Hansard, 1965-12-13

Markets in the developed, highly industrialised countries of the world; (b) New markets in Africa and Eastern Europe; (c) Markets to be provided by those countries which have been consistently running favourable balances of trade with us; and (d) Markets in those countries which have a vested interest in ensuring that Singapore remains viable and stable so that, in turn, their own security interests are not jeopardized. In recent years increasing attention has been focussed on the need for highly industrialised countries to provide outlets for the simpler manufactures of developing countries, if for no other reason than to assist the latter in financing imports of machines and other capital equipment needed for development. Various international conferences have been held and there appears to be increasing realisation that enlightened self-interest among the highly developed economies would lead to enhanced market opportunities for the developing countries. But this can only come about slowly. With regard to developing new markets, this can and should be done. Our policy of neutrality, non-alignment between the big power blocs, together with our active identification with the Afro-Asian world gives us a good start with a growing consumer world in Afro-Asia. Trade missions will soon be sent to these countries to explore and develop these markets. Mr Speaker, a cursory look at our trade statistics will reveal that there are several countries which enjoy a favourable position in their trade with us. We propose to persuade them to buy more of our products, especially our manufactured goods, and thereby redress the imbalance. We will shortly take the initiative to enter into trade agreements with them. It will be observed, Mr Speaker, in the three categories of prospective markets that I have mentioned, even with the necessary effort, results will be slow in coming, nor are they likely to have an immediate impact on our growing unemployment problem. I now turn to the fourth category of markets - markets in those countries which have more than a passing interest in our survival. My predecessor and colleague, the Minister of Defence, has already referred in passing to this subject a few weeks ago. Our asset in this respect is that we occupy a position of some importance in the strategic defence chain of South-East Asia. Countries such as the United Kingdom, Australia and New Zealand, amongst others, are therefore not uninterested that the link through Singapore should remain intact. These countries have an interest that we survive and to this end to give us export opportunities. It would be unrealistic and futile to demand unlimited and unrestricted access to these markets, for no nation can countenance imports of such volume that would imperil their domestic industries. We have estimated that it will be necessary to find about 8,000 to 10,000 new jobs in industries each year for the next five to seven years. In value terms this only means an additional export of M$120 million each year on a cumulative basis. This is well within the capacity of the highly developed countries to share and absorb. Care and restraint will be exercised in selecting products which will not disrupt their domestic industries. They range from cutlery and ceramics to electrical and automobile component parts, optical equipment and so on. In all, Mr Speaker, about 200 to 300 products. Essentially, emphasis will be on those products which we can make efficiently and competitively. Gradually, over a period of time, Singapore should be able to acquire the necessary efficiency to compete in world markets on her own strength. When we have reached that stage, we in turn will be prepared to extend to others the kind of assistance which we are now seeking. Our proposals are, therefore, a logical step in the overall industrial development pattern of the undeveloped sectors of Asia. We will be making formal approaches to these countries. In the event that no satisfactory solutions are reached, then our whole political future will have to be re-assessed and a re-alignment is inescapable. But, Mr Speaker, Sir, to attain our objective in transforming Singapore into a modern industrial nation, Government action alone is not sufficient. There must be a concerted effort by Government, entrepreneurs and workers alike - the whole nation must work as one. We have laid the infrastructure, we have provided the incentives and we have shown the way ahead to more rapid industrialisation. It is now up to the people of Singapore to respond to the call. The entrepreneurs must ensure by a proper choice of industries and industrial associates that the products manufactured are of a quality and price competitive with foreign products. Our workers must also be prepared for factory discipline and hard work to make costs competitive in the international market. There must be restraint and discipline on both entrepreneurs and workers if we are to emulate the efforts which brought about the great economic recoveries after the world war in Germany and Japan. Let our industrialisation be established first on a firm basis before we think of sharing the gains. Anti-nationalist elements even now are trying their best to foil us in our attempts to bring about a more just and stable society. They will try to dupe the rank and file of our workers into prematurely demanding immediate short-term benefits which will kill the goose even before the golden eggs are laid. This is where progressive entrepreneurs and responsible trade unionists need to exercise restraint, patience and above all discipline and judgment. There are some of our entrepreneurs who are pursuing labour policies more suited for a bygone age. They simply do not recognise that trade unions exist, even responsible ones. Unless they sit up and take notice that we are living in a modern world where responsible unions have come to stay, they will be letting themselves in for a lot of inconvenience and trouble. On the other hand, trade union leaders must dissuade their members from following the suicidal lines of action advocated by the anti-nationalists. It pays these anti-nationalists to create unemployment, chaos and