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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“Sir, I will respond to questions raised yesterday, beginning with Mr Lim Swee Say. Mr Lim has asked whether Government could consider granting pioneer status or special investment allowances to companies which are proceeding to move into the knowledge-based industries, as this is the future we envisage for our country. I can assure Mr Lim that the Government recognises the need to transform Singapore into a knowledge-based economy so that we have been constantly revising our incentives to try to meet new requirements. For example, in the 1998 Budget, I have already announced an Approved Cyber Trading incentive scheme to encourage companies to take advantage of trading over the Internet and several other existing tax incentives, such as the pioneer status, the Development Expansion incentive and double tax deductions for research and development, already cater to companies engaged in high-value activities in high technology projects which should also cover the knowledge-based type industries. Indicators such as value-added per worker, the profile of the workers and the level of research and development spending are already currently being used to evaluate the awards of these incentives. However, I should point out that to achieve what we aim to do, the tax incentives granted must be focused. Otherwise, we will be giving away money without any specific objective in mind. For example, if we simply give tax incentives for whichever company claims to be investing in manpower redevelopment, the dispensation of such tax advantages would be too broad to have any direct focus or desired outcome.”
“I do not wish to give the Member a promise at this stage. But we will do it within a reasonable period. HYGIENE RATING SCHEME FOR EATING ESTABLISHMENTS 2. Mr Chew Heng Ching asked the Minister for the Environment if the Hygiene Rating Scheme for eating establishments has been a success. The Senior Minister of State for the Environment (Encik Sidek bin Saniff) (for the Minister for the Environment): Sir, the purpose of the grading system of cooked food retail outlets is to give consumers an idea of the outlet's level of hygiene and cleanliness standards, as assessed by my Ministry. The system is also intended to prompt the operator to improve or to maintain the high standard he already has achieved. I must inform the House in this respect, the scheme has worked well. When the scheme was first introduced in May 1998, 7,171 food outlets (or 34.5% of all food outlets) were graded "A" and "B". The number of these two categories has increased to 8,313 (or 38.7%), an increase of 4.2% of grade "A" and grade "B". Generally, feedback from both the public as well as food retailers has been very positive.”
“Mr Speaker, Sir, under our current tax system, when an employee exercises his share option and a gain is realised, the gain is taxable as an employment benefit in the same way as other forms of income such as salary. The taxable benefit would be the difference between the exercise price of the shares and the market price of the shares when issued to the employee. Our tax treatment of employee share options is similar to that in Hong Kong, US and UK which also impose tax at the point of exercise. However, the US and UK have qualified/approved share option schemes in which tax is levied at the point of sale as capital gains at the capital gains tax rate, which is different from the above tax rate. But such capital gains schemes are not applicable in Singapore as we do not tax gains on capital. However, the Ministry of Finance is studying possible options to facilitate the use of employee share options to promote entrepreneurship, and this is something which we will do over the next few months.”
“Mr Deputy Speaker, Sir, I beg to report that the Committee of Supply has made progress on the Estimates of Expenditure for the financial year 1999/2000, and ask leave to sit again tomorrow.”
“That is fine. Thank you very much. Question put, and agreed to. Resolved, That Parliament approves the financial policy of the Government for the financial year 1st April, 1999 to 31st March, 2000. ADJOURNMENT Resolved, That Parliament do now adjourn. - [Mr Wong Kan Seng]. Adjourned accordingly at Fifteen Minutes past Six o'clock pm. Committee of Supply - Estimates of Expenditure for the Financial Year 1st April 1999 to 31st March 2000 (Cols. 303 - 306)”
“Then who pays for development? That is the problem.”
“I thank him for the clarification. The implication was that if we exclude development expenditure, then there is a surplus, which means we should not spend on development. Is that right?”
“However, in terms of capital grants to VWOs, we have in fact increased the sum from $14 million to $16 million. As for operating expenditure, there was an 8% drop in MCD's allocation, primarily due to the 15% wage and CPF cuts, and not due to a scale-back in activities. In fact, transfers to various financial assistance schemes and operating grants to VWOs and self-help groups have gone up by about $20 million or 20% if we exclude the 3-year one-off advance for Mendaki Tertiary Tuition Fee Scheme from the revised FY98 estimates. Mr Speaker, Sir, I would like to sum up by reiterating the point made in my Budget speech that despite some initial signs of economic turnaround, there still exist many risk factors and uncertainties in our external environment. The health of the US and Japanese economies, as well as the socio-economic political developments in our neighbouring countries, will have a big impact on our economy. There are other uncertainties, as some Members of the House have rightly pointed out, that given China's strategic and economic weight, the performance of the Chinese economy could also impact on us. Faced with an uncertain environment, we will do well not to over-react before the signposts become clearer and at the same time, retain the flexibility to allow us to respond quickly and appropriately to the out-turn whatever it may be. The FY99 Budget has therefore adopted the approach of continuing with the economic fundamentals that have served us well in the past, develop the capabilities needed for our future growth, and be dexterous in dealing with change. With this approach, I believe that Singapore stands in good stead to capitalise on an upturn, and meet the challenges that we will face in the year ahead. [Applause]”
“The total Government matching grant is presently capped at $24 million per year from FY98 onwards and will be reviewed every two years. For VWOs, the total Government FY99 funding is $129.9 million, as compared to $90.38 million in FY98. The Government has thus not cut back on its support for VWOs despite the tight revenue position. Mr Gerard Ee has commented that with only 1.66% of the budget being allocated to the Ministry of Community Development (MCD), a $10 million fund could be set up through a one-off contribution to provide a safety net to help families in difficulties until the economy turns around. Mr Speaker, Sir, Government believes that to build a resilient community, individuals ought to rely on family and self, then community, and only lastly the State for financial assistance. Nevertheless, Government has a fairly comprehensive safety net to help those in genuine financial difficulty, but without destroying the incentive for the individual to work hard. MCD's budget alone does not adequately reflect Government's spending in the social safety net. There are schemes funded by other Ministries or off-budget measures, eg, Service and Conservancy rebates reflected under the Ministry of National Development's budget; Medifund, Edusave Endowment Fund and so on. Mdm Claire Chiang has asked why MCD's budget has fallen for FY99. I want to point out that development expenditure is subject to fluctuations according to the progress on major projects. In the case of MCD, the drop of $25 million or 14% can be attributed to major projects nearing completion, such as the Singapore Boys' Home, Grassroots Recreation Clubhouse and the new sports facilities at Bishan and Jurong East.”
“MOH's FY99 operating grant to voluntary welfare organisations is $63 million, as compared to $44 million for FY98. MOH has also been allocated a block budget of $200 million to cover medical research and development for FY97 to FY2001. As for disease prevention programmes and training, the budgets have not been reduced. An inter-Ministry committee led by the Minister for Health is looking into the financing of old age medical needs. The Government is committed to preparing Singapore for an aging population and to maintain our lead as a regional medical centre. Having said all these, some issues which Dr Neo raised cannot be solved by more funds alone. Dr Neo has spoken on the need for giving free screening for mammography. However, in a recent study to establish the cost-effectiveness of mammography, less than half of the women accepted the free screening. Mr Yeo Guat Kwang has spoken on the funding for Medifund, CDCs and VWOs. The Medifund was established on 1st April 1993 with an initial contribution of $200 million. This will be increased by $100 million each year to reach $1 billion eventually. To date, the Government has already contributed a total of $600 million to the Medifund. No contribution is proposed for FY98 and FY99 as we do not expect budget surplus in these years. However, our assessment shows that the expected income from Medifund will be more than enough to meet disbursements for needy patients in FY99. Mr Iswaran has suggested riding on the CDCs to implement a more targeted approach for helping Singaporeans in need. Government gives CDCs a resident grant of $1 per resident per year. Government also gives matching grants of $3 for every dollar raised by the CDCs, and $4 for every dollar of residents' donations through the GIRO system.”
