Mr Speaker, Sir, I beg to move, "That Parliament approves the financial policy of the Government for the financial year. 1st April, 1976 to 31st March 1977." Sir, as on previous similar occasions, I have distributed in advance to Honourable Members my Economic Survey of Singapore 1975. Members will perhaps have noted the further improvements to the Survey making it more comprehensive and, I trust, also more comprehensible. The ample statistical information presented should enable Members, if they interpret them differently, to reject my conclusions. They can reach their own conclusions of the economy's performance in 1975 and the prospects for 1976. I do not propose in this Budget Statement to go over the ground covered in the Survey. But it may be helpful to Members if I touch on selected topics of relevance for 1976. Singapore's Economy in 1975 1975 was a year of world-wide recession with the major OECD countries suffering on the average a decline in growth of 2'/4%. In the circumstances Singapore's real growth of 4.1% may be considered a fair performance, though it is disappointing compared with the double digit rates of the early Seventies. At current prices, the growth was 9.0%. The difference of about 5% between the two rates, the GNP deflator, reflects the relatively stable prices in 1975. This is welcome relief after the steep price increases of 1974. On the other hand, it could be also a measure of sluggish demand in 1975. The recession, the worst since the Great Depression, grew more serious in all industrialised countries for the first half of the year. Our open economy registered this decline. The diversified nature of our markets and products which had stood us in good stead against adverse external developments in other years, in this instance, was not able to counter a simultaneous decline of almost all economies of the industrial countries. And further the loss of the markets in Vietnam, Cambodia and Laos did not help. The severest effect on Singapore's economy was a decline in manufacturing output, which was counterbalanced, to a limited extent, by a stimulation of growth in the services sector. Fortunately by mid-i 975, economic recovery was spearheaded by the United States. This recovery was followed, somewhat hesitantly, by Japan and West Germany. The advances in industrial production and increases in imports reflected the turn around of activities to meet increased demand. However, it was largely through the build-up of inventories. Consumer spending, the driving force behind earlier recoveries of the 1960's, was relatively weak. New long term fixed investment was also weak. There was excess productive capacity in all industrialised economies. Prospects for 1976 The latest OECD reports forecast growth in the major industrialised countries at 4'A% for 1976, nearly the rate in the second half of 1975. Similarly, increase in volume of world trade (exports and imports) in 1976 is expected to be about 6%. If these forecasts are realised (and we have been disappointed before), they will stimulate our own economic revival. A word of caution is, however, necessary. Not all industries will benefit to the same extent. There may be special, or local, factors which affect particular industries. For example. because of the appearance of new or more direct sources of supply to their established markets in Japan, Hong Kong or Vietnam, the petroleum refining industry may suffer still from a lack of demand. Similarly, the glut in tankers and larger ships has led to small new orders. Japanese shipbuilders are diversifying their activities. Our ship and oil rig building and repair industries are feeling the increasing pressure of their fierce competition. Petroleum refining and transport equipment industries are our two largest manufacturing industries. They made big contributions in recent years to growth of our GDP. In 1976 we cannot expect, for several years, a return to the era of rapid expansion, in a period of high oil prices and energy conservation. Economic Policy for 1976 What remedies can we prescribe for our economic ills in 1976? The answer must be the tried and tested mixtures. In the last two years of recession we have, nevertheless, pursued policies which will result in relatively high rates of growth. These policies have yet to yield their full results. With increasingly difficult economic problems. the Government will have to play a greater role in ensuring orderly economic development, in stimulating the economy without rekindling another bout of inflation. The public sector will continue to provide the necessary facilities and services necessary to sustain growth. The private sector must redouble its efforts in increasing and diversifying production, and in securing new markets. It may be useful to review existing Government measures. Industrial Development Our policy for industrial development remains the diversification, restructuring and modernisation of our manufacturing industry. We must get higher technology and skill-intensive industries to set up in Singapore. The Economic Development Board has deployed its senior staff in the field. Their effectiveness has resulted in investment commitments for 1975 of $400 million despite world-wide recession. This amount is less than commitments of $822 million for 1974 and $944 million for 1973. Considering the difficult economic conditions of last year, we cannot really complain. With excess industrial production capacity and high unemployment in the industrialised countries, most enterprises concentrated on their home-based