least 80% of the assets of the trust were originally contributed by settlors who are non-resident. This measure will also facilitate the development of our private banking industry, where trusts are likely to play an increasingly substantial role.”
“The MAS has amended its regulations to allow multi-line insurers, reinsurers and branches of foreign insurers, to write financial guaranty business. To further promote this activity, claim payments made under financial guaranty insurance policies by approved financial guaranty insurers to non-residents will be exempt from withholding tax. This will take effect immediately. Extension of Tax Concession for Bond Trading to Swap Trading In the 1998 Budget, I announced a concessionary 10% tax rate on income derived by financial institutions from trading in bonds. For the bond market to flourish, it is important to develop a swap market to provide market players with avenues for risk-hedging and arbitraging. To encourage the development of the swap market here, the concessionary 10% tax rate will be extended to income derived by financial institutions from trading in interest rate and currency swaps. This concession will take effect from Year of Assessment 2001 and will apply until 27th February 2003, which is also the expiry date of the 5-year bond incentives which took effect on 28th February 1998. Withholding Tax Exemption on Interest Rate and Currency Swaps During the 1989 Budget, I announced the exemption of withholding tax on interest rate and currency swap payments made by Asian Currency Units (ACUs) to non-residents. To further develop our swap market, withholding tax exemption will be extended to all bona fide interest rate and currency swap payments made by financial institutions besides ACUs. The exemption will take immediate effect.”
“Exchanges worldwide have been restructuring themselves in the face of globalising equity markets. Advancement in technology has not only created new competition from alternative trading systems, it has also facilitated the rapid flow of capital to markets which offer the greatest efficiency and lowest trading costs. The Monetary Authority of Singapore (MAS) has responded to these challenges with a series of initiatives. Liberalisation of the fixed brokerage commissions system will be accelerated. Commissions on all trades regardless of value will be freely negotiable from 1st January 2001, instead of 1st January 2003. Stamp duty on contract notes on share transactions is now only 0.05%, and had been suspended until 29th June 2000 as part of our earlier response to the economic crisis. To further enhance the competitiveness of our stock exchanges, stamp duty on contract notes on share transactions will be abolished with effect from 30th June 2000. The annual revenue loss to Government is estimated at $70 million, based on the average stock market transactions for the past 3 years. Abolition of Withholding Taxes on Financial Guaranty Insurance Contracts The recent financial crisis has highlighted the need for Asia to develop a deeper and more liquid bond market to facilitate raising of longer-term funds. Increasingly, there is a need for issuers of debt securities to employ credit enhancement tools, as investors become more concerned over credit quality. This will open up business opportunities in Asia for credit enhancers, such as financial guaranty insurers, which insure the payment of the principal and interest to investors.”
“They have made significant changes to their tax systems to encourage employee stock options, or to introduce incentive schemes for stock options. These countries include the UK, Scandinavian countries and even Japan. Under the incentive schemes, tax treatment for ESOPs is more favourable than cash payments. We must move in the same direction. We need to act quickly, to offer potential entrepreneurs that extra incentive to take the plunge, and to send a clear signal that we are strongly encouraging enterprise and wealth creation. Attractive tax treatment to encourage the use of ESOPs will also help our companies to compete for global talent, which is highly mobile not only across companies, but also across national boundaries. Talent will be attracted to places where opportunities and post-tax rewards are the greatest. We improved the tax treatment of ESOPs last year, by allowing the tax payable to be deferred by up to 5 years, with interest chargeable for the deferment. But this was only a modest first step. We need to improve the tax treatment of ESOPs further, particularly for the high tech start-ups. As this may have significant implications for our tax system, we need a little more time to complete the study. We will announce an enhanced scheme for high tech start-ups by the end of May this year. TAX CHANGES FOR THE FINANCIAL SERVICES SECTOR Abolishment of Stamp Duty on Contract Notes The Government will continue to fine-tune its tax regime to promote the development of the financial services sector and to ensure that Singapore continues to be a conducive centre for trading and transacting financial products. The securities markets today are facing a period of intense technological change and competition.”
“Enhanced Tax Treatment for Stock Options Equity ownership is key to the development of the vibrant technopreneurial environment in Silicon Valley and other high tech nodes. Talented people, including research scientists and engineers, high tech professionals, MBA holders, and even office staff, are nowadays prepared to accept low or even zero salaries in return for equity stakes in the companies they work in. They hope that their companies will succeed spectacularly, and their equity stakes will increase by tens or hundreds of times in value. Their direct stakes in their firms' success motivates them to put their hearts and souls into building up the firms, and to slog long hours to outdo their competitors. Many of these equity stakes are offered to the employees through stock option schemes, commonly known as ESOPs (Employee Stock Options). The use of ESOPs is most pervasive among technopreneurial start-ups. But even for mature companies, ESOP schemes have been shown to have a significant impact on corporate performance. The evidence that stock options play a pivotal role in good corporate performance is well established. The usefulness of stock options lies in their ability to recruit, motivate and retain employees. This is vital in the businesses of today. But it will be even more important in the businesses of tomorrow, which will place a growing premium on developing and applying knowledge, and committing the energies and creative juices of the people working for the company. They may still be called employees, but they are actually partners in the enterprise. Many developed countries have recognised the importance of employee stock options in helping high-growth companies to retain and motivate top talent.”
“b) Concession for Inventors and Innovators The incentive for inventors and innovators is presently applicable only to income derived by a Singapore citizen or permanent resident for the assignment of or for the rights in any approved inventions or innovations that are manufacturing-related. This incentive will be extended to cover any approved inventions or innovations from the non-manufacturing sectors. The scheme will also be extended to foreigners, provided that the creations of the inventions or innovations are substantially carried out in Singapore. To qualify for the incentive, the inventions or innovations must be protectable. The Economic Development Board will administer the incentive. It will be granted for a period of 5 years from Year of Assessment 2001. Estate Duty Exemption Rules for Residential Properties Currently, estate duty exemption is given on a two-tiered basis: for residential properties in Singapore, exemption is given up to $9 million, and generally for all other dutiable assets, $600,000. However, for residential properties to qualify for the $9 million exemption, they must not be used for any form of business activity. To encourage entrepreneurs who may want to work from home, this rule will be relaxed. With immediate effect, a Singapore residential property used for business activity will also qualify for the estate duty exemption for residential property, as long as the residential character of the property is not materially affected. This relaxation will support the Technopreneur Home Office Scheme, and also allow other small businesses to be carried out in residential properties without disqualifying these from estate duty exemption.”
