Mr Speaker, Sir, I beg to move, "That Parliament approves the financial policy of the Government for the financial year 1st April, 1980 to 31st March, 1981." Sir, I would like to inform the House that the Minister for Finance has delegated to me the authority to prepare and deliver the Budget Statement under Articles 84 and 85 of the Constitution of Singapore. I am grateful to him for this privilege and for the confidence he has in me. I can assure the House, however, that whilst I have the liberty to fly in the direction I please and in any manner I choose, I have no intention of flying offcourse or performing any aerial acrobatic. That will be kamikaze. Sir, I have earlier distributed to Honourable Members of the House my Economic Survey of Singapore 1979 (Cols. 647 - 906). In addition to the usual annual review, this Survey traces our economic performance in the Seventies, 1979 being the last year of an eventful decade. Before going on to propose the financial policy for the coming year, I shall highlight the salient points of this Survey, mark out the economic objectives for the future, and spell out the strategies for the Eighties. Singapore's Economic Performance in the Seventies The Seventies began innocently enough but soon ran into turbulence. Oil prices suddenly exploded in October 1973, sending the world into a tailspin. The industrialised economies plunged into recession. The combined real Gross Domestic Product (GDP) of the 24 Organisation for Economic Cooperation and Development (OECD) countries shrank by 0.4% in 1975. Inflation spread like bush-fire. The consumer price indices of the OECD countries rose by 13% in 1974 and 11% in 1975. The world economy was trapped in a bind of unemployment and inflation, and economists coined the word "stagflation" to describe this unholy alliance. It took two years before the world economy eased out of recession in 1976, but it never recovered its confident pace of growth before the oil crisis. Towards the end of the Seventies, recessionary tendencies surfaced again in the industrialised economies. Against this troubled backdrop, Singapore's economic performance after 1973 may be regarded as creditable. For the six years after 1973, the average annual growth rate was 7.2%. Our diversified economic base cushioned the impact of the world recession. Our policies of open competition and free trade kept our inflation rate below the world's level. The economic activation programme of 1974-75 bolstered our economic recovery. Our economy grew at an average annual rate of 8.2% in 1976-79, as compared with a growth rate of 6.8% in 1974 and 4.0% in 1975. For the decade as a whole, real GDP grew at an average rate of 9.4% per annum, better than the 8.7% achieved in the Sixties. Singapore's Economy in 1979 In 1979, world economic performance remained sluggish for the third successive year. The industrialised economies averaged a growth of 31/4%, slower than the already poor growth rates of 3.7% and 3.9% in 1977 and 1978, respectively. World trade grew by 7%, slightly faster than the previous year. Inflation, however, worsened. Consumer prices climbed up to 10%, from 8% in the previous two years. Singapore's economic performance in 1979 was encouraging, and better than the previous year's. Real GDP rose by 9.3%, as against 8.6% for 1978. The higher rate of growth was achieved with relative price stability. Despite the higher oil prices and the larger wage increase recommended by the National Wages Council (NWC), consumer prices rose by only 4%, lower than the 4.8% in 1978. Unemployment was reduced to 3.3% from 3.6% in the previous year. All sectors of our economy expanded. Manufacturing grew by 14%, the highest rate of expansion since the recession. It accounted for 31% of the growth in real GDP, displacing the transportation and com- munication sector as the prime mover of the economy. Transport and communication also grew by 14%, but this was a modest rate of growth compared with its vigorous expansion in the previous three years. The construction sector revived, after a long lull. More important, this revival was led by the fast pace of private construction of hotels, offices, shopping complexes and industrial buildings. The value of our external trade rose substantially by 32%, but this was due mainly to oil price increases. But, after adjusting for price increases, trade volumes still rose by a healthy 21%, compared with 12% in 1978. Export volume rose by 22% and imports by 20%. Our balance of payments remained healthy, with substantial capital inflows. There was a higher rate of private investments in plant and machinery. 1979 was another good year for tourism. Tourist arrivals rose by 9%, despite a fall in visitors from Australia, Indonesia and the United States. Fortunately, we were able to attract more visitors from other countries, particularly Japan and Europe. Overall, I would have rated last year's economic performance as excellent had it not been marred by one black spot - declining productivity growth. Economic expansion was achieved more through a quantitative input of workers than through productivity increases. Employment increased by 6.6%, 2.1 percentage points higher than the previous year, while productivity growth fell to 2.6%, from 4% in 1978. The excessive demand for workers caused a significant inflow of foreign workers, many of whom were unskilled. Development Strategies for the Eighties In the Sixties, confronted by massive unemployment, we had to go for labour-intensive industries to provide many jobs quickly for our unemployed adults and school-leavers. Helped by expanding international trade, we solved our unemployment problem in the early Seventies. We, thereafter, adjusted our sights towards higher value-added industries and services, the only route for growth in a full-employment economy. Unfortunately, the oil crisis and the world recession in 1974 and 1975 