production. Greater effort is necessary to achieve results comparable to the early 1970's, before the oil crisis. The EDB Head Office will be strengthened to help investors get production started expeditiously. Our development as a services centre for technical know-how and finance has widened our field. Our supporting services, including comprehensive financial facilities, have often settled hesitations in new investments. The Jurong Town Corporation (JTC) has now an adequate supply of industrial land and factories with all utility services ready for allocation. JTC took the slack of the last two years to prepare for renewed demand. Our object to get skill-intensive industries has had some success. Investment commitments in 1975 were made mostly in technically more advanced metal engineering industries. The expected value added per worker for these new industries has increased to $43,000 a year, compared to $33,000 a year in the last few years Similar increases in expected value added also obtain for other industrial groups, particularly in transport equipment and petroleum processing. Under the Capital Assistance Scheme, a special fund has been set up for skill-intensive industries bearing higher risks than those normally acceptable to financial institutions, We have to date approved loans of $6.1 million to five projects with a total fixed investment of $30.7 million. They are in precision engineering and metal fabrication and have an average value added per worker of $50,000, compared to $17,000 for existing industries. We get these industries through joint ventures with foreign companies possessing the technical know-how. Introduction of new skills to local enterprises through joint ventures with foreign partners is promising. Over 30 projects are now under active negotiation. Last year, I announced additional tax incentive measures for industry. These have been implemented. Seven projects with total fixed investments of $134 million have been approved for pioneer status, with tax exemption periods beyond the five years allowed previously. The Economic Activation Committee remains ready to help industries over the recession to get industrial production to full capacity. Trade Development Our trade development policy has to be adjusted to support our other activities, especially those in the manufacturing and services sectors. For example, we are paying special attention to the establishment of enterprises engaged in warehousing, servicing and maintenance of equipment. They will meet demand for such services in Singapore and in the region. We are increasing our trade development efforts. Our Commercial Secretaries' Service has been expanded to provide our manufacturers and traders with more information and contacts. In 1975, we sent six major missions to over 12 countries. Thirty foreign missions came to Singapore. More missions will go in the coming year to follow up the work of earlier missions. The Export Credit Insurance Guarantee Scheme has been finalised. The Export Credit Insurance Corporation, with an initial paid-up capital of $30 million, will start operation this June. The MAS facility for rediscount of export bills provided last year enabled our manufacturers and exporters to lower costs of export and hence secured additional export markets. However, the Government can only facilitate the primary task of our traders and manufacturers themselves. The Chambers of Commerce and the Singapore Manufacturers' Association must seek and identify new outlets. They must go out and sell their goods and services. ASEAN Economic Cooperation Sir, it may not be inappropriate if I refer here to the recent Conference of ASEAN Heads of Government at Bali. In economic matters, the Conference agreed on cooperation in priority supply and purchase of food and energy, in establishment of agreed industrial projects, in preferential trading arrangements particularly for the products of such ASEAN industrial projects, in stabilisation of commodity prices and in a unified approach by ASEAN member countries to other countries or regional associations. Compared to advanced regional groupings like the EEC, the agreement for ASEAN economic cooperation now embodied in the Bali Declaration is but a skeletal framework. This will need time to flesh out with the substance of ASEAN projects and other economic measures. Unlike the more ambitious resolutions of the Group of 77 developing nations for a new world economic order, the aims of the ASEAN agreement are modest and should be capable of quick realisation. If we make even moderate progress in the next few months to get this agreement implemented, the ASEAN countries will have moved from discussions to conclusions and from good intentions to concrete steps for implementation, even if they are small steps up what is a difficult road to greater economic and political cooperation for the good of all. The measures to implement the agreement reached in Bali can be the first steps in regional self-help. They can also increase ASEAN's total bargaining strength vis-a-vis the industrial giants of America, Japan and the EEC and with Australia and New Zealand. As we implement these few limited ASEAN measures, we shall generate confidence in our people and in each other member country in ASEAN. We hope that economic ties between ASEAN member states will now grow as fast as their economic relationships with the EEC. Japan and the United States have been developing. If the mood in Bali prevails, it will be to the good of us all. I speak on behalf of my colleagues and