disorder, for these are the conditions under which they thrive. It is the duty of every one of us to see that they do not succeed in their evil intentions. Relationship with Malaysia Mr Speaker, Sir, I think it will be fitting, at this stage, for me to dwell briefly on our economic relations with Malaysia since Singapore Day. The immediate effect of separation was the loss of the expectation of a Common Market and the retention by Singapore of all its revenues. The quota restrictions which were in force on the recommendations of the Tariff Advisory Board, prior to Singapore Day, were also made applicable to goods from Malaysia after that day. Honourable Members will be aware of the arguments and counterarguments that were put forth on both sides of the Causeway for removal of restrictions and freeing of the trade. On our part, we suggested that there should be broad agreement on principles relating to closer economic co-operation and that following this trade restrictions must be simultaneously lifted. They maintained that restrictions should be first removed before talks on economic co-operation could begin. Finally, we agreed on 9th October to mutual removal of restrictions. Events since then have shown that negotiations will take some time in producing any result. Our manufacturers entering Malaysia are treated as those of a third country, as indeed they have been all these years. There has been no change. On the other hand, our manufacturers now have a protected Singapore market where there was none before. But Singapore's separation and the fact that there is no common market with Malaysia does not mean that all economic, cultural and other ties between the two countries should also be severed. One-third of their trade is with us and about a quarter of our trade is with them. These ties have been built up over the last 140 years. No one can deny that continuation of these links is of mutual advantage. Furthermore, in terms of history, the two territories are really inseparable. And it must not be forgotten that the destruction of one means destruction of the other. For this reason, we will never initiate any policy which will have the effect of further severing the two countries. We have made many proposals, Mr Speaker, Sir, without receiving any positive rejoinder. Perhaps we may be going too fast for Kuala Lumpur in putting up these proposals so soon after separation. But we are always ready to adapt ourselves to their tempo of working, provided they are willing to meet us half-way. If they are sincere in working towards closer economic co-operation, let us in turn hear from them what their proposals are. Let us start the New Year right. Let us sit round the table, Ministers and officials, instead of each country being forced to work out how each can do without the other. I am willing, Mr Speaker, Sir, to meet the Malaysian Ministers and their officials at any time and at any place of their own choice early in January to work out measures for co-operation in the field of trade and industry. We will continue to reason, to discuss and argue that economic co-operation holds no dangers to either. But in the meanwhile, we will launch forth into new markets and redouble our efforts to increase our trade with all countries of the West and of the East and of Afro-Asia. Currency Whilst on relations with Malaysia, Mr Speaker, I should like to refer to the traditional common currency which we have had all these years. Honourable Members may recall that the Malaysian Government in December 1964, while Singapore was still a State of Malaysia, gave notice of its intention to Brunei to wind up the Currency Board. Under this system our currency is backed to the extent of 110 per cent or more by external assets and is one of the main pillars on which financial stability has rested in the past. We have now been informed that the notice referred to earlier still stands and discussions are now in progress with the Malaysian Government as to the currency arrangements which should be entered into on expiry of the notice in June next year. I am not in a position to divulge details of the discussions. The Government recognises that soundness of the currency is a prerequisite for financial stability and public confidence. For this reason, so far as Singapore is concerned, we will ensure that whatever the arrangements which may be arrived at, our currency will continue to be backed by 100 per cent or more in external assets. External Resources At the start of a period of momentous change in our history, it will be well to take stock of our present financial position. Thanks to prudent budgetting and careful allocation of resources by the Government during the past six years, our external debt stands at only M$59 million, whereas our official foreign reserves by September this year, stands at M$914.7 million, made up as follows: Million Singapore's share of Currency Board Reserves (estimated) ... M$276.4 Government Reserves ... M$484.7 Reserve of Government Agencies such as Post Office Savings, C.P.F., E.D.B. ... M$53.7 Reserves of Public Authorities such as Public Utilities Board and Port of Singapore Authority ... M$99.9 This sum of M$914.7 million is adequate to finance retained imports for more than a year - a position which is strong by any international standard - and it is our intention to maintain this position of strength. We will explore and take advantage of all opportunities for loans from international bodies such as the World Bank and will seek other avenues of external loans to finance our development projects. But it would be unwise to rely too much on them. Our aim, Sir, is for more trade, not more aid, for by this we retain our freedom of action and self-respect. Review of Economy Mr Speaker, Sir, the economy continues to be robust. There was steady growth during the last few years, Indonesian confrontation notwithstanding. The economic performance of a country from year to year is best judged by the rate of growth of its national income. The House will recall that when assessing the economic effects of confrontation, it was estimated that if the Indonesian embargo on trade with us was completely successful, it would lead to a direct