“Mr Speaker, Sir, Government is fully aware and appreciates the workers' anxiety over further cost-cutting measures if the recession worsens. Government hopes that such a move is not necessary. We and the NWC urge companies to implement the flexible wage system, which will enable the companies to adjust their wage costs by varying the payment of variable components such as the annual wage supplement or the 13th month salary and bonuses without affecting the workers' basic wages. In this way, the reduction in CPF and basic wages can be avoided. To date, more than 70% of the companies have adopted some form of flexi-wage scheme with variable wage components. 16% of total annual wages are made up of variable components, averaging 2.3 months of basic salary. On Dr Vasoo's query of more pension for lower income pensioners, I should point out that pensions are calculated on the last-drawn salary at the time of retirement and the length of pensionable service, as provided under the Pensions Act, and are thus not subject to change. However, to help lower income pensioners cope with inflation, the Government had in April 1974 introduced an ex-gratia allowance called the Singapore Allowance. The Singapore Allowance was last revised in August 1997. Since then, the Consumer Price Index has dropped. Thus, there is no ground to review the Singapore Allowance at this time. Besides, to keep on raising the Singapore Allowance of pensioners may be unfair to other Government officers who had retired under the CPF scheme. Dr Lily Neo has appealed for more funds for the Ministry of Health. MOH's FY99 budget has been kept at a reasonable level, notwithstanding the tight fiscal position.”
“For the aged parents' relief, if the taxpayer lives with his parent in the same household, he can enjoy an additional $1,000, on top of the normal $3,500 relief. As for the wife and child relief, it has been raised from $1,500 to $2,000. I would like to stress again that tax reliefs are not meant to fully defray the cost incurred for the maintenance of dependants, but rather serve as a form of recognition. In response to Mr Lew Syn Pau's and Dr Wang Kai Yuen's query, I would like to say that there is no need to reduce the top marginal personal income tax rate from 28% to 26%, in line with the corporate tax rate. Our individual income tax rates and brackets have been reduced over the years. The last change was effected in the Year of Assessment 1997. Our individual income tax burden is amongst the lowest in the world. For the 35% of the population who pay personal income tax, the effective tax rate is in fact considerably lower than 28%, because 28% is only the marginal top rate, and there are various reliefs and rebates which reduce the effective tax rate. Government is mindful of the impact on our people and has thus given a 10% tax rebate on personal income tax. On Dr Wang Kai Yuen's suggestion for the abolition of estate duty, I should point out that estate duty still has a role in helping to moderate the distribution of wealth in Singapore, despite the relatively small collection which is mainly due to our generous exemption limits. Countries such as Hong Kong, the United States and UK also have estate duties or inheritance taxes. Mr Ong Ah Heng has asked whether workers will have to go through another round of CPF and wage cuts.”
“To help alleviate the difficulties these workers face to pay their mortgage loans, Government has already allowed them to use their Special Account savings from February 1999. The best way to assist retrenched workers is to help them seek re-employment as quickly as possible. Even before the regional economic downturn, the Ministry of Manpower had taken steps to expand its Employment Services Department (ESD) to help unemployed Singaporeans or Permanent Residents. When large numbers of workers were retrenched in 1998, MOM not only allocated more resources to ESD but also introduced several new initiatives, such as strengthening the partnership with NTUC, SNEF, CDCs, and self-help organisations, to extend the reach of the Government's job assistance services. On Mr Simon Tay's concern for the retrenched workers and their families in financial hardship, there are a number of assistance programmes which such workers can tap on. These include the community assistance programme administered by MCD, the CDCs, the National Council of Social Services, self-help groups and VWOs. MOE also helps to pay the educational expenses of the families' school-going children. The Ministry of Health's Medifund scheme helps to ensure that no one will be denied of basic health care just because they cannot afford it. Dr Vasoo and Mr Lim Swee Say have suggested more tax reliefs for those supporting their parents-in-law and dependants such as jobless spouses. The aged parents' relief, which also applies to parents-in-law, and the wife and child relief can be claimed by those who are supporting these two groups of dependants. We have only recently raised these two reliefs with effect from Year of Assessment 1998.”
“More fundamentally, with the increasingly global business competition today and Singapore's relative free and open economy, it is wishful thinking that we can give our local companies breathing space simply by removing GLCs from the playing field, as new competitors will always be there. Where Government can help in a meaningful way, as has also been suggested by Mr Zulkifli Baharudin, is to facilitate our companies, whether GLCs, SMEs or PLEs, to compete successfully overseas, for example, by encouraging our local companies to form clusters or to tie up with GLCs under a Singapore Inc approach to maximise collective leverage. Mr Lew Syn Pau and Dr Wang Kai Yuen have talked about corporate tax grouping for property developers. For property subsidiaries which are required to be set up because of the prudential requirements in Government land tenders, they will be wound up after the specific project for the tendered site is completed. Unlike other companies, these property subsidiaries are therefore unable to carry forward their losses on the project. Mr Lew may wish to know that REDAS and IRAS are already in discussion on how to resolve this tax constraint arising from the prudential requirement of Government land sales. Dr Teo Ho Pin and Mr Kenneth Chen have asked whether more could be done to assist retrenched workers and families, such as allowing them to use their CPF savings or setting up a safety net. There have been many calls on the use of CPF savings such as for training and living expenses. However, we must not forget that CPF savings, are meant primarily for members' old age, basic housing and for medical needs.”
“IT is not only a major new basis of economic activity, but it is also a key capability for making Singapore a fully developed country. IT will change the way we live, how we study, work and enjoy our leisure. The IT, telecommunications and broadcasting sectors are not only growing rapidly, but are also quickly converging. The Government is actively studying how to streamline and consolidate the agencies concerned with regulating and developing these related sectors. Besides the principal agencies such as TAS, NCB and SBA, other agencies are also involved. For example, EDB promotes IT investments just as it promotes investments in manufacturing and other high value-added services. Some rationalisation is necessary, but we need to decide exactly what will go into the combined entity, and which Ministry it should come under. There are also a few grey areas that need further study. We hope to make a decision on these matters within a month or two. Creating a new ministry to supervise IT and telecommunications is a longer-term possibility, but to do so in the near future would be premature. Mr Kenneth Chen has suggested that GLCs should not be competing aggressively in the local market to give our local companies more breathing space. Whether or not a GLC should compete with businesses in the local market or venture overseas is a commercial decision which the GLC and not the Government should make. Also, many of our GLCs are publicly listed, and are accountable to their shareholders for their corporate decisions.”