myself when I state that the Singapore Government stands ready to concede as much as it gets from the first set of measures. We cannot afford to lose the momentum generated at Bali through lack of vision. My counterparts in Indonesia. Malaysia, the Philippines and Thailand and I have established a realistic working relationship. Now it is up to all of us representing the five member countries and our officials to press ahead in the spirit of amity and cooperation. Construction Last year I announced that public sector construction would be increased. Much planning and design for additional development projects were completed in 1975, Construction started towards the middle of the year. Construction of many projects will continue through 1976 and beyond. Public sector development expenditure in 1975 increased by 34%. Largest increases were in utilities, transport and communication, industrial estate development and public housing. In spite of the construction sector's small share of total GDP, it accounted for 20.3% of total increase of GDP in 1975. Furthermore, such construction took place at a time of stable or declining prices. So it had no inflationary effects. For 1 976, both the Government and the Statutory Boards will press on with their development programmes. Manpower Development Industrial training must be expanded. We must have enough trained workers for industries when they resume full production. My Ministry estimates that, for economic growth rates of 7-10% in 1976 and 10-13% per year in 1977-80, we need an average annual addition of 3.000 relevant professional and technical graduates, 2.600 technicians, and about 7,300 skilled workers. Our training institutions, secondary and technical, and tertiary, have to plan to meet these manpower needs, in types of professional, skilled and semi-skilled workers for the industries likely to be in production. A sum of $23.4 million has been approved for industrial training conducted by the private sector in Joint Industrial Training Centres and other training schemes. Disbursement is expected to be made within the next four years. The recent changes in the education system give it a technical bias, with more facilities for industrial training. Vocational training and the Industrial Training Board will inculcate attitudes of care and precision essential for success in climbing up the technological ladder. There will be more blue-collar jobs, and young Singaporeans must be trained to do them well. Workers already on the job, have to improve their skills and increase work discipline. Employers should improve their personnel management. Increased productivity depends on both workers and employers. Management in the Statutory Boards, and in Government, must make more optimal use of manpower through improvement in the administrative and management structure. A recent analysis by my Ministry showed that both the Government and Statutory Boards have been too lavish in their use of professionally and technically trained men, This has to be reversed. Our policy is to keep establishment strength in the public services to a minimum in order that more professional and technical men can join the productive private sectors. Wages Policy In anticipation of more modest growth rates, and with inflation now under control, there has to be an adjustment in our wage policy. Everyone will have to be prepared for much smaller increases than in the years before the oil crisis. There can be little or no increase in wages without increases in productivity. We cannot afford to blunt the competitiveness of our exports. The past method of negotiating wage increases on top of NWC recommendations must be reviewed. Too many wage agreements have sought to circumvent NWC recommendations by fringe benefits. They have included a funeral grant of up to $1,000 on each death of a member in the family, laundry allowance, tea allowance, meal subsidy, shift duty allowance, attendance and transport allowance, savings account of 5% in addition to CPF employers' contribution. In toto, these so-called fringe benefits have a heavy impact on costs. The time has come for the National Wages Council to consider whether it should not include all forms of wage increases, including annual increments, incentive allowances and bonuses, in the computation of the annual NWC wage supplements, to arrive at a single total annual wage increase. The present practice of having separate increases spread throughout the year under different descriptions is deceptive. If these practices continue, Singapore labour will be the most expensive in East and South-east Asia, outside Japan. Unfortunately, we are not more hardworking nor more sk lIed than people in Korea. Taiwan or Hong Kong. Monetary Policy Our monetary policies were geared to provide more funds to stimulate productive activities. This was done whilst ensuring a healthy position on balance of payments and reserves. The freeing of bank rates last year made for a more rapid adjustment of domestic interest rates. With further expansion of the money supply in 1976, the productive sectors should have finance at reasonable interest rates. Of course, there will be suitable safeguards to maintain monetary stability, and sufficient flexibility for rapid adjustments to changes in world currency exchange and interest rates. We have made major changes to liberalise our foreign exchange controls. Included in the list of `scheduled territories' now, are all ASEAN countries. We have removed restrictions on the flow of currency notes and raised the ceiling for