“I have decided to lift these two conditions for the transfer of assets between associated companies, defined as one owning 75% or more of another company, or a third company owning at least 75% of both companies. Currently, publicly-listed companies and companies which intend to list their shares after the restructuring or merger are not able to meet the condition of a 2-year moratorium on changes in beneficial ownership of the shares. I have decided to lift the 2-year moratorium on the consideration shares held by public shareholders, and also allow companies to float a portion of their issued share capital up to the minimum listing threshold required by the SGX for its mainboard listing. This threshold is currently 25%. These changes will take effect shortly when details are announced by IRAS. TAX CHANGES TO ENCOURAGE INNOVATION, CREATIVITY AND ENTERPRISE Income Tax Concession for Royalty Payments Currently, authors, composers and inventors can avail themselves of a tax incentive which exempts from tax 90% of gross royalties received. To further encourage the development of the arts and innovation in Singapore, I have decided to liberalise the current scheme. The changes are as follows: a) Concession for Authors and Composers Currently, the concession is only applicable to income received by authors and composers from publishers in Singapore for the assignment of or for the right to use the copyright in any literary, dramatic, musical or artistic work. With effect from Year of Assessment 2001, royalty payments received by a composer or an author from recording, film or drama companies in Singapore will also qualify for this incentive.”
“Although the real estate sector has shown recovery in the past year, rental markets remain weak. I have therefore decided to extend the rebate for another year, up to June 2001, but at a lower rate of 25%. This will also help to ease cost pressures on companies generally. Revenue forgone is estimated at $250 million. HDB, JTC and other Government agencies owning properties will pass most of the rebate to their tenants. I would also urge private landlords to do likewise, and pass on at least half of the rebate to their tenants. Further Stamp Duty Relief for Corporate Restructuring and Merger Currently, section 15 of the Stamp Duties Act provides stamp duty relief for corporate restructuring and merger. As section 15 is a relieving section, qualifying conditions have been set for the concession. In recent years, we have seen an increase in the number of companies involved in restructuring or merger to re-align their businesses, so as to improve on cost-efficiency and better deliver products or services to customers. With these developments in mind, I have therefore decided to expand the scope of stamp duty exemption to a wider spectrum of corporate restructurings and mergers. In addition to the existing exemptions, relief will be granted to the transfer of assets between associated companies, the restructuring and merger of listed companies, and companies which intend to list or further list their shares after the exercise. Presently, if the transfer involves less than 90% of the company's shares, or if the consideration is made in cash, the exercise would not qualify for the relief.”
“Grants for S&C charges to HDB lessees and tenants, ranging from $36 to $66 a year will also continue to be given. The grants will start from July this year and will be $3 per month for 1-room flats, $4 per month for 2-room flats, $5.50 per month for 3-room flats and $4 per month for 4-room flats. They will be credited directly into the S&C accounts of eligible lessees or tenants with their Town Councils. This will cost the Government $29 million. I will now move on to tax changes for companies and businesses in general. TAX CHANGES FOR COMPANIES AND BUSINESSES Corporate Income Tax Last year, a 10% corporate tax rebate was given to assist companies affected by the economic downturn. This rebate will not be extended for a second year because the economy has rebounded strongly. Our corporate tax rate was last reduced to 26% in 1997 and remains generally competitive at this level. However, in recent years, many developed countries have been lowering corporate taxes to stimulate investments and if this trend continues, our tax competitiveness will be eroded over time. I have therefore decided to take a cautious next step by reducing the corporate tax rate by 0.5% to 25.5% with effect from Year of Assessment 2001. Maintaining a competitive tax regime is a cornerstone of our fiscal strategy and the tax cuts over the years have contributed greatly towards our economic growth. Revenue loss arising from the reduction in corporate tax rate is estimated at $140 million annually. Extension of Property Tax Rebate on Commercial and Industrial Properties In 1998, against a background of economic recession, a 55% property tax rebate for commercial and industrial properties was granted for two years, starting 1st July 1998.”
“I am happy to confirm that the GST offset package will continue to be given this year. The rental and S&C rebates are as follows: a) Rental Rebates For 1-room flats: a rental rebate of $12 per month For 2-room flats: a rental rebate of $8 per month b) Rebates for S&C Charges For 1-room flats: $8 per month For 2-room flats: $7 per month For 3-room flats: $4 per month The estimated cost of these rebates is $19 million. Offset Package for Utilities Rate Revision In June 1997, the Government announced the revision of water tariffs and water conservation tax to a uniform flat rate for all users. The increases were to be phased over 4 years, with the last increase scheduled for 1st July 2000. The water tariffs, including conservation tax, will increase by between 14.3 cents and 23.3 cents per cubic metre for domestic consumers. The non-domestic water rate will remain unchanged at $1.52 per cubic metre. To offset higher sewerage costs, the waterborne fee will be raised as scheduled by 5 cents per cubic metre for domestic consumers and 9 cents per cubic metre for non-domestic consumers, also with effect from 1st July 2000. The Government will continue to help lower-income households cope with the water tariff increases and I am happy to confirm that the offset package announced in last year's Budget will be continued this year. The utilities rebates are $200 for 1 to 3-room HDB flats and $100 for 4-room HDB flats. The rebates will be credited against the utilities bills of eligible households for the month of September. Households which are unable to use up the rebate within the month can carry over the balance of the rebate until it is fully used up. This will cost the Government about $81 million.”