“Government agencies also work with private training institutions to develop training programmes for the workforce. In recognition that the individuals will increasingly have to be responsible for their own employability, the tax deduction for qualifying educational expenses incurred by individuals has been raised to $2,500 in the FY99 Budget. The Manpower 21 (M21) Committee is studying what more needs to be done to support in-employment training and lifelong learning by individuals. The use of the "Skillsave" CPF Account is one option, but we have to ensure that the use of CPF funds will not deplete members' CPF savings. The M21 study will be finalised by the middle of this year. Mrs Yu-Foo Yee Shoon and Dr Teo Ho Pin have spoken on promoting IT awareness and use. I want to assure both Members that NCB aims to create an IT culture where people from all walks of life are comfortable with using computers at home, school, work and at play. First, NCB is already promoting awareness of the benefits of IT through computer roadshows at shopping malls, libraries and schools. Second, IT training and upgrading is accelerated and Government is reaching out to more than 300,000 workers, including mature workers, through the SDF IT Power training programmes. Also, the use of Internet and Singapore-ONE services is being stepped up. For instance, the mobile IT Coach has already reached out to 16,000 factory workers. Mrs Yu-Foo has also suggested that the Government should upgrade NCB to be an IT Power Ministry which will act as a central ministry responsible for overall IT planning for the nation. There is considerable merit in her proposal. Such a Ministry can bring together the functions of the NCB, TAS and SBA.”
“They will be touching on areas mentioned by Mr Inderjit Singh, Dr Lee, Mrs Lim and Mr Sinnakaruppan. The recommendations of the T21 Committee will be announced this year. Many Members, such as Mr Seng Han Thong, Mr Lim Swee Say, Mr Sin Boon Ann and Mr Ahmad Magad, have spoken on the need to build up the software and step up workers' training such as via manpower development schemes, and a "Skillsave" CPF account. Mr Speaker, Sir, there is already an array of initiatives in place to promote lifelong learning and skills upgrading, including among the older and lower skilled workers. Retraining is critical, especially among the less skilled workers, to minimise the adverse impact on people from the transition to a knowledge-based economy. Let me elaborate on these initiatives. For FY99, the budget allocation for the promotion of manpower development is $150 million versus $58 million in FY97. The Skills Redevelopment Programme which aims to retrain the unskilled and semi-skilled mid-career workers has been expanded by $120 million, of which $20 million has been committed to set up a Skills Development Centre. For the Skills Redevelopment Programme, SDF and the Government defray up to 80% and 70% of the course fee support and the absentee payroll respectively. For manpower in leading edge technologies, we have the $800 million Initiatives in New Technology (INTECH) grant scheme, of which $50 million has been set aside for EDB's new Training and Attachment Programme. The Government has also given a grant of $9 million to the NTUC Education and Training Fund to support training by union members. Companies can enjoy tax deduction for their workers' training expenses.”
“The Government has just given a 10% corporate tax rebate for Year of Assessment 1999. It is therefore too early to consider reducing the corporate income tax rate at this point. Mr Heng Chiang Meng may wish to note that the Ministry of Finance continually reviews our tax system, together with IRAS and economic agencies such as EDB, TDB, NCB and the MAS, to align tax rules with changing business environment. The views of the private sector have also been sought, such as through committees like the CSC and the Financial Sector Review Group. IRAS and the Ministry of Finance also have regular meetings with tax practitioners such as the Institute of Certified Public Accountants of Singapore (ICPAS). Mr Inderjit Singh, Dr Lee Tsao Yuan and Mrs Lim Hwee Hua have spoken on the need to promote entrepreneurship and technopreneurship by creating a conducive environment via a review of regulatory framework, the establishment of a development funding provider and promotion of venture capital funds. Mr Sinnakaruppan also spoke on how the tax treatment of stock options could help companies attract talents. I will address these issues in the Committee of Supply. I would also like to thank the many Members who have made suggestions on these various matters. Some, like Mr Inderjit Singh, have expressed disappointment with the Budget for not doing enough to encourage entrepreneurship. Time does not permit me to address the many suggestions that have been raised. However, Members of this House should be aware that the Technopreneurship 21 (T21) Ministerial Committee, chaired by the Deputy Prime Minister, Dr Tony Tan, has been set up, complemented by a private sector subcommittee led by Mr Sim Wong Hoo, the CEO of Creative Technology.”
“Mrs Lim Hwee Hua has touched on the issue of the credit squeeze arising from the current crisis. Total credit extended by commercial banks moderated significantly through 1998, in line with the slowdown in the economy and a more cautious lending policy by banks given the increased risk environment. Our banks are accountable to their depositors and shareholders to act on sound commercial decisions, and Government cannot and should not put pressure on banks. Nevertheless, the Association of Banks in Singapore has advised its members not to take a short-term view of the viability of their clients' businesses, nor to pull back on loans that are being regularly serviced. Mr Heng Chiang Meng, Mr Ong Kian Min and Dr Wang Kai Yuen have raised queries on group offsetting and taxation of foreign income. As this is a complex subject, I would reply to their queries in the Committee of Supply. Mr Heng Chiang Meng has also asked whether we have inadvertently moved towards taxing capital gains, by taxing the recipients of dividends distributed out of capital gains. Whether or not a receipt is taxable depends on the nature of the receipt to the recipient. If the receipt is income, it is taxable. If it is capital gains, it is not. To the shareholders, dividends are returns on their investment and thus constitute income. This applies irrespective of whether the dividends are distributed out of the company's operating profits or capital gains. This tax principle of dividends being income in the hands of shareholders and thus taxable has been confirmed by Courts including those in the UK and Australia. Our tax treatment of dividends does not contradict our system of no capital gains tax. Mr Lew Syn Pau has asked when we will cut the corporate income tax rate to a long-term level.”
“From April 1998 to January this year, about 1,320 loans were approved under LEFS, amounting to $533 million, which is 32% higher than the amount approved from April 1997 to January 1998. Where feasible and practical, the Government will consider enhancing the scheme further. To help SMEs reduce operating costs and build up capabilities, LETAS is very flexible and can be used for any aspect of the business upgrading for qualifying SMEs. From April 1998 to January 1999, about 800 SMEs were assisted under LETAS, as compared to 643 companies from April 1997 to January 1998. To help SMEs upgrade the skills of their workers, SDF is positioned to place greater emphasis on skills such as those required in electronic-commerce while continuing to support training that caters to current needs. As at January 1999, about 230,000 places have been approved to support SME training. Mr Peh Chin Hua spoke on the need for local businesses to seize opportunities in the region, while Mr Ong Kian Min urged that we develop our local MNCs. Mr Speaker, Sir, the Promising Local Enterprises (PLE) programme, launched in 1995, targets to produce a pool of 100 PLEs with a turnover of at least $100 million each by the year 2005. Today, there are about 300 PLEs. Most PLEs were able to weather the regional crisis in 1998 as they served the OECD markets. Just last week, to help PLEs in both the manufacturing and hub services sectors, to be trim and fit for the race ahead when the economy recovers, EDB launched the 3Cs programme - Co-investment, Collaboration and Consolidation. Under this programme, a $100 million fund will be set aside for EDB to take short-term equity stakes of up to 30% in PLEs to support their growth for an appropriate period.”