interrupted our plan. Fear of a recession and consequential unemployment caused us to cling on to labour-intensive industries. Though we weathered the recession successfully, it was achieved at a sacrifice. We held back economic upgrading. Our industries and services, therefore, remained too labour-intensive. We had to admit foreign workers, many of whom were unskilled. With the advantage of hindsight, we must now quickly upgrade and restructure our industries and services to produce higher value-added products. We have no other choice. Many labour-abundant developing countries are becoming competitive in low-skill, low wage industries producing for the world market. Though it may seem self-evident, it bears repeating that our people are our only resource. We must develop their full potential through education and training, so that more of us can be employed in skilled jobs. We must also inculcate in them the ethos of hard work, discipline and teamwork, without which the skills learnt will never be maximised. Our development objective for the Eighties is therefore to press on tenaciously with the upgrading of our economy. Last year, we announced a higher wage policy to induce employers to mechanise, automate and computerise and to switch to less labour-intensive processes. The NWC recommended an average increase in wage cost of around 20%. Higher wage increase is, however, only one policy instrument for economic restructuring. It must be supplemented by fiscal and other incentives to encourage the use of more capital in production. But only increasing the relative price of labour to capital to bring about restructuring is like trying to cut with one blade of the scissors. The other blade is the skill of our workers. Both blades must cut in unison. Thus training will be stepped up to enable our workers to acquire new skills and refine old ones. Problems and Prospects The OECD forecasts that the industrialised economies will grow by a meagre 1% in 1980. We are, therefore, beginning our difficult climb up the industrial ladder not in the happiest of circumstances. Fortunately, for small countries like ourselves, there are always nooks and crannies of growth we can take advantage of. Also, not all the major economies will suffer from recessions at the same time. While the US economy is expected to decline by 1 1/4% in 1980, West Germany and Japan are forecast to grow by 2 1/4% and 4 3/4%, respectively. The Multilateral Trade Negotiation (MTN) or the Tokyo Round is almost completed. The tariff reductions and the Codes on Non-tariff Barriers agreed at the MTN when implemented by the industrialised countries will have a favourable impact on trade. The MTN is a globally significant event as it lays down the ground rules of international trade for at least the next decade. Though some aspects of the MTN contained elements of disguised protectionism, the MTN results are expected to put the brake on more blatant protectionism in international trade or at least to confine protectionism within agreed limits. Oil prices will continue to rise. It is a trend we cannot avoid but we can minimise its toll on our economy by stepping up energy conservation efforts and diversifying our sources of supply to reduce political risks. The world economy can learn to live with oil price increases provided they are not abrupt and excessive. It is hoped that the oil producers will exercise moderation in their oil pricing and production policy as extreme policies will hurt everyone, themselves included. The economic environment in which we have to restructure our economy is not an easy one. Our target is an 8-10% annual growth in the Eighties. If we succeed, we shall attain in 1990, a per capita income of S$15,000 to $18,000 (at 1979 prices) which Japan has already achieved in 1978. I would now like to elaborate on our objectives in specific areas. Industrial Development Manufacturing was a major growth sector in the Seventies. Its value added at constant prices grew at an average annual rate of 12%. Growth was checked by the world recession in 1974-75, but it has recovered since to lead the economy in 1979. Investments in manufacturing also continued steadily in the Seventies and were most buoyant in the last two years. The level of manufacturing investments in 1979 was the best since 1975. Investment commitments increased by 9% in constant prices to reach $604 million. It was more than 21/2 times the levels realised before the first oil crisis. Our major investors continued to be Japan and the United States. The quality of our industries has improved generally. In 1970, the value-added per worker in manufacturing was $8,720. In 1979, it has advanced to $11,800 in constant prices, giving a productivity growth of 3.5% per year. Also, the expected value-added per worker of new manufacturing investments excluding petroleum in 1979 was $20,900. We can thus expect the improvement in manufacturing productivity to continue and to be even better in future years as our economic restructuring progresses and new investments with higher value-added per worker are attracted while existing industries upgrade themselves. In the Eighties, we would like the manufacturing sector to become even more dynamic, increasing its share of GDP from the present 22% to 31% by 1990, and leading the economy through consistent high productivity increases. It will provide better jobs with higher wages for our better educated and trained population, as well as opportunities for local entrepreneurs to participate in better industries either on their own or in joint ventures with foreign investors. Higher value-added industries can absorb the higher price of energy better than lower value-added ones. They will also be able to withstand better the pressures of protec- tionism that will build up each time the world economy slows down. We should move into the manufacturing of parts and components