“As economic recovery is well underway this year, the 10% rebate will not be extended. Instead, a one-off, across-the-board rebate of 5% on individual income tax for Year of Assessment 2000 will be granted. Estimated revenue loss to Government is $200 million. Rebates on HDB Service and Conservancy and Rental Charges Following the GST-related changes made to personal income tax, currently about 65% of individuals no longer pay income tax and will not benefit from income tax rebates. To assist people in this group, Government will grant rebates on HDB Service and Conservancy (S&C) charges and rents to citizens staying in owner-occupied HDB flats and rented flats. The rebates will be as follows: a) One-Room Flats Two months' net rent and two months' net S&C charges. The rental and S&C rebates will be made on 1st June and 1st December this year. b) Two-Room Flats One month's net rent and two months' net S&C charges. The rental rebate will be made on 1st December, and the S&C rebates on 1st June and 1st December this year. c) Three-Room Flats One and a half months' net S&C charges. The S&C rebate will be made on 1st June and 1st December this year. d) Four-Room Flats Three quarter month's net S&C charges. The S&C rebate will be made on 1st December this year. e) Five-Room Flats Half a month's net S&C charges, to be made on 1st December this year. The estimated cost of these rebates is $25 million. The rebates will be given after deducting GST offset rebates and S&C grants associated with utilities rebates. GST-Related Offsets and Rebates Last year, I announced that in view of the difficult economic conditions, the GST offset package, consisting of rental and S&C rebates for 1 to 3-room HDB households would be extended for two years until March 2001.”
“For those who maintain their aged parents but do not stay with them, the relief will remain at $3,500. The change will take effect from the Year of Assessment 2000. Revenue loss to Government will be about $5 million. Tax Treatment for CPF Savings Beyond the Minimum Sum Currently, under the Minimum Sum Scheme, the Minimum Sum may be left with CPF Board, deposited with an approved bank or used to purchase an annuity. CPF savings in excess of the Minimum Sum can be withdrawn at age 55. To encourage more prudent financial planning with CPF savings, the current tax exemption for annuities bought with the Minimum Sum will be extended to annuities bought with CPF savings beyond the Minimum Sum. The tax treatment will similarly be accorded to interest income arising from the deposits of CPF savings beyond the Minimum Sum deposited with approved banks. Several conditions, such as those of the Minimum Sum Scheme will apply. Details will be released by CPF Board in due course. Extension of Tax Relief for CPF Top-Up to Grandparents Apart from providing for their own financial security, individuals currently enjoy a tax relief for cash top-ups to the Minimum Sum Account of their parents. At present, a taxpayer who tops up in cash to his own or his parents' retirement accounts will be allowed a tax relief on the amount topped up, up to $6,000 a year. To promote inter-generational ties and the concept of extended families, I have decided to extend this relief to cover top-ups in cash for grandparents with effect from Year of Assessment 2001. Details will be released by CPF Board in due course. Personal Tax Rebate Last year, the Government gave a one-off 10% tax rebate to help mitigate the impact of the recession.”
“The IMC has recommended that financial security should comprise a "basic needs Central Provident Fund model", and a "complementary private sector system" to encourage Singaporeans to supplement their CPF savings by contributing voluntarily to private funds. The Government agrees with this recommendation. We will introduce a Supplementary Retirement Scheme (SRS), which allows Singaporeans to contribute voluntarily over and above their CPF savings. Contributions to SRS will be accorded tax deductions at the time of contribution, with tax being payable only when the savings are withdrawn. Participants will have considerable flexibility in investing their savings. The voluntary SRS contributions can only be made by employees, subject to a percentage cap based on their salary. Employers shall not contribute. SRS will not be an additional cost to business. The Government's intention is to allow foreigners who are working in Singapore to also participate if the scheme can be useful for their retirement. As the SRS is a complex scheme, details of the scheme will take time to work out. Views from the private sector will be sought on the implementation aspects. We expect to implement the scheme by next year. Income Tax Relief for Dependants The report of the IMC has raised public awareness on care of the elderly. We believe that the elderly are best cared for by their children in the familial surroundings of their own homes. Currently, there is a tax relief of $4,500 for the maintenance of each aged parent if the taxpayer is staying with the aged parent or a lesser amount of relief at $3,500 if the taxpayer is not staying with his parent. To provide greater recognition to those who stay with their parents, the relief for them will be raised by $500 to $5,000.”
“Mr Speaker, Sir, let me now turn to the proposed tax changes. We have recovered from the Asian financial crisis relatively unscathed and much earlier than expected. The timely implementation of the cost cutting package played an important part in helping the economy rebound quickly. We expect growth for the economy as a whole to remain strong this year. However, not all sectors are fully out of the woods. For example, construction and business services are still under-performing. In addition, the manufacturing and electronics sectors which led the recovery face strong competitive pressures. To ensure that the momentum of economic recovery is sustained, I will be announcing the extension of some tax measures introduced in the cost-cutting package, partially or in full, to help contain cost pressures. Longer term, we face structural problems posed by an ageing population. The Inter-Ministerial Committee (IMC) on the Ageing Population made comprehensive recommendations and these are being studied. Although many of the problems raised have longer term implications, we should start to address some of the less complex issues. I will therefore be announcing several tax changes to encourage Singaporeans to plan prudently for their needs after retirement and also to encourage greater family cohesiveness. There will also be incentives to enhance our competitive edge, encourage the growth of knowledge intensive and high value-added activities and measures to foster entrepreneurship. I will first touch on tax changes for individuals and the family. TAX CHANGES FOR INDIVIDUALS AND THE FAMILY Supplementary Retirement Scheme One of the areas studied by the IMC on the Ageing Population is financial security.”
“This in essence is the next phase of financial reform which MOF has undertaken to ensure that the Government makes the best use of its resources. It will require ministries to look at the total cost of providing services rather than just the cash cost alone. To achieve this, the concept of resource accounting within ministries will be introduced. Over the next couple of years, other resource management concepts and practices will also be introduced in stages. It is important that we continue to innovate and improve on the way we manage our resources. We have no choice. To remain competitive, we must keep Government expenditure as a percentage of the GDP low. Yet, there are more and more that we have to do in order to cater for the economic and social aspirations of Singaporeans. We can meet these seemingly contradictory requirements only if we continuously innovate and improve on the management of our resources.”