“Hard information includes data on trade and industrial production, while soft information includes surveys of business expectations and regular meetings with industry players. While we try to be as accurate as possible in our forecast, Government recognises that we are in a period of discontinuity. Non-economic factors such as the confidence of international investors are critical in a state of uncertainty. For this reason, we have adopted scenario planning to complement conventional economic forecasting. Last month, Deputy Prime Minister Lee had outlined three economic scenarios Singapore would have to be prepared for. The world does not run according to our wishes: we must make our future by planning ahead and being able to respond in good time to develop any opportunities that come up even in the midst of crisis. Mr Tay Beng Chuan and Mr Zulkifli Baharudin spoke on the need to help SMEs. Mr Speaker, Sir, we know that SMEs are most vulnerable in economic downturns. The Productivity and Standards Board (PSB) has just issued a press statement last week which detailed how PSB has helped SMEs on five fronts in 1998 - access to finance, information and IT, technology and innovation, markets, and human resource development. Mr Speaker, Sir, there are already more than 60 programmes to help local enterprises in various stages of development, with the Local Enterprise Finance Scheme (LEFS) and the Local Enterprise Technical Assistance Scheme (LETAS) as the two flagship programmes. The Government recognises that the top concern of SMEs now is short-term cash-flow. Thus, LEFS has been expanded to $2 billion in June 1998 and enhanced further in September 1998 to cover more SMEs.”
“After taking into account expected deficits in FY98 and FY99, we will still have accumulated surplus of $368 million as at 31st March in year 2000. If we were to add in the NII since 25th January 1997, the Government's current reserves would comfortably exceed this figure. This is because our investments have done well in recent years. Hence, I do not see any immediate need to draw on past reserves that will require the Elected President's approval. On Mr Chay Wai Chuen's and Mr Seng Han Thong's concern on the filtering down of the cost cutting effects on prices, most of the measures will flow directly to the companies and consumers, such as the CPF cut, reduction in foreign workers levy, rental reductions, transport and electricity tariff rebates, telecommunications tariff reduction and GST offsets. For the property tax rebate, public sector landlords, such as statutory boards, will pass on the rebates fully. Government also urges landlords in the private sector to pass on the rebates. A random survey of landlords conducted last year revealed that the majority of landlords are passing on at least half the rebate savings to their tenants. With the keen competition in the slowing market, rentals and consumer prices have eased considerably in recent months. Mr Inderjit Singh and Mr Ong Ah Heng have asked how the Government will keep track of the economy and the effectiveness of the cost cutting package. Being a small and open economy, Singapore's economic growth is heavily influenced by external developments. Even in good times, the Government is constantly interacting with businesses to obtain feedback and refine our policies. MTI uses a combination of hard and soft information in monitoring the economy.”
“The size of the cost reduction packages has depended only on what the Government judged was necessary, given the state of the economy and the prospects in the region. The Government has accumulated substantial reserves in its current term of office. It therefore does not expect the fiscal deficits in 1998, 1999 or 2000 to exhaust its current reserves, and make it necessary to draw upon old reserves. President Ong Teng Cheong has told Prime Minister Goh Chok Tong that if the Government needs to draw on past reserves to deal with the current crisis, he would support it. Mr Goh has thanked the President, but told him that the Government would try its best not to draw on past reserves. The Constitution protects the reserves that were not accumulated during the Government's current term of office. The reserves that are accumulated during the Government's term of office, and therefore are not subject to the Presidential safeguards, include the budget surplus, as well as net investment income (NII). Net Investment Income is defined as the Government's annual earnings from its stock of reserves. These are current earnings accruing from interest and dividends alone. They exclude capital gains arising from the sales of bonds and equity holdings from past reserves. NII is below-the-line item in our annual budget. As for proceeds from the sales of State lands, these have always accrued fully to past reserves even though these proceeds are treated as operating revenue in some countries such as Hong Kong. The present Government took office on 25th January 1997. Between 25th January 1997 and 31st March 1998, the Government generated an operating budget surplus of $6,273 million.”
“A total of $114 million will be passed back to 1- to 4-room HDB households which will more than offset the water rate increase. The Member for Hougang has also questioned the need for the Programmes Central Vote in MOF. This provision is to enhance the Ministry's capacity in the current economic climate to meet high priority and urgent spending needs if and when they arise, and cater for new operating expenditures arising in the course of the year. The central vote is no blank cheque - it has a fixed ceiling. This request for some treasury flexibility amounts to a minuscule 0.4% of total expenditure or 0.8% of operating expenditure. Mr Jeyaretnam has criticised the disproportionate Budget allocation for defence. Mr Speaker, Sir, we are living in an uncertain world. A strong defence capability is the cornerstone for the development and well-being of Singapore. Without an adequate defence, it is not possible to continue our way of life. It is also not sufficient, as suggested by Mr Jeyaretnam, to rely on defence cooperation and support of international organisations. Ultimately, we have to rely on ourselves. We need to be prepared for all circumstances and for the worst. Therefore, to allocate funds for the defence budget only when we face a clear and impending threat to our security, as suggested by Mr Jeyaretnam, is foolhardy. Dr Wang Kai Yuen has asked if the budget deficit could have been bigger without the provisions on the protection of past reserves, and whether we would need to draw down on past reserves in FY2000. Mr Speaker, Sir, the Government's fiscal policy in this crisis has not been constrained by the Elected President's safeguards.”
“The fact that we are able to spend 50% more on development expenditure in FY99 than in FY97 clearly shows that Singapore has the resources, the will and the confidence to not only overcome the current crisis, but to prepare for the post-crisis future. Mr Low has also said that the PAP should apologise to the people for the current economic slowdown. I find this request very strange, since even Mr Chiam has recognised that the economic downturn was brought about by external factors outside the Government's control. Astute foreign observers of the Asian economic scene have noted how Singapore has stood out in the region. Mr Low has also claimed that the special monthly S&C rebates ranging from $2 to $6 are piddling and of not much help to Singaporeans. His analysis is deliberately misleading. If he had added up all the various S&C rebates and grants in the Budget, he would find that households in, for example, 1- and 2-room flats would enjoy annual savings in S&C charges of $170 and $200 respectively. This means that they need only pay between 1/4 and 1/3 of their annual S&C bills respectively. In fact, the Government is passing back some $490 million to Singapore individuals and households in the form of tax and special household rebates. I would also refute Mr Low's point that the increase in water tariffs shows that the Government does not want to help the people. Water is a strategic and precious resource. It is precisely because the Government has in mind the future good of Singaporeans that the increase in water tariffs has to proceed as scheduled. However, the Government is mindful of the need to offset the increase for lower income households.”
“Taiwan itself has not entirely escaped from the effects of the financial turmoil in the region. To pump-prime its economy, it has introduced a NT$194 billion, or about S$10 billion equivalent, stimulus package in August 1998. Mr Chiam's claim that the Government stifles private sector initiative is also contradicted by the International Institute for Management Development. In its 1998 World Competitiveness Yearbook, it rated Singapore top in three areas: first, Government economic policies, second, our political system being well adapted to today's economic challenge and third, the bureaucracy not hindering business development. I should also point out that CSC (Committee on Singapore's Competitiveness) and its various subcommittees were private sector driven and many of its recommendations have been accepted by the Government. I must also confess that I was grossly disappointed by Mr Low Thia Khiang's approach in criticising the FY99 Budget. His views are myopic. He claims that there is no need for a budget deficit. Since development expenditure accounts for 48% of total expenditure for FY99, excluding development expenditures from the Budget balance would automatically create a budget surplus. He has further said that the Government could have capped its development spending at FY97 levels to avoid going into a deficit. However, if we do as Mr Low suggested, we will lose out in the race to develop our human resources and build up our infrastructure to enhance our long-term competitiveness. In fact, Mr Speaker, Sir, not many governments can afford to spend more in the midst of a recession. Even if they do, the focus will tend to be more on relief measures or measures to pump prime the economy, rather than in the long-term development expenditure.”