which are less prone to protectionist sentiments. We must also undertake more industrial servicing and diversify our markets. Ever since we switched to an export-oriented industrial strategy, we have recognised that we must continuously attract foreign expertise and technology through the multinationals if we wish to have access to modern technology and world markets. This policy of linkage with the MNCs will continue in the Eighties. We will at the same time do our utmost to help our local manufacturers make the grade. The inflow of foreign investments will provide opportunities for local entrepreneurs to acquire modern technology and know-how through joint ventures and participation in supporting industries. Thus in 1979, the Economic Development Board (EDB) recorded a total of 34 new joint ventures with local participation, many of which were in the manufacture of relatively higher value-added products, such as microwave ovens, electronic instruments and precision moulds. The EDB has a special section to look after local entrepreneurs. If necessary, it can be expanded and an advisory committee comprising local manufacturers set up to guide its operations. The Small Industries Finance Scheme, which has given out loans totalling $27 million to 184 small establishments, will continue to extend financial assistance to deserving local industrialists. So will the Product Development Assistance Scheme. Contrary to some beliefs, the local entrepreneur is not an endangered species. They will, therefore, be assisted to thrive, but not protected against competition. Last year, I told the House that my Ministry was developing a long-term research and development plan for Singapore. We have made progress in identifying our objectives and strategies although further work is still necessary to refine and translate these into concrete programmes. We are also considering a proposal to develop a science and technology park in Kent Ridge to stimulate collaboration between university, government research organisations and industry. To encourage multinational companies to shift some of their research activities to Singapore, as well as local industries to undertake R & D, we shall be introducing tax concessions. These measures will be discussed later. Trade Development Total trade in volume terms expanded at an average annual rate of 12% in the Seventies, almost twice the rate achieved in the Sixties and also double the growth in world trade during the Seventies. Our industrialisation has contributed directly to our trade growth in the last two decades. More than 60% of our manufacturing outputs is now exported as compared with 39% in 1970. Manufactured goods made up 49% of our domestic exports in 1979 as against 37% in 1970. Although re-exports declined in relative importance, its growth was better than in the Sixties partly because of increasing re-exports of machinery and equipment. The expansion of our exports will be assured if we achieve our industrial goals in the Eighties. By 1990, we expect manufactured goods to comprise 60% of our exports. As we switch to the production of higher-value added manufactures with greater technology content, so will the composition of our trade change. While we will still face competition from newly industrialising countries such as South Korea, Taiwan and Hong Kong, we will at least be moving away from goods which are sensitive to importing industrialised countries or can be produced more competitively by labour-abundant countries. As I reported earlier, the MTN will have some favourable impact on trade in the Eighties. 25% of our global exports are covered by the tariff concessions of the USA, EEC and Japan. As it is through international surveillance that protectionist measures can best be contained, Singapore supported the MTN and will, apart from the contributions already made to the tariff negotiations, sign the Agreements on technical barriers to trade, government procurement, customs valuation, trade in civil aircraft, anti-dumping and import licensing procedures. We will continue to participate in the negotiations on the unresolved issues. Our export success has been due largely to the ability of the multinational companies in Singapore to sell their products in the international markets through their own distribution outlets. We will need, however, to encourage our local manufacturers to step up their export drives. They must be more aggressive and imaginative in their export marketing efforts. The Government has been doing all it can to guide and assist them to increase their exports. We have helped them to participate in overseas trade missions and fairs, and provided fiscal incentives. The Department of Trade will continue to provide export promotion services. But our local manufacturers must increase their own efforts. I am not convinced that there is a need for a Trade Development Board which some of our local manufacturers have proposed. A Trade Development Board has no magical powers. It is futile to expect that by merely converting a department into a statutory board, we will be able to wave a magic wand and thereby improve the export performance of our local manufacturers. The Trade Development Section in the Department of Trade will continue to carry out the task of trade development effectively. We will expand and revitalise the Commercial Secretary Service. We will set up two new trade offices, both in the EEC, in addition to the existing four. We have signed a trade agreement with China at the end of last year, and are discussing the setting up of trade offices in China. We will consider the setting up of a computerised trade information system to provide trade and commercial data. We will, continue our support, including fiscal incentives for local manufacturers to participate in overseas trade fairs and missions. The double tax deduction scheme will be extended to cover overseas