“Second, with increasing globalisation and the lowering of investment barriers, competition for high value-added economic activities will become keener. This means that as we lower our tax rates to keep our tax system competitive, there will be downward pressure on revenue. The combined impact of these developments is that we can expect operating revenue growth to slow down over time. On the other hand, with rising affluence, the public will demand more and better services. However, as the budgetary outlook is expected to be tight, ministries can only meet these increasingly sophisticated expectations through more effective use of existing resources rather than through the employment of more resources. In other words, officers in the ministries would have to be managers rather than just staff officers. From the budgeting angle, the system in the past has been one based on giving more resources on the promise of increased output. However, this has the tendency to get MOF involved in the micro-management of the ministries. The budgeting paradigm has since been shifted to one of encouraging the ministries to get the most out of their allotted resources. Within that budgeting framework, ministries are assured of a built-in increase for their base budget which is dependent on the GDP growth rate. Any increase in budgetary provision beyond that would have to be justified on the basis of the priority of their programmes against others. In tandem with this, ministries have also been moved to looking at the desired outcomes that their programmes are intended to achieve rather than just looking at the outputs generated by the programmes.”
“Economic development will continue to take a three-prong approach: investment in infrastructure, creation of new economic activities to achieve sustainable growth and comprehensive development of our workforce to meet the challenges of economic restructuring. Infrastructure investment is achieved mainly through projects undertaken by MCIT, MTI and MND. MCIT will spend $1.2 billion to make rail-based improvements to the land transportation system and a further $260 million to make road-based improvements. MTI will spend $780 million to develop projects on Jurong Island and a further $380 million for reclamation at Changi East, Sentosa Cove, Southern Islands and infrastructure works at Kaki Bukit and Tuas View. EDB and TDB together will undertake the task of creating new economic activities. EDB is allocated $309 million for this purpose while TDB will receive $38 million. MOM will be responsible for the development of our workforce and is allocated a sum of $171 million. This represents a 68% increase from the FY99 allocation. General Services The General Services sector, comprising MFA, organs of state, and the central ministries, continues to take up the smallest share of the total Government expenditure at 7%. Our intention is to keep the central administration lean, and let the operational ministries have the bulk of the resources. FINANCIAL REFORM - RESOURCE MANAGEMENT Although the economic crisis has passed and our economy is now back on track, the budgetary positions in the years to come are expected to remain tight. There are two main reasons for this. First, as the Singapore economy matures, economic growth will slow down and revenue growth will also moderate.”
“2 billion), ENV (with $972 million), MCDS (with $610 million), and MITA (with $379 million) round up the budget for this sector. MCDS and MOH will get substantial increases of 38% and 10% respectively in their FY2000 budgets. Within MCDS, the Elderly Development Programme will have its allocation increased by 55% to $12.3 million. Expenditure on this programme will increase further when more of the recommendations put forward by the Inter-Ministerial Committee on the Ageing Population are implemented. Security & Defence The second largest sector is Security & Defence, which takes up $9.6 billion or 33% of total Government expenditure. Of the $9.6 billion, $7.4 billion will go to MINDEF to fund defence programmes. The remaining $2.2 billion will be for MHA and Civil Defence programmes. MINDEF's budget will make up 4.5% of GDP, well within the ceiling of 6% of GDP set for MINDEF. Of the $2.2 billion allocated to MHA (including Civil Defence), $1.0 billion or 47% will be for the Police Programme while $351 million or 16% will go to Civil Defence. Development expenditure will be mainly for the MHA Complex, Cantonment Complex, Civil Defence Shelters Programme, redevelopment of the Gurkha Cantonment, SCDF HQ Complex and Neighbourhood Police Centres. Economic & Infrastructural Development Economic & Infrastructural Development forms the third largest sector, taking up $5.9 billion or 20% of total Government expenditure. Within the sector, MCIT has the largest share of $2.2 billion, followed by MTI with $1.9 billion. MND is allocated $584 million, but this excludes Public Housing which is funded separately. MOM will receive $171 million. The remaining $978 million allocated to this sector is used to fund all the R&D programmes undertaken by ministries.”
“EXPENDITURE PRIORITIES Social & Community Services Overall, as in the past years, the largest share of Government's expenditure budget goes to the Social & Community Services sector. It accounts for 39.6% of total expenditure. In absolute terms, the sector's allocation of $11.5 billion is an increase of $856 million over FY99. Education, Community Development & Sports, and Health will all get substantial increases in their budget allocations. Spending on educating our young continues to take up the lion's share within the Social & Community Services sector, with $6.0 billion or 52% going to MOE. This represents an increase of $881 million or 17% compared to FY99. Within MOE, the General Education Programme undertaken by the Government, Government-aided, special education and independent schools accounts for $3.1 billion or 53% of its total budget. The three universities take up $1.2 billion or 19% while the four polytechnics and the Institute of Technical Education (ITE) account for $585 million (or 10%) and $167 million (or 3%) respectively. The balance of $915 million is for the remaining programmes of MOE. In terms of development expenditure, the bulk of the $2.0 billion allocated will be used to build new schools, rebuild and improve existing schools, as well as to expand the teaching facilities in the tertiary institutions. Public Housing takes up the next largest slice of $2.3 billion of the budget allocated to the Social & Community Services sector. Funds for Public Housing will be used to pay the subsidy for HDB's bottom-line financing, the Selective En-Bloc Redevelopment Scheme, as well as the various HDB upgrading programmes. MOH (with $1.”