investment in specified currencies and securities. We are giving priority to the development of the forward foreign exchange market. With floating exchange rates, traders need a good forward market for safe and favourable cover. We are also nurturing the bond and capital markets. To increase competitive efficiency, banks and other financial institutions have been encouraged, by liberalising conditions under which they operate, to provide more competition in rates of interests and discounts. All Acts and regulations which inhibit such competition amongst financial institutions will be amended. Tourism Development Despite the recession, our tourist sector has continued favourable growth in 1975. Both the Singapore Tourist Promotion Board and the Sentosa Development Corporation have more funds for further tourist facilities and attractions. Their effort will, doubtless, be reinforced by the activities abroad, of airlines, hoteliers and travel agencies. Final Remarks on Economic Policy Despite the world economic uncertainties and the need to shelter our domestic economy from adverse external factors. our long term aim is still high rates of economic growth through industrialisation, and through improving technical know-how and services. The current upturn in the industrialised countries will help our economic growth. But harder work from our people and greater vigilance from entrepreneurs and administrators will be required since the oil prices have gone up five times. Improvement in the quality of our workers through education, training and retraining, must be matched by better entrepreneurs and managers. Through continual modernisation and innovation, management must improve production and administration, financial control and personnel management and marketing methods. Increases in productivity are the result of judicious capital investment and good management, matched by high skills and discipline from the workers. In this way we shall maintain the competitive edge of our goods and services in the international market against the tough and spartan societies of Korea and Taiwan and the hard driving competition of Hong Kong. Life has always been harsher in these countries. The result is hardy and industrious workers capable of long hours of work and sustained discipline. We can pay our workers higher wages and have them enjoy a higher standard of living only if they use our better location and more advanced social and industrial infrastructure to advantage. Our entrepreneurs and managers must be adequately recompensed for capital they bring. The enterprise with which they use this capital can raise the sophistication in technology and skills of the manufacturing and servicing sectors of our economy. This is our answer to our tough and hardy competitors. The FY 76 Budget Estimates Mr Speaker, Sir, may I now turn to the Budget Estimates. The Main Estimates of Expenditure are a realistic forecast of the sums of money likely to be spent in the forthcoming year. Apart from unusual unforeseen expenditure, actual disbursements over the years have grown at a steady rate. Therefore, for FY 76, excluding the allocation to the Development Fund, the estimated expenditure of $5,089 million compares with $4,335 million for FY 75 and $3,381 million for FY 74. The Administration's ability to use budgetary allocations effectively depends on the civil service which must have able administrators, supported by qualified and trained professional staff. Appendix A of the Establishment List shows the vacancy position in the civil service at the beginning of December 1975. There are big shortages of Division I officers in the Ministries of Defence, Health, Foreign Affairs and Education. Recruitment is progressing satisfactorily. On 1st February 1976, the overall position in Division I had dropped to 2.414 vacancies. To meet numbers required of graduates and trained teachers in Education, the Universities and Institute of Education and Junior Colleges will expand their intakes of students in the forthcoming year. Hence their increased budget allocations. The Budget also provides a very high proportion of total expenditure to Social and Community Services, almost 40% of the Budget. Housing, at $854 million, is almost 1 7% of total expenditure. Expenditure on Education will be $555 million or nearly 11% of the total expenditure. The next largest sector of public spending is on economic services, about 30% of total expenditure. $780 million are for industrial and commerical development, second largest single item after Housing, 1 5.3% of the total expenditure. Of this. $338.4 million (43.4%) will be loans to Jurong Town Corporation and $292.9 million (37.6%) loans to industrial and commercial enterprises. For transport and communications, from the FY 75 $176.5 million vote, provision is made for $332.2 million for FY 76. an 88.2% increase. The building of Changi as a double runway international airport takes almost $130 million for 1976, whilst $60.34 million are for projects at Paya Lebar. Paya Lebar will continue as the main airport until both runways and all facilities in Changi are ready by 1982. For tourism, $10 million for Fl' 75 is increased to $30 million for FY 76. Sentosa Development Corporation (SDC) will develop tourist facilities on Sentosa and other offshore islands, to build beach bays, jetties, shelters, showers and other recreational facilities. Finally, the central core of the Administration which provides the General Services. From $160.9 million for FY 75 for General and Financial Administration and