“We have in place a system of building norms as a measure to control costs. We also pay attention to other factors such as upgradability, and the need to maximise land use. I agree that our Government buildings should not be ostentatious, but neither should we go back to building plain old boxes. Where the architectural finishes will cost virtually the same, whether the architecture style is modern or dowdy, we should go for the modern style. In any case, the finishing of a building only forms a small part of the total cost, the most part being structural, mechanical and electrical works. Notwithstanding this, we are undertaking an exercise to review building norms. Although Mr Chiam See Tong does not often agree with the Government, this time he is correct in his assessment that the present recession is due primarily to external factors. However, he strays when he claims that Taiwan has coped better with the economic crisis because the country has become more democratic. He also says that the Singapore Government has been too paternalistic and this has stifled private sector initiative. In making these statements, he has taken a grossly simplistic view that more democracy always means better economic performance, hence, the Taiwan economy has outperformed Singapore. A quick look around the world should convince him that some of the world's most democratic countries are mired in economic problems. He himself has recognised that the Singapore economic performance has been dragged down by the external factors outside our control. Our exports of goods and services have been severely depressed by the economic collapse of our neighbours, whereas Taiwan's economy has been less affected as its export markets are largely to the US and China.”
“This Budget, as well as the earlier off-Budget and cost-cutting packages, manifests these strategies. I will now turn to the specific concerns raised by Members of this House. First, I would like to thank Mr Lim Swee Say for his timely reminder that what the Government has done in the 34 years since independence has been focused not only on creating economic growth for its people, but more importantly, on the creation of a nation from the disparate parts with which it started. The latter is an imperative which is often forgotten by observers when they compare Singapore's circumstances with other countries. I believe that the Singapore of today, a unified nation, with its strong institutions, is perhaps the PAP Government's greatest achievement. Mr Lim has also pointed out that in moving into the next century, it is important that all sectors of the nation, public, private and individuals, must be prepared to change its collective mindsets, not to work in compartments, but to work collaboratively with a common purpose. I do not disagree. Mr Lim also urges the public sector to be cost conscious, and work on a new mindset of promoting knowledge-based companies through an incentive package. The latter point I will take up in the Committee of Supply. As for the public sector being cost conscious, we have various systems currently to ensure that we have a prudent public sector that is effective, efficient, responsive and enterprising. Thus, we have the Budgeting For Results framework to promote cost- consciousness and result-orientation, and the Public Service for the 21st Century initiative to promote continuous improvement. As a specific example, keeping costs low in the construction of Government buildings, like schools and hospitals, has always been a key consideration.”
“The Government wants to help our people tide over the current difficulties as best as possible, partly by alleviating costs with rebates, but even more so by miminising job losses through helping companies survive and prepare themselves for future competition. We must understand that Government cannot fully offset the impact of this recession, which is caused largely by the fall in external demand. Adjustment is painful, but unavoidable. We must adapt to changing circumstances. This may mean that many of us will need to tighten our belts or retrain for a new job, or that some companies may have to restructure or even close down. Mr Speaker, Sir, the present recession has forced us to focus on what the essentials are for building our future. It has exposed the areas which need improvement, and accelerated the pace of economic restructuring which we will need to undergo in any event to remain competitive in the long term. If we act wisely, we will emerge fitter than our competitors after the crisis. The crisis has also made us less complacent as a people, and to appreciate the significance of the fundamentals, like the upgrading of skills, maintaining competitive costs, having strong reserves, and most important of all, preserving social cohesion. This crisis is not merely a test of the Government's skills, but also a test of the resilience of Singapore as a nation and a people. Singapore must not just aim to survive the economic crisis. We must emerge from the crisis fitter for the race ahead. I have elaborated in my Budget Statement our five-pronged strategy, which is, cutting business costs, ensuring access to working capital, market diversification, investment promotion and capabilities building.”
“Government has been able to maintain budget surpluses in normal years, not by overtaxing the people and businesses, but by spending judiciously and fostering economic growth. On hindsight, it is plain that Government has been correct in resisting the temptation to simply spend what we have when economic growth was buoyant. The accumulated reserves now give us a valuable buffer against the present downturn. The policy of spending what we need, and always with an eye to the future, is a fundamental pillar for Singapore's economic health, social stability and long-term security. For FY98, Government is expected to run a deficit of $466 million. After taking into account the impact of the tax benefits and rebates announced in my FY99 Budget Statement, the forecasted budget deficit for FY99 is $5.4 billion. FY 2000 may still be in deficit, given the carry-over effect of the cost-cutting measures, and the time lag in the increase in tax collection when the economy does turn around. Even so, it is important to bear in mind what the FY99 budget deficit will be incurred for. Firstly, Government has carefully prioritised its spending by focusing on developing long-term capabilities, with substantial increases in spending on social and community services, especially for education. Secondly, FY99 Budget introduces further tax incentives to help Singapore seize the window of opportunity to further develop certain economic activities. Thirdly, the Budget offers relief to individuals and households, both in tax rebates and household rebates.”
“Mr Speaker, Sir, I would first like to thank all Members of this House who have spoken on the Budget over the past two days. Given the time constraint, I will not be able to address all questions and issues raised. So I will focus on major issues and leave matters of details to the Committee of Supply where cuts on these subjects have been raised. Since the release of the FY99 Budget, many have commented that it is prudent, and geared towards the long-term good of Singapore. However, some felt that the FY99 Budget is cautious and contained few new measures to stimulate the economy. Mr Speaker, Sir, the FY99 Budget should be seen in the context of the total response Government has made since the start of this crisis. When the economic outlook deteriorated after the FY98 Budget last February, we did not wait until the FY99 Budget to introduce the $2 billion off-Budget package in June, and the subsequent $10.5 billion cost-cutting package in November 1998. The Government has responded promptly and appropriately as the situation develops. As I have said in my Budget Statement earlier, we should let the cost-cutting measures work through the system first. The Budget therefore did not contain any new major cost-cutting initiatives. The Government will be monitoring the economy and external developments very closely. Let me share with this House Government's thinking behind the formulation of the FY99 Budget. The Government has consistently adhered to the wisdom of a prudent fiscal policy. We live within our means, accumulating surpluses in good years of strong economic growth and drawing down on our reserves only in years of economic downturn.”
“Stamp Duty for Contract Notes As announced in the November 1998 cost-cutting package, the suspension of stamp duty on contract notes for share transaction will now be extended by another year to 29th June 2000. CONCLUSION Mr Speaker, Sir, the Government has carefully calibrated its response to the regional crisis. We have taken actions commensurate with the situation we faced. We did not over react. As a result, we have won the confidence of both Singaporeans and the international community in the way we have managed the crisis. While there are some signs of stability emerging over the past few months, there still exist many risk factors and uncertainties in our external environment. We cannot afford to be overly sanguine about the economic prospects for 1999. If things should take a turn for the worse, the Government has the accumulated financial resources to cope with the crisis. 1999 will be a test of our determination and of our nerves. We must not abandon the fundamental policies that have served us well in the past. At the same time, we have to be nimble and flexible in dealing with the situation as it develops. We will continue to invest in our future, by developing a world class infrastructure and enhancing the capability of our people and workforce. I am confident that Singaporeans will pass the test, and we will emerge from the crisis stronger and leaner. Sir, I beg to move. [Applause.]”