decline of about 8.7 per cent in our national income. It gives me great pleasure to report that in 1964, Singapore's national income stood at M$2,811 million, which reflected a rate of growth of some two per cent over 1963. This meant that the growth in the other sectors not only completely offset the loss in national income as a result of Indonesian confrontation but, indeed, went on to achieve a net increase. This clearly shows the resilience of Singapore to absorb and overcome sudden and drastic declines in earnings. Singapore's capacity to overcome such national occupational hazards is rein forced by our performance in external trade in the current year. The value of external trade during the first nine months of the year totalled M$5,041.0 million, showing a 8.6 per cent increase over the corresponding period of the previous year. This is a creditable performance considering the fact that trade in 1964 declined by about 19 per cent compared with 1963, as a result of Indonesian confrontation. Exports for the year were also up by 7.9 per cent while imports rose by 9.3 per cent. Mr Speaker, a third good economic indicator is the volume of business transacted by banks. For the first nine months of 1965 deposits as well as loans and advances of banks have shown increases. Commercial bank deposits at the end of September 1965 stood at M$1,164.3 million compared with M$1,137.2 million at the end of December last year. This is an increase of 2.4 per cent in nine months. The most significant increase occurred in fixed deposits which showed a rise of 12.4 per cent. The average monthly level of loans and advances to customers in 1965 stands at M$937.4 million which is an increase of 11.2 per cent over the average monthly level in 1964 which stood at $842.9 million. Despite Indonesian confrontation and the sudden shock of separation, banks have maintained confidence in Singapore's economy by increasing credit necessary for the transaction of business. Earlier on, we have seen that Singapore's national income in 1964 showed a net increase of 2 per cent. One of the underlying factors which kept economic activity at this level in 1964 was the substantial growth of gross capital formation which rose from $323 million in 1963 to $415 million in 1964, an increase of $92 million or 28 per cent compared with an average rate of 22 per cent during the years 1959 to 1963. An increased rate of investment was undertaken by both the public and the private sector. Public sector capital formation consists of public works such as construction of new ring roads, low-cost housing, expansion of utility services, e.g. power and water, and industrial infrastructure development, e.g. the Jurong Industrial Estate. Details on the rate of development will be given later on in my address when I review development expenditure in the past year. Private sector capital formation consists mainly of two components, namely, building construction and investment in new manufacturing industries. The monthly average area of building commenced in the first eight months of 1965 is 1,564,000 square feet, which is an increase of 28.9 per cent over the average monthly building activities commenced in 1964. In value terms, the corresponding increase in building commenced is $1,482,000 or 17 per cent above the average monthly level of $1,265,000 in 1964. Area of buildings under construction as at end of August 1965 stands at 29.2 million square feet or 34.4 per cent above the area under construction at the end of August last year. The second component of private sector capital formation takes the form of fixed capital investment in new manufacturing industries. Capital investment on fixed assets by manufacturing companies awarded pioneer certificates at the end of October 1965 totals M$223.5 million compared with $170.4 million at the end of the corresponding month last year. This is an increase of 31 per cent. Growth of Singapore's economy in the past year can also be seen in increased production of manufacturing industries. In terms of industrial output, provisional data derived from the 1964 Census of Industrial Production indicate that even with the fall in rubber processing activity, there was an estimated growth of 16 per cent in 1964 over 1963. Industrial output in 1964 was estimated at $1,052 million compared with $909 million in 1963. In 1965, 35 new pioneer manufacturing companies commenced production, bringing the total number of pioneer firms in production up to 82. In addition, another 63 pioneer factories are under construction or being established. The 82 pioneer firms already in production are presently giving employment to 9,000 workers compared with 4,200 workers employed in 1964. The level of employment will rise to 14,300 workers when these firms achieve full production. Singapore's gratifying rate of economic performance in the year under review has enabled our people to buy more of the good things of life. The number of new motor-cars registered during the first ten months of 1965 showed an in, crease of 7,528 or 7.6 per cent over December 1964. We have reached the stage today where there is one car for every 18 Singaporeans. Motor-cycles and scooters registered have also gone up by 5,263 units or 10 per cent above December 1964. By the end of the year the overall rate of increase in new vehicles registered may well be 10 per cent over 1964. Similarly, television sets imported during the first nine months of the year were valued at $7.6 million compared with imports of $5.9 million for the corresponding period of 1964, an increase of 28 per cent. General Review of Revenue and Expenditure in 1965 Mr Speaker, Sir, I will now come to the general review of revenue and expenditure for this year. In the original Estimates of Revenue and Expenditure for 1965, when Singapore was still in Malaysia, revenue accruing to the State was estimated at $339.6 million and State expenditure (including a transfer of $20 million to the Development Fund) at $359.8 million. With separation both revenue and expenditure in 1965 will he substantially increased. Details of additional revenue reverting wholly to the Singapore Government are shown in a paper being presented as Supplementary