“The increase is due to restoration of the salary cut imposed service-wide in 1999, partial restoration in employers' rate of CPF contributions and normal salary increments. In addition, there is also a net increase of some 2,400 posts, mainly in MOE to cater for increased student intakes. Other operating expenditure is expected to increase by 4.1% to $8.8 billion. Grants-in-aid to statutory boards will increase by 12.1% to $2.7 billion, mainly because of larger grants to higher educational institutions and aided schools to cater to increased student intakes and restoration of salary cuts. Development Expenditure Development expenditure is projected at $12.9 billion or 7.8% of GDP, an increase of $2.2 billion. This includes a provision of $979 million for new priority projects that may materialise in the course of FY2000. Of this, $200 million is held centrally by MOF while the remaining $779 million is allocated out to ministries based on their projected needs. The largest share of capital grants to statutory boards (excluding public housing subsidy) goes to the LTA for extension of the MRT system, construction of the North East Line, the Bukit Panjang and Sengkang LRT systems and road construction and improvement programmes. Other main recipients are educational institutions and aided schools for upgrading programmes and the National Science & Technology Board for financing and administering R&D projects. Capital expenditure for Public Housing is projected at $2.2 billion or 1.3% of GDP. The bulk of the subsidy is for the HDB Upgrading Programmes, development of infrastructure within HDB New Towns and financing of HDB's bottom-line deficit.”
“The economic crisis has however amply demonstrated the importance of living within our means and the need to accumulate budget surpluses in good years so as to have the resources to deal with economic downturns. I will now highlight the salient features of the FY2000 expenditure budget. FY2000 EXPENDITURE ESTIMATES Total Government expenditure for FY2000 is estimated at $29.0 billion or 17.5% of GDP, a rise of 12.5% over expenditure in FY99. Development expenditure is projected to grow 21.1% to reach $12.9 billion. Operating expenditure, on the other hand, is estimated to increase by 6.4% to $16.1 billion, a rate of increase that is lower than the nominal GDP growth rate. The lower rate of increase of operating expenditure, as compared to that for development expenditure, underlines Government's commitment to keep recurrent cost increases within sustainable limits. Operating and development expenditure account for 9.7% and 7.8% of GDP respectively. Operating Expenditure Operating expenditure in FY2000 is estimated at $16.1 billion or 9.7% of GDP, an increase of $969 million or 6.4% over FY99. 92% of operating expenditure is for ministries' running costs while the remaining 8% is for transfer payments to members of the public and outside organisations. Total running costs are projected to increase by 6.9% to $14.8 billion because of higher manpower costs, increases in other operating expenditure, and larger grants to the statutory boards. Expenditure on Transfers is estimated at $1.3 billion, the main items being subventions to the restructured hospitals and town councils. Manpower expenses are estimated at $3.3 billion, an increase of $323 million or 10.8%.”
“While transfers to Medifund and the ElderCare Fund are ways to share the surplus, they benefit Singaporeans indirectly. The Government appreciates that workers had accepted the CPF and wage cuts as part of the package to deal with the recession. However, the CPF cut can only be restored gradually so as not to increase business costs abruptly, thereby stalling economic recovery. As an additional gesture, the Government will make a special CPF top-up of $250 to the Ordinary Account of every Singaporean CPF member aged 21 years and above on 31 December 1999, who had made at least one CPF contribution within the period 1 January 1998 to 31 December 1999. More than 1.5 million Singaporeans are expected to benefit. The top-up will be credited in March 2000. Details will be released separately by the CPF Board. This top-up will amount to $385 million. PROJECTED FY2000 FISCAL POSITION Operating revenue for FY2000 is estimated at $31.4 billion, an increase of 8.6% over FY99. As a percentage of GDP, the increase is from 18.8% in FY99 to 19.0% in FY2000. The rise in revenue collection is mainly due to the good economic growth forecast for 2000. With total FY2000 expenditure budgeted at $29.0 billion, a budget surplus of $2.5 billion or 1.5% of GDP, is projected. However, the surplus will not be achieved at the expense of cutting back on essential spending. In fact, total expenditure in FY2000 is expected to rise by more than 12%, with a substantial increase of 21% in development spending. We are thus back in the happy position of being able to add to our reserves, whilst continuing to invest in and upgrade our economic infrastructure and human resource capabilities.”
“FY99 BUDGET OUTTURN Before I highlight the salient features of this year's expenditure budget, I would first like to recap on the FY99 Budget. The FY99 Budget was worked out based on the circumstances as at end 1998 and beginning 1999. Then, we were in the midst of a recession and were expecting negative growth for the year as a whole. With operating revenue estimated at $24.1 billion and a planned expenditure of $29.2 billion, the outcome would be a budget deficit of $5.1 billion. Operating revenue had been estimated on the basis of falling revenue while expenditure was planned on greatly increased Government spending, particularly in development spending, to help stimulate the economy. Fortunately, events turned out quite differently as the economy rebounded strongly after the first quarter of 1999 and growth in 1999 turned out to be a respectable 5.4%. The strong rebound is expected to raise operating revenue by about $4.8 billion. The increase has come mainly from stronger COE and income tax collections. On the other hand, total expenditure is expected to be some $3.4 billion less, mainly because of lower development spending. This was because strong competition for projects forced bid prices down, and because some lower priority projects were rescheduled. The combined impact of higher revenue collection and lower expenditure is that instead of a large budget deficit of some $5 billion, a surplus of $3.2 billion is expected in FY99. With a budget surplus now expected, the Government will within FY99 make a $100 million contribution to Medifund, to bring Government's total contribution in the Fund to $700 million. In addition, the Government will also make a $200 million contribution to the ElderCare Fund approved by Parliament on 22nd February 2000.”