Economic Regulation and Foreign Affairs, an increase of 9.7% to $1 76.5 million for FY 76 is provided. This is a modest percentage of total allocation to these support and general services. It is not in the interests of efficiency and productivity to go below this figure. Indeed, the level of efficiency can be raised by training and personnel selection programmes. An Establishment Unit has been set up in the Prime Minister's Office to monitor the careers of all Division I officers in the civil service. This PMO Establishment Unit will seek out high calibre officers especially in the 25-40 age group, to fill a gap caused by many promising officers in the 30-45 age group leaving the service during the years of rapid economic growth, when the government service was under the constraints of wage restraint and could not compete with the private sector. Revenue Let me now turn to the question of financing the proposed expenditure. The Treasury Memorandum (Paper Misc. 4 of 1976.) compares the latest revised revenue estimates of FY 75 with revenue collected in FY 74. It also shows the yield we expect in FY 76. The total estimated revenue of $3,108 million for FY 76 represents an increase of 6.7% over the revised estimate for FY 75. Revenue in FY 74 was 1 5.2% more than that in FY 73. The revised estimate of revenue in FY 75 is 13.9% more than revenue in FY 74. The decline in the rate of increase in revenue is inevitable. The economy slowed down in 1975. Income tax is the largest single source of revenue. It will be particularly affected by the recession since collections are based on the previous year's earnings not those of the coming year. For FY 76, income tax is expected to yield $1,200 million, barely 9.1% more than the revised estimates for FY 75. However, it is expected to be about 39% of total revenue for FY 76. Total revenue estimate of $3,108 million, at existing tax rates, covers the estimated recurrent expenditure of $3,104 million. There will be a small operating surplus of $4 million. Members should note that in the estimated recurrent expenditure is $625 million which goes to the Development Fund. The development expenditure of $2,610 million, 43% more than the revised figure for FY 75, will be financed by proceeds of new loans totalling $1,280 million, both domestic and foreign and by $625 million to be transferred from the Consolidated Fund. Investment income and repayment of loans made to statutory boards and companies in the past will also make up total development estimates. These sources are expected to cover about 88% of estimated development expenditure. An overall deficit of $309 million can be met wholly, if necessary, by drawing down the Development Fund. Tax Changes I have considered a number of tax proposals. The amount of revenue Government requires each year for recurrent as well as development expenditure is increasing rapidly. But to stimulate the economy it is necessary not to reduce purchasing power. I have therefore decided to propose only one small increase in tax amounting to about $10 million per annum. Import duty on cigarettes will rise from $38 to $43 per kilo. Excise duty will rise from $3.50 to $3.70 per kilo. Duty on leaf tobacco will rise from $32 to $35 per kilo. The revision of duty will come into effect today. We are allowing for a 8% drop in consumption. The duty increase on a non-essential, indeed poisonous and anti-social, item like tobacco will not affect the cost of living of sensible people. The habit of smoking has been only slightly diminished in its rise in consumption by price increases. Despite the ban on advertisements, and the well proven health hazards, consumption has gone up, although at a slower rate, especially in the more expensive imported cigarettes. What is deplorable is that the young are being seduced into smoking. We may not change the habits of the veteran smokers, who believe, like some of my Cabinet colleagues, that they are immunised against lung and other pulmonary diseases since decades of smoking have done them no harm. I wish them continued good health. But the young must be spared this dangerous habit. The weight of medical authorities in the West are agreed that the risks of cancer in lungs and nasal passages increase immeasurably with smoking. Tax Concessions There will be a number of Tax concessions to develop Singapore further as a financial centre and promote the Asian Dollar Market. First, fees, interest or commissions received by Asian Currency Units for advising, confirming or refinancing off-shore letters of credit will be taxed at the reduced rate of 10% under Section 43A of the Income Tax Act. This concession will take effect from the Year of Assessment 1977. Second, non-resident deposits with Asian Currency Units and approved Asian Dollar bonds, held by non-residents, will be exempt from Singapore estate duty with effect from 1st January 1976. Third, Singapore Government tax-free bonds, held by non-residents, will also be exempt from Singapore estate duty from 1st January, 1976. Conclusion Mr Speaker, Sir, after the food and commodity shortages, price increases and unstable exchange rates, and the measures we were forced to take over the past two years since the oil crisis, the financial policy outlined in this year's Statement is a relatively unexciting one. Perhaps this is just as well. We need a period of consolidation, for steady, unflagging, if slower growth. We 1976. hope to plan and carry out projects with less need to make allowances for unexpected crises or emergencies. Sir, I beg to move, 3.55 p.m.