“Grants for S&C charges to HDB lessees and tenants, ranging from $36 to $66 a year, will continue to be given. The grants will start from July 1999 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. Those lower income groups which do not live in HDB flats and hence are unable to benefit from the utilities rebates and S&C grants can obtain help from the CCC Assistance Scheme. Tax Deduction of Certain Educational Expenses for Individuals For Singapore to transform successfully into a knowledge-based economy, the need for continual training and skills upgrading cannot be over emphasised. Besides facilitating and providing funding for numerous training schemes, the Government would also like to encourage individuals to take the initiative to improve their skills and knowledge. Currently, a tax deduction of up to $2,000 is allowed for actual expenses incurred by individuals in pursuit of further academic and professional qualifications, or vocational qualifications related to their business, trade or employment. I have decided to raise the tax deduction cap to $2,500, to give further emphasis to the importance of lifelong learning and skills upgrading. The higher deduction cap of $2,500 will take effect from Year of Assessment 1999. The revenue loss is estimated to be $4 million. OTHER TAX CHANGES Property Tax Rebate The 55% property tax rebate on industrial and commercial properties, first announced in the June 1998 off-budget measures, will be extended by another year to 30th June 2000.”
“The water tariffs, including conservation tax, will increase by 15.3 cents to 24.4 cents per cubic metre for domestic consumers. The non-domestic water rate will increase by 5.8 cents per cubic metre to reach the target rate of $1.52 per cubic metre. As part of the water conservation effort, the waterborne fee will also be raised as scheduled, by 5 cents per cubic metre for domestic consumers and 9 cents per cubic metre for non-domestic consumers with effect from 1st July 1999. The Government will continue to help lower income households cope with the increases in water charges. In 1997 and 1998, a package of annual utilities rebates and monthly S&C grants were given to citizens living in 1 to 4-room HDB flats to offset the increases in electricity and water rates. To help the lower income groups cope with the economic crisis, the Government has already announced in November 1998 that the package of utilities rebates and monthly S&C grants given in 1997 and 1998 will be continued for another two years. The cost to Government is estimated at $73 million per year. As water charges are scheduled to increase further in July 1999, the Government has decided to double the utilities rebates from $100 to $200 for 1 to 3-room HDB flats and from $50 to $100 for 4-room HDB flats in 1999. This will cost Government an additional $41 million, and is more than sufficient to offset the increase in water costs for lower income households. The utilities rebates will be credited against the utilities bills of eligible households for the month of September which are payable in October. The balance of the rebate not consumed within the month will be carried over until it is fully used up.”
“The town councils will offer a one-off additional monthly rebate for citizen households living in 1 to 5-room flats for a period of one year, starting from 1st April 1999. The special rebates, which are about 10% of current gross S&C charges, are as follows: $2 per month for 1-room flats, $3 per month for 2-room flats, $4 per month for 3-room flats, $5 per month for 4-room flats and $6 per month for 5-room flats. These rebates will cost Government an additional $40 million. Extension of GST-Related Offsets and Rebates for Two Years In view of the difficult economic conditions, Government had announced in November last year that the transitional measures in the GST offset package, consisting of rental and S&C rebates for 1 to 3-room HDB households, would be extended by two more years. 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 $22 million per year. Low income households which are not living in HDB flats can continue to receive help from the Citizens Consultative Committees (CCCs) Assistance Scheme, which was set up in 1994 when GST was implemented. Offset Package for Utilities Rates Revision The Government had in June 1997 announced the revision of water tariffs and the water conservation tax to uniform flat rates for all users. There have so far been two increases in July 1997 and July 1998. The next increase is scheduled for 1st July 1999. Despite the economic downturn, we must press on with our water conservation efforts and raise water tariffs and conservation tax as planned.”
“Following the GST-related changes made to personal income tax, currently about 65% of individuals no longer pay income tax and therefore would not benefit from the income tax rebate. To extend help to these individuals, the Government will grant the same rebates on HDB rentals and town council Service and Conservancy (S&C) charges as in 1997 to citizens staying in rented and owner-occupied HDB flats. The rebates will be as follows: a) One-Room Flats Two months' net rent and three months' net S&C charges. The rental rebates will be made on 1st June and 1st September, and the S&C rebates will be made on 1st June, 1st September and 1st December this year. b) Two-Room Flats One month's net rent and three months' net S&C charges. The rental rebate will be made on 1st June, and the S&C rebates will be made on 1st June, 1st September and 1st December this year. c) Three-Room Flats Three months' net S&C charges. The S&C rebates will be made on 1st June, 1st September and 1st December this year. d) Four-Room Flats One month's net S&C charges. The S&C rebate will be made on 1st June this year. e) Five-Room Flats One month's net S&C charges, to be made on 1st June this year. The estimated cost of these rental and S&C rebates is $39 million. The rebates will be given after deducting the GST offset rebates, the S&C grants associated with the utilities rebates and a special S&C monthly rebate, which I will now elaborate. Special Rebate on Town Council Service and Conservancy Charges To provide further help to tide over the present difficulties, Government will give a special rebate to Singaporeans living in HDB flats through town councils.”
“Old and inefficient diesel-driven vehicles are a major source of pollution as they generate a disproportionately large amount of particulates and other pollutants that are harmful to health. The cost of replacing an old vehicle with a new one is high. As a result, older vehicles are generally not taken off the roads before the end of their statutory lifespan. One way of encouraging owners of older vehicles to do so is to provide a tax incentive to partially defray the high cost of replacing vehicles. I have therefore decided that with effect from 27th February 1999, the one-year accelerated depreciation allowance scheme would be extended to the purchase of new commercial goods vehicles and buses, on the condition that the new vehicle is replacing an old diesel-driven vehicle which was registered before 1st January 1991, and which either has at least one year of valid COE left or is eligible for COE renewal. Ministry of the Environment will administer the scheme. PERSONAL TAX CHANGES Personal Tax Rebate In 1997, the Government gave a 10% across-the-board rebate on individual income tax as a reward for individual effort and to share the budget surplus. Last year, despite the worsening economic conditions, the Government gave a 5% rebate on individual income tax to provide a measure of relief to taxpayers. Although some signs of stability have emerged, there still remain critical uncertainties in the external environment. Nevertheless, I have decided to restore the personal tax rebate to 10% for the Year of Assessment 1999, similar to 1997, in order to help taxpayers tide over this temporary difficult period. The estimated revenue loss to Government is $275 million.”
“To support Singapore's drive towards higher value-added activities in the shipping sector, I have decided to extend the existing Approved International Shipping Enterprise Scheme to cover income derived from the operation of Floating Production Storage Offloading vessel and Floating Storage Offloading vessel (or FPSO/FSO) in Singapore. These are primarily crude oil tanker vessels which have been specially converted for deployment in the offshore field for production and storage of crude oil. The operation of FPSOs and FSOs therefore requires the application of both advanced maritime and technology-driven expertise. The development of the FPSO/FSO industry in Singapore will not only serve to broaden the scope of shipping activities in Singapore, it will also complement Singapore's role as the world's third largest oil refinery and trading centre. To qualify for the incentive, the company must have substantial operations and possess a team of professional expertise in Singapore. The incentive will be granted for a period of ten years and will take effect from Year of Assessment 2000. TDB will administer this incentive. Extension of One-Year Accelerated Depreciation Allowance Scheme to Replacement of Diesel-Driven Vehicles With a growing vehicle population in Singapore, total emissions from vehicles will creep up over time. This will adversely affect our ambient air quality and may become a health hazard. We therefore need to impose strict emission standards on new vehicles and at the same time, reduce the number of older vehicles on the roads. Diesel-driven commercial goods vehicles and buses are allowed to be used on the roads for up to twenty years.”