“Through our deregulation efforts, we hope to ensure long-term efficiency in our power industry and achieve more competitive electricity tariffs for our businesses and households. Liberalisation also brings many other benefits for all consumers, including better service quality, greater product innovation and more choice of suppliers. If we can achieve a systematic deregulation process in our services sector, it can bring substantial spin-offs for the rest of the economy. It will further enhance the global competitiveness of our manufacturing sector. Harnessed properly, the forces of deregulation can strengthen Singapore's competitiveness in the new economy. Conclusion Singapore enters the new millennium on a cheerful note. The global economic environment is favourable. Our capacity to compete globally is strong. We should return to pre-crisis growth soon. However, sustained growth in the long term cannot be taken for granted and will not come effortlessly. The economic contest has become more intense with globalisation and as countries worldwide enhance their competitiveness. The Singapore economy will need to be responsive to these global developments and stay relevant and competitive. Apart from improving our physical infrastructure, and continuing to upgrade our people, there is a need to further deregulate our services sector. Many of our services are performing below their potential. The problem is insufficient industry competition. Singapore as an economy cannot hope to be globally competitive, if our services sector is a laggard at home. The Government will step up its deregulation efforts to bring our services sector and the economy to new heights. II THE FY2000 BUDGET Mr Speaker, Sir, I will now move on to the Budget for Fiscal Year 2000.”
“MAS has therefore embarked on regulatory reforms in banking, fund management, debt and equity markets so as to promote a more flexible and conducive environment for these financial activities to thrive. More recently, the IDA brought forward the introduction of full market competition in the telecommunications sector by 2 years, starting from 1 April 2000. Direct and indirect foreign equity limits for all public telecommunications services licences were also lifted. The decision to accelerate the liberalisation schedule was not an easy one, in view of our earlier commitments. But it was a necessary and right decision. With the rapid and dramatic changes in the telecommunications industry world-wide, the original liberalisation schedule would have stunted the growth of our telecommunications sector and severely undermined our competitiveness. It would have also set us back in our endeavour to develop a strong and vibrant info-communications industry, which depends on globally competitive telecommunication rates and services. By opening up the telecommunications sector sooner, we stand a better chance of attracting the major players and realising our aim to be an info-communications hub. Deregulation of the Power Industry Power is another critical sector where we need to be globally competitive. It is a key component of business costs. We started to deregulate the sector in 1995 when we corporatised the electricity and gas operations of the Public Utilities Board (PUB) to form Singapore Power Ltd. Since then, we have taken systematic steps to prepare for further deregulation. Within the next 2 years, we plan to open up the contestable parts of the electricity sector fully and also introduce competition in the natural gas industry.”
“At the same time, technology will render more services tradable. The Internet is accelerating this trend. Even highly personalised services like education and healthcare can now be offered over the Internet to people located thousands of miles away. Natural monopolies in certain service industries will also become increasingly threatened. For example, mobile phone service providers can now effectively challenge fixed line operators in the telecommunications field. The implication is that the services sector in every country will increasingly be subjected to global rather than domestic, or even regional competition. SIA, PSA and Changi Airport are fine examples of our service companies which are globally competitive. They competed globally from day one and showed that we can be world-class. Their success gives us confidence that the way forward is not to confine our services sectors to mere domestic market or to shield them from foreign competition. The way forward is to subject them to global competition, as we have done for manufacturing for years. Deregulation of the Services Sector MAS has led the way in opening up the financial services sector. Financial markets are now more globalised due to lower transaction barriers across economies and world-wide deregulation. Rapid advancements in financial and informational technology are creating new and sophisticated financial products. The demarcations between financial products are blurring, and the Internet has opened up new service delivery possibilities. To retain our role as a key financial centre in Asia, Singapore needs to attract and develop new growth activities and players into the market.”
“EDB's Industry 21 Blueprint aims to further enhance our manufacturing capabilities, and diversify among and within our existing key manufacturing clusters of electronics, chemicals and engineering. This will maximise growth opportunities by leveraging on all possible linkages and complementarities among the clusters. At the same time, the EDB is continuously looking into the development of new, high growth emerging industries. Life sciences is one such example. Analysts have predicted that the 21st century will belong to biotechnology. With our established cluster of leading companies in pharmaceuticals, biotechnology and agri-biotechnology, coupled with our world-class healthcare facilities and institutions, Singapore is well positioned to become a major player in the life sciences. While our manufacturing sector is globally competitive, the same cannot be said of our services sector. One reason is that we have been slow in opening up our services sector to foreign competition. The productivity of our services sector has been significantly weaker than manufacturing. The gap has actually widened over the years. Between 1985-1992, the average annual productivity growth in the services sector was 0.4 percentage point below manufacturing. In 1992-1999, this gap has increased to 4.7 percentage points. In the new economy, services will play an increasingly important role. Goods will increasingly have a higher service content, as more goods are bundled with services to form an integrated product package. In any case, the line between goods and services is blurring. The logistics industry, for instance, has evolved from just providing transportation and warehousing to delivering value-added services in supply chain management.”
“However, if we look at the total stock of our workforce, less than half of Singaporeans above the age of 40 have secondary and higher education. We need to level up this group of workers, numbering some 834,000 or 42 % of our workforce, through training and retraining to help them cope with the new economy. A key priority of the Government will therefore be manpower training. The Ministry of Manpower will press ahead with its various initiatives under the Manpower 21 programme to upgrade the skill level of our people. However, training our indigenous workforce alone will not be enough. Even with a highly educated workforce, our small population size would limit the talent pool in Singapore. We will need to augment both the quantity and quality of our workforce by actively attracting foreign talent. In the knowledge age, top talents make a big difference and contribute disproportionately to the economy. With a larger pool of talent, we can enlarge our economic pie, create more jobs and bring higher wages for all. Another important software aspect of competitiveness is the ability of the economy to leverage on science, technology and innovation to keep pace with the global economy. The Government will continue to build up our research and development capabilities. At the same time, we will create a conducive environment to grow and develop a strong pool of entrepreneurs who can combine technology and business acumen under the Technopreneurship 21 programme. Manufacturing and Services One key development strategy is to make manufacturing and services the twin pillars of our economy. We already have a strong manufacturing sector, which has been the key locomotive of growth.”