Estimates of Revenue, 1965. The increase in revenue amounts to $43.2 million, representing the 40 per cent that would have been payable to the Central Government under Malaysia. Total estimates of revenue for the year will therefore be increased to $382.8 million. By October $310.3 million of the total estimated revenue was collected. Another $72 million should be collected in the last two months of this year, bringing total revenue to $382.3 million, or $0.5 million short of the estimate. On the expenditure side Singapore will now have to bear the expenditure of those departments in Singapore which were formerly Federal departments, e.g. Police, Posts and Telecoms, Civil Aviation and so on, as well as two new Ministries - Defence and Foreign Affairs. For this purpose provision of $39.3 million is being sought as Supplementary Estimates. In the Supplementary Estimates a sum of $6.7 million is also being sought for five heads of expenditure whose 1965 provision is insufficient. The total of $46 million being sought will bring total estimates of expenditure for the year to $405.8 million. Actual outlay up to 31st October, 1965, amounted to $286.4 million. Expenditure for the last two months of the year, including a $20 million transfer to the Development Fund, is estimated to be approximately $103.4 million. Total expenditure for the year will, therefore, be around $389.8 million. With total expenditure for the year amounting to $389.8 million arid total receipts of $382.3 million only, a deficit of $7.5 million is expected. Since the expenditure figure of $389.8 million includes a capital transfer of $20 million there is, in fact, a surplus of $12.5 million from our current account. The surplus in 1964 was only $3.1 million. Considering the problems we had to face on account of confrontation and the large sums that we had to contribute to the Malaysian Government towards defence and internal security, things have turned out far better than we had dared to hope. Revenue, 1965 With the exception of tobacco duty and stamp duty, revenue from the other taxes has come up to expectations. Income Tax is expected to yield $99.3 million -- which is nearly $5 million more than the sum collected in 1964. Although the increase could be attributed partly to the changes in the rates and basis of assessment introduced by the Malaysian Government, whereby tax-payers at the base had to pay more and the withdrawal of the concession to working wives of separate assessment for earned income, the yield from Income Tax clearly indicates that the effect of confrontation on taxable earnings in 1964 has been insignificant, if at all. Indications are that duty from petroleum will reach $51.8 million this year. This exceeds the sum estimated for the year by $7.8 million and is $11.3 million more than the amount collected in 1964. Registration fees for vehicles are likely to show an increase from $5.9 million in 1964 to approximately $6.4 million this year - a rise of slightly more than half a million dollars. Customs duty and excise duty on liquor are expected to amount to $19.5 million and $14.8 million respectively. The sum of $19.5 million from Customs duty is about the same as for 1964. Excise duty has, however, risen by about half a million dollars. Entertainment duty, though expected to be about $0.2 million below the estimate of $7.5 million, is in fact $1.4 million more than in 1964. These increases, though small, are all significant. Receipts from stamp duty are anticipated to yield only $5.7 million this year - a drop of $1.3 million below the amount collected in 1964. Property tax, however, is not affected and the estimated sum of $58.1 million is expected to be realised. Tobacco duty is likely to suffer a fall from $43.6 million in 1964 to about $42 million in 1965. The fall is due to a decrease in the consumption of imported cigarettes and the trend to switch from the use of leaf-tobacco bearing full rates of duty to leaf-tobacco attracting preferential rates. Expenditure, 1965 The main increases in expenditure are as usual in respect of expenditure on social services; especially expenditure on Education and Hospital services. The Ministry of Education is seeking a supplementary provision of $5.4 million. This will raise expenditure on Education to $113.3 million. This is about $10 million above that of 1964; an increase of approximately 10 per cent. The Hospitals Division requires an additional sum of $780,000 making a total of $38.7 million for the year; which is also about 10 per cent higher than the previous year. The Ministry of Health is the second largest head of expenditure and like the Ministry of Education has also been showing a rather steep rise in expenditure during the past few years. The supplementary provisions being sought by the remaining three heads of expenditure are minor ones. A sum of $300,000 is being sought by the Public Works Department for street lighting. This is on account of the accelerated pace with which streets are being lighted up. The Accountant-General is seeking an additional $76,000 and Inland Revenue $96,000. With the exception of the five heads of expenditure just mentioned, the other heads of expenditure are expected to manage within their provisions. However, as the Estimates of Expenditure were based on an assessment of actual requirements, no substantial savings are expected from any head of expenditure. Financial Arrangements Under Malaysia Mr Speaker, Sir, it would not be out of place for me to mention here the various implications of the financial arrangements which existed under Malaysia. Under Annex J, 40 per cent of taxes which were of a Federal nature and collected in Singapore were to be paid to the Central Government to cover Singapore's share of Central Government expenditure covering: (i) the expenditure of Federal Departments in Singapore; (ii) a share of expenditure for defence and internal security; (iii) a share of expenditure for external affairs, Parliament and other common Central Government services. For 1964, Singapore's share of expenditure for defence was assessed at $75 million out of an estimated total expenditure of $441.5 million - that is roughly 17 per cent of total Malaysian