“The GST waiver will remove an existing disadvantage faced by local logistics companies, vis-a-vis overseas suppliers of the same goods, as under the current situation, MES traders by virtue of their MES status do not have to pay GST upfront when they import the goods directly from overseas suppliers. Extension of Tax Incentive for Exhibition Organisers to Cover International Conferences The staging of international conferences in Singapore complements the many international exhibitions and trade fairs currently held here. Together, they play the important role of enhancing Singapore as the hub for knowledge and trade exchange for the international business community. I have therefore decided to extend the tax concession granted to approved exhibition organisers to companies organising and managing international conferences in Singapore. The approved companies will be granted a concessionary tax rate of not less than 10% on their incremental income. This will provide further impetus to develop Singapore into an International Exhibition and Conference City. The extension to the tax concession will take effect from Year of Assessment 2000. Tax Exemption for Floating Production Storage Offloading Vessel and Floating Storage Offloading Vessel Singapore has come a long way in developing as a maritime centre. According to United Nations Conference on Trade and Development (UNCTAD), we have moved from the 19th position in 1991 to become the 13th most important maritime nation. Today, a critical mass of established international shipping companies exists in Singapore, providing a wide spectrum of shipping services.”
“To help our local contract manufacturers remain competitive, I have decided to introduce a scheme, called the Approved Contract Manufacturer and Trader (ACMT) scheme, to relieve contract manufacturers whose businesses are substantially with overseas clients, of this GST burden. Under this scheme, the local delivery of the finished goods to the customers of the overseas client and the fees for the value-added activities on the goods will be deemed to be outside the scope of GST and GST will not be chargeable. Instead, the overseas client's customers who purchase and receive the goods in Singapore will account for GST by way of a "reverse charge". Besides contract manufacturers, this scheme will be made available to traders who also engage in value-adding activities substantially for overseas clients, and face the same GST problem as the contract manufacturers on their local deliveries. The scheme will be administered jointly by IRAS, EDB and TDB. Further details of the scheme will be released separately by the administering agencies. Waiver of GST for Goods Removed from Bonded Warehouse The development of a logistics sector with extensive networks is critical to our continued growth as a global trade centre and hub port. To encourage logistics operators to expand their business in Singapore and use Singapore as a base for their operations, I have decided to waive the GST chargeable on goods removed by traders registered with the Major Exporter Scheme (MES) from bonded warehouses operated by logistics companies. With this waiver, MES traders will be able to use their MES status to remove goods from bonded warehouses operated by logistics companies free of GST.”
“To encourage companies to locate and perform their headquarters functions in Singapore to service network companies worldwide, I have decided to enhance the existing OHQ incentive by granting tax exemption to OHQs which perform at least one substantive global function in Singapore. The incentive will be granted for a maximum period of ten years, and will take effect from Year of Assessment 2000. Companies may apply to EDB for this incentive after Budget Day. Approved Contract Manufacturer and Trader (ACMT) Scheme Contract manufacturers play a key role in our manufacturing sector. Some of our homegrown contract manufacturers have become global players. These companies usually contract to perform value-added manufacturing activities on semi-finished goods consigned to them, and then export the finished goods to their overseas clients. In recent years, contract manufacturing has become more complex. For example, instead of exporting the finished goods, it is not uncommon for contract manufacturers to be asked by their overseas clients to deliver the finished goods to customers in Singapore. This local delivery is considered a taxable supply under our GST laws. However, in some instances, the overseas clients to whom the finished goods belong do not designate an agent in Singapore to account for the GST on their behalf in respect of the local delivery. The contract manufacturers in such a situation would have to bear the GST on local delivery and have no recourse to claim it back. This GST burden could make our contract manufacturers less competitive internationally.”
“The Singapore economic environment has, however, been adversely affected by the downturn in the regional economies. In view of this, it is prudent for finance companies to build up their level of general provisions further. To encourage them to do so, the annual limits of 25% of qualifying profits and 0.5% of qualifying loans and investments will be temporarily suspended for a period of two years with effect from Year of Assessment 1999. In addition, the overall limit of 2% of qualifying loans and investments will be raised to 3% from Year of Assessment 1999. These changes will provide finance companies greater flexibility in making general provisions to cushion against potential losses that could arise owing to the poor economic environment. This will strengthen the financial position of finance companies, and the overall soundness and stability of the financial system. To qualify for the above concessions, the finance company must satisfy the existing statutory minimum capital funds requirement of $50 million and minimum capital adequacy ratio of 12%, as prescribed under the Finance Companies Act. I will now move on to corporate tax changes for other sectors of the economy. Tax Exemption for Global OHQs The Operational Headquarters (OHQ) scheme was introduced in 1986 to promote the services sector as one of the twin engines of growth. Under the OHQ scheme, companies awarded OHQ status will enjoy a 10% concessionary tax rate on their qualifying income. At present, most companies awarded OHQ status have been based in Singapore to service the Asia Pacific region.”
“Compared to 1991, there has been a five-fold increase in the amount of funds managed in Singapore to $124 billion in 1997. This is expected to grow further, despite the Asian economic crisis. Many large and internationally reputable fund management companies have established a presence in Singapore. The Banking and Finance Subcommittee of the Committee on Singapore's Competitiveness has, however, recommended that Singapore should also encourage the growth of boutique fund managers. Boutique fund managers are primarily indigenous fund management companies set up and run by professionals who typically have considerable experience in the fund management industry. Nurturing boutique fund managers will create more diversity and also contribute towards the growth of our local fund management industry. I have therefore decided to exempt from tax, the qualifying income derived by foreign investors from funds managed by qualifying boutique fund managers. The types of income qualifying for exemption will be the same as that under the Approved Fund Manager scheme. The scheme will be effective for a period of five years from 27th February 1999 and will be administered by MAS. MAS will be releasing the details separately. Tax Deduction for General Provisions Made by Finance Companies Since 1997, finance companies have been given tax deduction for general provisions made against their loan and investment portfolios. This is subject to an annual limit of the lower of 25% of qualifying profits or 0.5% of qualifying loans and investments, as well as an overall limit of 2% of qualifying loans and investments. This has encouraged finance companies to make adequate general provisions to cushion against unexpected losses in their operations.”
“Currently, income earned by all financial institutions from trading in debt securities, including SGS, is taxed at a concessionary tax rate of 10%. Government recognises that Primary Dealers play an essential role in SGS markets, by fulfilling the role of market makers and driving the process of price discovery and trading liquidity. To encourage more financial institutions to take on the role of SGS Primary Dealers and to provide a significant incentive commensurate with the obligations undertaken by SGS Primary Dealers, I have decided to exempt from tax income derived by SGS Primary Dealers from trading in SGS. The incentive will be effective from 27th February 1999, for a period of four years. Tax Exemption Scheme for Syndicated Facilities The Tax Exemption Scheme for Syndicated Facilities was introduced in 1983 to encourage financial institutions to base their syndication activities in Singapore. The scheme has operated successfully and there has been a steady increase in syndication activities in Singapore since its introduction. Last year, I announced that the scheme would be extended for a further five years until 2003. Currently, MAS approves each syndicated facility on a case-by-case basis. To give arrangers upfront certainty on whether a facility qualifies for tax exemption, I am introducing an automated procedure. Under the automated procedure, facilities which meet certain defined criteria will automatically be granted tax exemption, without the need to obtain case-by-case approval from MAS. The automated procedure will take effect from 27th February 1999. MAS will publish the details of the procedure in a circular. Tax Incentive to Promote Boutique Fund Management Since the early nineties, fund management activity has grown rapidly.”