“In fact, latecomers can often leapfrog ahead using state-of-the-art technology. The challenge is for Singapore to differentiate ourselves by finding creative ways to add value to our infrastructure. The Jurong Island project is one such example. Amalgamated from 7 offshore islands, Jurong Island aims to become a world-class integrated chemical hub, the first of its kind in the region. Through clustering and the sharing of common facilities, it will generate significant synergistic linkages across a wide spectrum of petrochemical industries. For example, the provision of centralised logistics and common corridors for material flows will significantly reduce feedstock transportation and handling cost. With the recent launch of the JurongIsland.com internet portal, companies on the island can now be easily linked up with one another on the island, and with Government agencies on the mainland. When the masterplan to dot-com Jurong Island is fully completed, companies on Jurong Island will be able to conduct business electronically and reduce product cycle time and costs. Jurong Island will truly be an intelligent island. On the software aspect of our competitiveness, the quality of our people will be key. The New Economy is about exploiting knowledge as the source of competitive advantage. As a small country, every Singaporean matters. The key is for everyone to consciously improve their skills and look for new ways to do the job better. The more well trained and educated our workforce, the better our chances are in achieving this goal. Currently, about 65% of our yearly cohort of students enter universities and polytechnics - a First World standard.”
“Rapid technological change and globalisation are intensifying competition and posing new challenges for our economy. To thrive in the new millennium, we need to sharpen our competitive edge further, stay nimble, and constantly reinvent ourselves. Implementing Long-term Economic Strategies To meet these competitive challenges, the Committee on Singapore's Competitiveness (CSC) has mapped out a comprehensive set of long term economic strategies. These strategies have been adopted by the Government as the blueprint for developing Singapore into an advanced and globally competitive knowledge-based economy within this decade. The Government is actively pursuing these strategies, which address both the hardware and software aspects of our competitiveness. In hardware, Singapore already has a competitive edge. We have invested heavily in many key economic and business infrastructure and international surveys have consistently ranked us highly on infrastructure, citing our world-class sea and air ports, modern telecommunications facilities, and advanced IT infrastructure. Private sector investments have also been strong. Some observers and analysts have commented that Singapore has over-invested and become inefficient in our use of capital. MTI has studied this in detail and has found that this is untrue. Except for the period in mid-80s, our investment rates are not disproportionately high compared to the regional countries. In addition, trends in our Incremental Capital Output Ratio (ICOR), a measure of the additional unit of capital required to produce each additional unit of output, also show that we have not been using capital inefficiently. MTI will be releasing details of its findings in due course. Physical infrastructure, however, can be easily replicated.”
“But China's rise is not all negative for the other Asian economies. Global trade is never a zero-sum game. China's rise offers tremendous opportunities for all. For example, with the liberalisation of China's tariff regime, ASEAN economies can function more effectively as production bases and export gateways to China's markets. The key challenge for the regional countries, including Singapore, is to devise ways to complement investments and growth in China, to ride on the rise of China. In any case, China will not be the only source of competitive threat to Asian economies. Outside Asia, Latin America and Eastern Europe have similarly geared up for the new competitive challenges. Argentina, for example, has seen a four-fold increase in its GDP in the last decade as a result of economic reforms. The transitional economies in Eastern Europe are estimated to triple in size in the next decade, if they continue with the privatisation, enterprise restructuring and other institutional reforms. [Estimates by the European Bank for Reconstruction and Development. 'Eastern Europe - Transitional Economies' Output May Triple, July 1999, Reuters.] At the same time, the developed economies are not resting on their laurels. They too are strengthening their competitive lead. Japan is embarking on fundamental reforms to its economic structure and banking sector. The US is in the throes of its New Economy powered by innovations and technological start-ups. The EU countries are reforming their tax systems and trying to inject more dynamism and flexibility into their economies. It would therefore be a grave mistake to think that it is business as usual in the post-Asian-crisis world economy.”
“To thrive, our businesses need to adopt a global outlook, and boldly seek out new markets and alliances for expansion. Already we are seeing signs of this happening. SIA has recently acquired 49% of Virgin Airways, DBS is expanding its regional presence through its stakes in Thai Danu Bank and Hong Kong's Kwong On Bank, and SingTel is engaging in merger talks with Cable & Wireless Hong Kong Telecom. To be successful in global competition, our companies will also need to draw in top talent - not only from Singapore, but from the world. Only then can we over time build up a stable of our own world class transnational companies. In post-crisis Asia, one economy that will bring profound changes to the competitive equation is China. Even without WTO membership, China has been attracting more foreign direct investments (FDI) than the rest of Asia combined. With its impending WTO accession and the ongoing reforms of its state-owned enterprises, China can be expected to become even more competitive both as an exporter as well as FDI destinations. [Goldman Sachs estimated that FDI into China would rise to US$100 billion a year over the next five years as a result of its WTO entry. Wu, Fred WTO Membership: What This Means for China, Goldman Sachs, Apr 99.] Moreover, China's exports are no longer confined to low value-added or labour-intensive products. Increasingly, they will move towards more sophisticated and higher value-added products in direct competition with the NIEs. China has already made impressive inroads in the electronics industry. In 1996, China's share of the US and Japan electronics market was only 6% and 7% respectively. These shares have now increased to around 10%, comparable to that of Taiwan and South Korea, and higher than most of the ASEAN countries.”
“Today, virtually any good and service can be bought and sold anywhere in the world with the click of a mouse. The Internet has dramatically reduced the geographical barriers to economic competition. The twin forces of IT and globalisation have prompted a wave of alliances, mergers and acquisitions around the world as companies consolidate to gain market share and critical mass in preparation of tougher competition ahead. Last year, the value of mergers in Europe surged 50% to US$1.2 trillion, while that in the US has remained high at US$1.6 trillion for the last 2 years. These mergers cut across a spectrum of industries, from traditional ones like oil and automobile, to New Economy ones like info-communications and banking. In recent months, we have witnessed mega-mergers of giant corporations such as Mobil and Exxon, Vodafone and Mannesman, and AOL and Time Warner. The new AOL Time Warner conglomerate, for instance, has a market capitalisation of about US$360 billion, almost 4 times Singapore's GDP. Not only are the deals getting bigger, the tie-ups are also increasingly cross-border, as globalisation of the market place gathers pace. For instance, spurred partly by the Euro, 60% of Europe's mergers last year crossed national boundaries. [Estimate by JP Morgan. Business Week 24 Jan 2000]. The scale and quality of competition have thus risen to a whole new dimension. In this new competitive landscape, it is no longer viable for economies and businesses to think and act only on a national basis. We need to adopt a global mindset, innovate and advance with global trends, or risk being rendered redundant. Unless we are among the world's best, we will be relegated to playing a peripheral role in the global economy.”