expenditure; and its share of expenditure for external affairs and common Central Government services estimated at $7.5 million out of an estimated total expenditure of $43.19 million - again also about 17 per cent of total expenditure. According to available figures, the actual expenditure for 1964 of these items amounted to $97.5 million while the 40 per cent share of revenue derived by the Malaysian Government amounted to $119.9 million. The Malaysian Government, thus, gained a gross surplus of $22.4 million in 1964. Computed on the same basis, the Malaysian Government suffered a small loss of $5.13 million from Malaysia Day (that is 16th September, 1963) to the end of 1963, but gained a surplus of $31.64 million for the period from 1st January this year up to Singapore Day. For the whole duration of Singapore's inclusion in Malaysia, the Central Government gained a gross surplus of $48.91 million. This total does not take into account some ten odd million dollars per annum since Malaysia Day representing our share of currency profits. On the other hand, the State Government rendered certain services on behalf of the Central Government during Malaysia and these claims, a substantial part of which were agreed in principle during Malaysia, are expected to be settled next year. These do not include old claims such as Malaysia's share of contributions to the University of Singapore which are yet to be settled. Estimates 1966 The increased responsibilities, which Singapore has to bear on account of its new status as an independent nation, are clearly reflected in the 1966 Estimates. Estimated expenditure is $506.56 million. Revenue has also correspondingly increased, mainly because Singapore no longer has to share the proceeds of its taxes with any other Government. Total revenue for the year is estimated at $537 million. The estimated surplus, before transfer to the Development Fund, is thus $30.44 million. It is proposed to transfer $30 million next year. This will leave a small balance of approximately half a million dollars. Mr Speaker, Sir, the most gratifying feature of the Budget for next year is that it is being balanced without having to run down our reserves and on top of it we hope to show a small surplus as well. Expenditure 1966 Expenditure of the Ministry of Education for next year remains the highest. The estimate for 1966 is $129.2 million, which is nearly $16.3 million above the sum expected to be spent this year. The increase is on account of the increasing number of children moving up from Primary to Secondary Schools. Because of the expansion in hospital services, a sum of $43.6 million is estimated to be required for the Hospitals Division of the Ministry of Health, a rise of $4.9 million over expenditure this year. The rate of increase is thus almost as high as that of expenditure on Education. A substantial increase of about $5 million, bringing the provision up to $28.8 million is being provided for the Public Health Division, The major part of the increase is for the acquisition of more staff and equipment to improve the standard of cleanliness of the growing city. The new major burdens which Singapore now has to bear are in respect of internal security defence. Expenditure for the Police is estimated at $40.3 million. Details of expenditure for defence have yet to be finalised. Very roughly, a sum of approximately $30 million will be required, and a block vote of this sum has been entered under the Ministry of the Interior and Defence head of expenditure. A sum of $4.2 million has been provided for the Ministry of Foreign Affairs. The main cost of this Ministry is in the expenditure of our missions abroad. The amount required will depend on the number of missions we are able to set up next year. It is, therefore, difficult to estimate with any precision at this stage, and supplementary provision may he required in the course of the year if more missions are established. Revenue, 1966 Most of the major taxes are expected to show increases next year. Customs and Excise duties on petroleum products, together with the new protective tariffs introduced in October this year, are estimated to yield $47.8 million, an increase of $3.8 million over 1965 Estimates. The estimated revenue of $20.1 million from Customs duties on liquor is $1.6 million higher than the estimate for this year. Property Tax is estimated to increase from $58.1 million estimated for 1965 to $65 million. There has been a steady decline in the revenue from tobacco tax. Based on present trend, the revenue for 1966 is estimated at $42.5 million against the 1965 estimate of $48 million. The reasons have been dealt with in the review of the current year's revenue. The imposition of a tax on fuel oil by the Malaysian Government created considerable problems in certain manufacturing industries as the cost of production was increased. Within powers available under the Customs Ordinance, all bona fide manufacturers utilising fuel oil have been exempted from the fuel oil tax as from 19th November this year. The Public Utilities Board, also a major consumer of fuel oil, has not been exempted from the fuel oil tax as such. Measures are examined to ascertain whether it is possible for the Public Utilities Board not to pass on to manufacturers the tax element on fuel oil used in generating electricity. The protective duties introduced on 11th October this year in the wake of duties imposed by Malaysia also have a revenue effect. Revenue from these new 154 protective duties are expected to yield $14.6 million next year. No new Customs duties are expected to he introduced for revenue purposes next year. Such Customs duties as will he introduced will be for protective reasons and are not expected to yield any significant revenue. A review must now be made of other taxes. On the day of Singapore's separation from Malaysia, the repeal of the Turnover Tax was announced. Nineteen days later, the Capital Gains Tax was rescinded. No revenue was derived from these taxes. As three-quarters of the fiscal year had expired by Singapore Day, it was not possible to change or rescind all the unsatisfactory fiscal measures introduced by the Central Government during this