“In some cases, this condition gave rise to uncertainties about the availability of the incentives. This is because the global character of institutions and markets makes it necessary for the arrangers to use staff based outside Singapore, or employed by affiliated companies, to successfully execute the transaction. To rectify this situation, I have decided to create an "Approved Bond Intermediary" (ABI) scheme to complement the existing regime. Under the ABI scheme, the Monetary Authority of Singapore (MAS) will evaluate a financial institution's debt origination and trading capabilities in Singapore on an overall basis. Once a financial institution has been awarded ABI status, all debt securities lead managed by it would be treated as "qualifying debt securities". There would be no need for an ABI to satisfy, on a transaction-by-transaction basis, the current test of "substantial arrangement in Singapore". This will enable ABIs to provide their clients with greater certainty regarding our tax incentives, and will also serve to emphasize Singapore's goal of encouraging financial institutions to increase their debt market capabilities here. The above refinements will be effective from 27th February 1999 up to 27th February 2003. ABI status may be awarded to financial institutions upon application to MAS. MAS will publish further details in a circular. Tax Exemption on Income Earned by Primary Dealers in Singapore Government Securities (SGS) from Trading in SGS The Singapore Government Securities or SGS market is a key element in Singapore's domestic debt market. To develop a robust bond market, it is important to first establish a liquid SGS market to define a benchmark yield curve to which private issuers can make reference when pricing their bond issues.”
“I will therefore be introducing changes to some tax incentives to promote the development of certain high value-added sectors of our economy. At the same time, Government is mindful of the difficulties faced by individuals and households in the current economic downturn. The cost-cutting package announced in November 1998 was focused mainly on reducing business costs. I will therefore be announcing several measures to help individuals later in my speech. Let me now deal with tax changes for companies. TAX CHANGES FOR COMPANIES Corporate Tax Rebate As announced in November last year, the Government will give a 10% rebate on corporate income tax, excluding Singapore dividends, for the Year of Assessment 1999. Tax Incentives to Promote the Bond Market In the FY98 Budget, I announced several tax incentives to promote the development of an active bond market. The incentives included tax exemption on interest income earned by non-residents from qualifying debt securities and on fee income derived by financial institutions from arranging debt securities in Singapore. I am now pleased to announce further refinements to these bond market tax incentives. Currently, tax exemption on interest from qualifying debt securities paid to non-residents only applies if the non-residents do not have permanent establishments in Singapore. To facilitate a wider distribution of qualifying debt securities, I have decided to extend the tax exemption to include non-residents who have permanent establishments in Singapore, provided that such non-residents do not purchase the securities using funds from their Singapore operations. Qualifying debt securities are currently defined as debt securities which are substantially arranged by financial institutions in Singapore.”
“Mr Speaker, Sir, let me now turn to the fiscal position and the proposed tax changes. Revenue collection is projected to fall from $27.2 billion in FY98 to $24.1 billion in FY99, a $3.1 billion or 11.4% decline. As a percentage of GDP, revenue collection will decline from 18.9% in FY98 to 16.9% in FY99. As operating and development expenditures in FY99 are budgeted at $29.2 billion or 20.5% of GDP, an operating deficit of $5.1 billion or 3.5% of GDP is projected for FY99. The fall in operating revenue is attributable to slower economic growth expected in FY99 and the revenue impact of the various off-budget measures announced by the Government to stimulate the economy. In particular, the $10.5 billion cost-cutting package announced in November last year to reduce business cost will have a negative impact of about $1.8 billion on the FY99 budget balance. The budget deficit will be funded entirely from surpluses accumulated by the Government in its current term of office. As I have noted earlier, our fiscal policy is to live within our means and aim for a balanced budget in normal years, accumulating surpluses in good years of strong economic growth and drawing against reserves in years of economic downturn. We should now allow the effects of the packages of stimulus and cost-cutting measures already announced to work through the system before we decide whether further measures are necessary. But even as we adopt short-term measures to deal with current difficulties, we have to keep our eyes on the future, develop the infrastructure necessary for our future growth, enhance our capabilities and put in place a conducive framework for businesses and individuals in Singapore to thrive. Only then will we be well placed when the region recovers from the economic crisis.”
“Provision is made for on-going projects such as the Civil Defence Shelters Programme, and new complexes for the Ministry of Home Affairs, Police Headquarters, Singapore Civil Defence Force Headquarters and Traffic Police Headquarters. Provisions are also made for the redevelopment of the Changi Prison Complex and Command Control and Communication Systems to improve the operational capability of the Police, Singapore Civil Defence Force and Central Narcotics Bureau.”
“8 billion and $1.7 billion respectively. The North-East MRT Line and the Changi MRT extension projects account for two-thirds of the $1.8 billion development budget for communications. In all, rail projects account for $1.4 billion, while another $270 million goes to road improvements and development of bus interchanges. Provision is also made for continuing reclamation at Changi East. Spending on trade and industry projects has slipped by $350 million compared to FY98. However, this does not reflect a lower commitment by Government, but rather the result of huge savings in lower tender prices for recent reclamation projects awarded for Jurong Island Phase III and reclamation at Changi East. More than half of MTI's development budget will go to reclamation at Jurong Island, Tuas View, Changi East and Sentosa Cove. Spending on these reclamation projects will increase from $810 million last year to $930 million in FY99. Other major projects in this year's budget are the Economic Development Assistance Scheme, the Tourism 21 Plan to re-develop Chinatown attractions, the Mega Exhibition Centre and the Singapore ONE project. Spending on the general services and security sectors accounts for the remaining allocation at 12% and 11% respectively of the development budget. The allocation for general services will see an increase of $730 million from FY98. This is largely accounted for by $500 million to be held centrally by MOF for new projects, which Ministries may embark on in the course of the year, and $260 million more for the New Supreme Court building project. Spending on internal security is expected to remain at the same level as the last two years.”
“Of this, more than $1 billion goes towards development of schools and campuses, and another $350 million on IT Masterplan and IT projects in schools and tertiary institutions. A provision of $170 million is set aside to build residential and hostel facilities in schools and campuses, and $250 million for new projects comprising mostly buildings and further IT investment in tertiary institutions. Spending on public housing increased from $850 million in FY97 to $1.9 billion in FY98, and to $2.3 billion in FY99. Deficit financing to HDB accounts for $1.2 billion, mainly due to a surge in demand under the CPF Housing Grant Scheme. Continuing HDB upgrading is allocated $430 million and compensation under the Selective En-bloc Redevelopment Scheme is allocated $370 million. The $400 million increase in public housing spending is mainly due to increased provisions of $150 million for compensation under the Selective En-bloc Redevelopment Scheme and $270 million for deficit financing to HDB. Spending on environment has also risen steadily from $650 million in FY97 to $1.0 billion in FY98, and is set to level off at $980 million in FY99. The Fourth Refuse Incineration Plant at Tuas accounts for half of this sum, while the other half goes to improvements and expansion of sewerage and drainage facilities. The economic and infrastructure development sector no longer occupies first place in development spending because of the large increase in allocation to the social and community services sector. Nevertheless, the sector is still allocated a sizeable sum of $4.7 billion. This is lower than spending in FY98 by $220 million, but 23% higher than the $3.8 billion spent in FY97. The sector is led by strong spending on communications and trade and industry projects at $1.”