“Many companies went under; millions of livelihoods were destroyed. Several regional countries have had to take on large public debts to restart their economies. In contrast, Singapore has weathered the regional crisis well and emerged largely unscathed. There were no widespread unemployment and bankruptcy, social dislocations or political upheavals. Strong economic fundamentals underpinned by years of consistent and rational policies have ensured this. For example, due to the prudent supervision of our banks and financial institutions, our financial system was never in distress. Our banking sector's non-performing loans constituted less than 10% of total loans at its peak, compared to 80% in Indonesia, 48% in Thailand and 15% in Malaysia. Because we did not have to recapitalise our banks, our fiscal health has remained intact. We have avoided the sharp rise in public debts seen in the regional economies - to as much as 100% of GDP in the case of Indonesia - and the ensuing heavy debt servicing burden in future years. We have successfully ridden out the Asia economic storm with the economy remaining in shipshape. Our strong recovery has enabled us to start the new millennium on a firm footing, and we have every reason to look ahead with optimism and confidence. However, this does not mean we can afford to slacken. Competitiveness will remain the prime economic challenge for Singapore in the new millennium. In fact, competition will become increasingly intense as more countries join in the economic race. More importantly, globalisation and the onslaught of technological advancement will quicken the competition tempo further. It used to take several months for a new product in one market to reach another part of the globe.”
“In particular, the risk of a sharp correction in Wall Street triggering a reverse wealth effect and causing a marked slowdown of the US economy, cannot be discounted. Macroeconomic imbalances in the US economy, such as the widening current account deficit, the falling personal savings rate, and the rising corporate leverage, are not sustainable at current rates and will need to be corrected at some point. In Japan, while recovery is slowly taking shape, its economy is not yet out of the woods. Recovery continues to be underpinned by fiscal stimulus as consumption and private investments are likely to remain fragile due to the ongoing corporate restructuring process. The pace of recovery is further complicated by the prospect of a rising Yen. Within the region, the main concern is whether the crisis-hit countries can sustain investor confidence by making progress in financial and corporate restructuring. In addition, the political stability of Indonesia remains a key uncertainty. Flash points have again erupted in various parts of Indonesia: communal clashes in Maluku, Lombok, Ambon, and even Bintan, and secessionist movements in Aceh and Irian Jaya. Nevertheless, there are more reasons to be optimistic, than to be pessimistic about our growth prospects for 2000. The Ministry of Trade and Industry (MTI) is maintaining its forecast of 4.5 to 6.5% for this year. The lower end of the range reflects the potential risks in the external environment. But the upside for the economy appears bright. Competing In The New Millennium Although the Asian economic crisis was brief, it has left a trail of destruction in its wake, and brought great hardship to many regional economies. The cost has been exacting. Some governments were toppled. Great fortunes were lost.”
“We can expect the pockets of weaknesses in the economy to improve as growth momentum picks up. We can be confident because the external environment looks favourable. First, the strength of the global electronics demand remains firm. According to industry forecasts, world-wide semiconductors and PC sales are expected to grow by 20% and 15% respectively over the next 2 years. Second, the recovery of the Asian economies is likely to be sustainable. Regional monetary and fiscal policies are expected to remain accommodative, which will fuel growth ahead. So far, recovery has been concentrated mainly on exports and consumption, which will continue to strengthen on the back of healthy external demand and better job prospects. In addition, investment demand has also shown glimpses of improvement after having remained negative for most regional economies last year. Already, capacity utilisation, capital imports and foreign direct investment applications have picked up across Asia, although the pace differs across economies. Given a benign external environment, our Composite Leading Index (CLI), which leads economic growth by about 9 months, has been rising over the last 6 quarters. Trade prospects remain very positive as non-oil retained imports, a leading indicator for future exports, continues its double-digit growth. Consumer sentiments have also turned visibly upbeat. Retail sales growth is up, as consumers increase their spending in anticipation of better pay increases and a partial restoration in employers' CPF contribution rate this year. However, this favourable outlook for 2000 is conditional on a soft landing in the United States and a sustained recovery in Japan and Europe.”
“In particular, the 10 percentage point cut in employers' CPF contribution rate and the wage restraint last year made a significant difference. They helped to lower the unit labour cost of the economy by 10% and the unit business cost of our manufacturing sector by 12% last year. In line with the strong external demand, domestic demand gradually recovered, helped by 2 main factors. First, job losses moderated. Last year, the total number of retrenched workers fell to 14,600, about half that in 1998. In fact, many companies have begun to rehire by third quarter 1999 as employment levels increased. Second, asset prices recovered strongly. The stock market, in particular, saw strong rallies. The Straits Times Index set 11 record highs last year and ended 1999 78% higher than the start of the year. The property market also firmed, with prices climbing by 28%. Collectively, increased job security and the wealth effect in the asset markets renewed consumer confidence and boosted private consumption spending by 6.2% last year. Against a healthier backdrop of aggregate demand, the Consumer Price Index rose marginally by 0.4%. Although the economy has largely turned around, not every sector has recovered. The construction sector remained in recession; it contracted a severe 12% last year, compared to a growth of 4.4% in 1998. Due to the oversupply in residential and office properties, contracts awarded had continued to decline. Dragged down by weak commercial lending and poor regional demand for funds, growth in the financial services sector was flat last year. Growth in the business services sector was also feeble, at only 0.1% due to poor real estate earnings. OUTLOOK FOR 2000 But overall, the prospects for this year are bright.”