year. A new Income Tax Bill has been introduced at this meeting of Parliament to make such amendments to the income Tax law as are necessary to accord with the sovereign and independent status of Singapore. Mr Speaker, Sir, I will now point out the main features of the Bill. (a) With effect from 1st January, 1966, exemptions from tax in respect of owner-occupied houses will he limited to a maximum net annual value of $3,000 and restricted to a single property as it was in Singapore before Malaysia, thus rescinding the Central Government's unrestricted exemption of owner-occupied houses without limit as to value or number since 1st January, 1965. Indiscriminate exemption wil1 favour wealthy property owners unduly, and such a policy is not in accordance with the objective of a more just and equal society. (b) For the year of assessment 1966, working wives in Singapore will again be allowed to choose to be assessed separately from their husbands in respect of their earned income. During Malaysia the combined incomes of working husbands and wives were aggregated for the purpose of income tax, and only a small relief was allowed for the wives' earnings. To encourage half our population to engage in productive work and increase the national income, wives will be assessed separately next year. (c) The opportunity will also be taken to restore the rates of certain personal reliefs for individual taxpayers and bodies of persons to the pre-Malaysian levels, with the exception that child allowances will apply to a maximum of five children. (d) The rates of tax on the higher income group will be restored to pre-Malaysian levels as the rates imposed during Malaysia are considered incompatible with the principle of imposing the heavier burden of taxation on those best able to bear it. For example, the Singapore upper rate of tax of 55 per cent on personal incomes of $100,000 or more per year was reduced by the Central Government to 50 per cent during Malaysia with effect from 1st January, 1965. There will be provision in the Bill to re-impose upper tax of 55 per cent with effect from 1st January, 1966. Mr Speaker, Sir, I have already announced on I9th November proposals to give added incentives to industry. Double deduction for tax purposes for market development overseas and for increased local advertisement expenditure for our manufacturers will be provided in the Bill. There will also be flexible powers to accord key industry, particularly expert-orientated industry, increased rates of depreciation so that plant and equipment could be written off for tax purposes within three years, if necessary. As a result of these remedial measures, income tax collections in 1966 are expected to fall as compared with this year. A sum of $95.5 million is estimated for 1966, or a fall of $3.8 million below the estimated collections this year. Under the rate to be reintroduced, separate assessment for earned income of working wives, which is to be restored, will also reduce the tax payable on their incomes. We are also reverting, Mr Speaker, Sir, to the pre-Malaysian rates with regard to estate duty. I should mention here the intentions of the Government in regard to the tax position of persons who are resident either in Singapore or Malaysia but derive income from both territories. It is quite clear that in view of Singapore's independent status the existing "combined income" provisions in both the Singapore and Malayan Income Tax Laws will have to be reviewed. Discussions with the Malaysian Government are now in train with the objective of concluding a double taxation agreement at an early date so that the position of taxpayers in both territories can be put on a proper basis. Whilst on the subject, Mr Speaker, Sir, I may also mention that the Government desires to enter into double taxation agreement with other countries, especially those whose residents are or will be investing in Singapore. These agreements will remove the inhibition to investment inherent in double taxation of profits. Second Five-Year Development Plan Mr Speaker, 1966 marks the first year of - the Second Development Plan of Singapore. It is opportune for us to assess what was achieved during the past five years. In formulating the First Development Plan, major emphasis was laid on economic development to create conditions favourable for industrial growth through construction of infrastructure facilities such as power, water, port, industrial estates, arterial roads and other ancillaries. The Government also provides more direct assistance to industries by establishing the Economic Development Board. The Board provides loan as well as equity capital for the establishment or expansion of industries. In the social sector, the aim was limited to providing a satisfactory level of social services, particularly housing, education and health amenities. The original Plan drawn up for the period 1961-64 envisaged a total development expenditure of $871 million. However, at the end of 1964 it was decided to extend the First Plan for another year so that Singapore, as a State of Malaysia then, could follow the development planning period of Malaysia as a whole. Hence, final expenditure of the extended First Plan for 1961-65, instead of from 196l-64, is estimated to total $944 million. Plan allocation and final expenditure are likely to be as follows:- Plan Provision 1961-64 M$ % Economic Development 507.95 58.32 Social Development 349.88 40.17 Public Administration 13.19 1.51 ------ ----- 871.02 100 ------ ----- Final Expenditure 1961-65 M$ % Economic Development 587.98 62.3 Social Development 342.82 36.3 Public Administration 13.26 1.4 ------ ----- 944.06 100 ------ ----- The rate of expenditure on development in the public sector under the First Plan showed a substantial increase over the five-year period. Expenditure rose from $132.11 million in the first year of the Plan to around $242 million in 1965. This is an indication of increasing capacity of the public Sector during the Plan period to successfully mobilise resources and undertake developmental work. In reviewing the results of the First Plan, it will be useful to assess the performance of the economy as a whole during this period, including private sector investment as well. National income has gone up from $2,030 million in 1960 to $2,811 million in 1964, showing an annual growth of 7 per cent. As population increase averaged only 3 per cent per annum, there has been an increase in the per capita income of the country. Gross capital formation has increased even more substantially. It has increased from $137.3 million in 1960 to over $414.7 million in 1964. This reflects the level of increase in investment in the country during this period and also clearly indicates that private sector investment has expanded up to expectations. In particular, the performance of the manufacturing sector has been most encouraging. Total output of firms employing more than ten workers excluding rubber processing, increased from $465.6 million in 1960 to $843.7 million in 1963, while value added had increased from $142.1 million to $252.6 million. These aggregates furnish a measure of the substantial achievements of the manufacturing sector. As Singapore is now independent, the formulation and implementation of the Second Plan must be within the new political framework. A more realistic approach is needed in planning for the future. The Second Plan fully reflects this new outlook. The impact of the First Plan has also helped to change the strategy of planning for the future. Some of the problems, especially in the social sector, relating to primary education, general health services and housing, are now less pressing than they were in 1959. The birth rate has fallen from about 4.3 per cent to about 3.2 per cent and the rate of natural increase is now only 2.5 per cent as against 3.3 per cent in 1959. Though this is not likely to have any immediate effects in the Second Plan period, it does provide for a change in emphasis in the long run. The development of power and port facilities has also been more than adequate and has been significantly ahead of requirements. However, Mr Speaker, the provision of employment opportunities has become even more urgent. The number of persons likely to enter the labour market during the Second Plan period is much greater than in the previous period. It is estimated that about 95,000 persons will be entering the labour market in this period. In addition, the backlog of unemployed as at the end of 1965, is estimated to be around 55,000. There is now a need for even more stringent evaluation of development projects. Basically, industries must become more competitive in world markets sooner than was necessary in the past. The emphasis in the Second Plan period will be on the building up of the industrial base largely with export markets in view. The total Second Plan size is about $1,520 million. Economic development will account for about 64 per cent of the total Plan outlay. Social development projects will take up 32 per cent of the outlay and the balance of 4 per cent will be Public Administration. Allocation of the Second Plan by type of expenditure is broadly as follows :- Million Economic development $975.9 64.2% of Total Plan Outlay Social development $484.1 31.8% of Total Plan Outlay Public Administration $ 61.1 4.0% of Total Plan Outlay However, due to Singapore's new political status and the need to secure alternative export markets for our industries, the Economic Planning Unit has been directed to re-evaluate development proposals and basis of allocation of expenditure to take into account the changed circumstances. Subject to changes which may be necessary as a result of this re-evaluation, sectoral allocation is broadly as follows: Million Rural and Land Development $130.1 Public Utilities $316.1 Industry and Trade $342.8 Transport and Communications $186.7 All these will give the money to be spent on economic development 64.2 per cent share of the total outlay. Social Development will account for $484 million or 31.8 per cent. Public Administration $61.4 million or 4 per cent. Mr Speaker, Sir, this is not the time for me to go into further detail on the Second Plan. The Second Plan, which will be given a more thorough re-evaluation in the light of changing circumstances, will be tabled in the new year. 1966 Development Estimates I will now turn our attention to the 1966 Development Estimates which call for an expenditure of $275 million. Total public sector investment in 1966, including development by statutory bodies financed from their own funds will, however, be around $314 million. Allowing for a ten per cent shortfall in performance, actual Government development funds required may total only $250 million. Provisions in the 1966 Development Estimates will be spent on projects to be undertaken by Government Departments, tentatively approved for inclusion in the Second Plan. There are also provisions for loans and grants to statutory bodies to assist them in carrying out their development programmes as envisaged in the Plan. As 1966 is the first year of the new Plan, most of the provisions are for new schemes whose total cost adds up to $242.4 million, or 88.9 per cent of the total provision for the 1966 Development Estimates. The balance of the Development Budget is made up by revotes for spillover schemes. In other words, these are schemes started in the First Plan but will be completed in 1966. The revotes amount to $33.2 million. It may be noted that many projects, with provisions in the Estimates, will be subject to the sanction of the Economic Planning Unit. This is to enable further examination of the projects to determine the best means of implementing them. The funds allocated to Ministries in the 1966 Estimates are as follows: - (In $ million) Deputy Prime Minister 6.95 Ministry of Interior and Defence 16.25 Ministry of Education 28.74 Ministry of Health 5.81 Ministry of Finance 82.93 Ministry of Culture and Social Affairs 4.83 Ministry of Law and National Development 130.14 ------------- Total 275.65 -------------

Government acted unilaterally in formulating a scheme to implement the wage claims in the Collective Agreement, 1961, entered into between the Government and the Public Daily Rated Employees Unions Federation; (2) Due to its procrastination, Government deprived the workers of their just awards; (3) The demand for back-pay is nothing unusual in matters of wage increase. Let me take the first two points together, as they seem to me curiously linked. My first reaction is that these two points are contradictory. How can you accuse the Government of having taken unilateral action and in the same breath also allege that it procrastinated? True, on the point of the unilaterally formulated scheme, the facts of the matter are that after the agreement was signed between the Union and the Government, instructions were given to Government departments to implement forthwith those clauses which were clear-cut and straightforward. On the clauses relating to wages, it was not at all that straightforward, and a number of discussions took place between the Union representatives and Treasury officials. Arising out of these discussions, the Treasury presented to the Union a draft scheme setting out full details for the implementation of the wage clauses as a basis for further discussion. This action is nothing new and in fact is common practice in all meetings. It is useful and it is an occasion on which draft proposals are put forward as a basis for further deliberation. This was exactly what the draft scheme sought to achieve. After a number of meetings, agreement was reached between the Union and Treasury representatives. Indeed a signed statement is on record in a Treasury file signifying the consent of the Union to the issue of that scheme. It is therefore highly misleading for the Union, four years after the event has taken place, to make a general allegation of unilateral action on the part of the Government. On the question of procrastination or delay, thereby depriving the workers of just increases in their wages, this is unfair. The scheme referred to earlier provides for implementation with retrospective effect from the 1st January, 1961. Every employee received some increase in wages. In the vast majority of cases, each employee received an increase of 40 cents per day and in some cases benefited up to a dollar and fifty cents per day. The annual cost of this wage revision was in the region of $� million a year. Among the actions taken by the Government to hasten the implementation of the collective agreement, when there were allegations by the Union that some clauses of the Agreement had not been implemented, was the establishment of a Commission of Inquiry under the chairmanship of the Commissioner of Labour with members nominated to represent the interest of the Union. The Commission made a thorough study of the matter and made a number of specific recommendations and wage adjustments in its findings. All these specific recommendations of the Commission had been accepted and implemented by the Government with retrospective effect from the 1st of January, 1961. There are a number of disputed grades on which even the Commission was not in a position to make direct recommendations. And as the Union is aware, on the instructions of the Prime Minister with a view to effecting a speedy end to this long drawn-out dispute and concluding a complete settlement of the 1961 collective agreement, a Job Evaluation Team with Union participation has been working for some time. The Job Evaluation Team is expected to make its recommendations soon. Everything possible has been done to conclude the 1961 collective agreement and the Union is aware that the Government is as anxious, if not more so, to see an end to this matter. The third point that the Member for Telok Blangah made is of fundamental importance. The Member made a point that backpay is not unusual. But I say that back-pay must be discouraged, if not altogether disallowed, because no Government can plan its financial policies and administer them wisely if there is a sinister threat that out of nowhere someone is going to produce a bill that the Government has to make arrears for back-pay. I am of course aware that in certain situations, Industrial Courts as well as managements had agreed to some arrears in wage increase, but this must be the exception rather than the rule. The policy of Government on back-pay is well known to all the Staff Unions. As Minister for Finance, I am particularly anxious to see that considerable financial resources are not frittered away by demands on back-pay when such resources are desperately needed for the financing of economic projects in the country for the general upliftment of the standard of living of the people in the country. It is only in very exceptional circumstances that I would be prepared to see a departure in this ruling provided that the financial implications are not considerable. In this connection, Sir, I am reminded of a very valid point made by the late Dr F.C. Benham when he was entrusted to report on a revision of salaries for Government officers in 1951. In that Report, the author expressed the view that the practice of backdating, that is giving back-pay, is erroneous in principle. He went on to say, "If Government were to follow the general rule that whenever it revised any of its contracts it should backdate the revision in order to redress past injustices, it would be unable at any time to make a proper estimate of its financial position. A great deal of unnecessary clerical and other work would be created and the business of public administration would be hopelessly complicated." There is also the question of tactics, Mr Speaker. Back-pay weakens the bargaining position in negotiation. If the Union is assured of backdating, there would be no compelling incentive for the Union to desire a quick conclusion in negotiation as it would be assured that whatever form of agreement is ultimately reached the benefits therefore would be backdated. I would therefore like to remind the Member for Telok Blangah, and all other Members who harbour similar sentiments, that this Government is committed to raising the standard of living of all its people, most of all the working class people; but in doing so, it must plan its limited financial resources carefully and wisely, and that the guiding motto to be followed should be one of looking ahead for further achievements rather than looking backward and long drawn-out disagreements that do nobody any good.