marketing campaigns. Through the tax incentives for international trading companies, we will encourage the formation of multi-activity international trading companies to push the export of Singapore manufactured products in overseas markets. The Trade Development Committee with private sector representation has been meeting to discuss trade problems and prospects. It should continue to do so and perform an effective role as an advisory committee to the Department of Trade. Services Development One of the striking features of our developing economy is the disproportionate contributions made by the services sectors. Including the trade sector, they contributed 70% of our growth in GDP in the Seventies as well as in the Sixties. This, however, is not the manifestation of a post-industrial society. It is but a reflection of our lack of natural resources, limited land area and small population. Given these limitations, we have to earn our living by maximizing the advantage of our strategic location in a rapidly developing region and at the crossroads of international air and sea transportation routes, and telecommunications network. In the Eighties, we shall continue to improve these services. Our financial sector played a more important role in the Seventies than in the Sixties as Singapore developed into a modern financial centre. In the Eighties we shall develop Singapore into a financial supermarket offering a wide and sophisticated range of financial services. We aim to develop Singapore into an International Funds Management Centre. We shall encourage banks to improve their efficiency and productivity through greater computerisation and other forms of automation. Transport and communication was the leading growth sector in the Seventies. It enlarged its share of GDP from 11% in 1970 to 18% in 1979. With the completion of Changi Airport and our open air policy, our role in air transportation will grow in importance in the Eighties. Together with the continual upgrading of our port and telecommunications services, the growth of our national airlines and shipping lines and the establishment of aircraft repair and servicing industries, this sector should remain an important pillar of our economy. Tourism grew at a rate of 16% per annum in the Seventies, slightly slower than the rate of 17% in the Sixties. In the Eighties, we shall continue to encourage tourism as most of its value-added are retained by Singaporeans. The very rapid growth in our tourist industry in the early Seventies was because of the boldness of our investors in constructing hotels in anticipation of demand. There is now a tightness in the supply of hotel rooms. If more hotel rooms are available, we shall target a tourist growth rate of 12% per annum in the Eighties. Last year, I suggested that we develop Singapore into a resort destination. This will lengthen the stay of our tourists, which remains at around 3.7 days. Although we have offered incentives to the first two resort hotels on Sentosa, the response is unfortunately poor. Nevertheless, we will continue to work for the realization of our aim. We were more successful in the convention business. Last year, we hosted 173 conventions and exhibitions. We shall continue in this direction. The concessionary tax on income from the export of consultancy and technical expertise, for which legislation was passed last year, and the 5% preferential margin to local contractors, should help in our aim of exporting consultancy services. This activity is likely to become more important in the Eighties. With our high investment in tertiary education and the knowledge potential of our population, computer services is a crucial area to concentrate on. We shall be using more computers ourselves to improve our productivity. Government departments and statutory boards will increase their use of computers. It is thus only logical that we should also plan to export our computer software and services. We shall build up the pool of computer manpower by training, beginning in the schools, and exposing our workers and managers to computers and their applications. We shall stimulate utilization by allowing computers and peripheral equipment to be written off in three years for tax purposes. In addition to the incentives given to International Consultancy Services, we are studying the feasibility of granting pioneer status for highly sophisticated computer software activities which are exportoriented as well as providing a concessionary tax rate of 10%, for a period of five to ten years for certain computer-related specialised companies. ASEAN Economic Cooperation Singapore cannot prosper independently of developments in ASEAN countries. ASEAN Economic Cooperation in the Seventies was boosted by the signing of the Agreement on ASEAN Preferential Trading Arrangements in 1977, after the Summit Meeting of the Heads of Government in Bali in 1976. Since the Agreement came into effect in 1978, tariff preferences have been exchanged on 2,327 products. The ASEAN countries have also agreed to accord each other preferences in procurement of goods by government agencies. In 1979, the ASEAN Economic Ministers decided again to accelerate the pace of trade liberalisation by adding 600 products per country per year, each with a trade value greater than US$50,000. There appears to be a growing feeling that the rate of progress is still too slow and it can be expected that the PTA will be improved when the impact of earlier preference tariffs is studied for their trade inducing effects. ASEAN's other major achievement during the decade was the increasing recognition it gained as a regional grouping. It has held useful dialogues with the United States, the European Community, Japan and other developed countries. Last year, it successfully resolved the dispute with Australia over its international aviation policy, stopped the refugee flow from Indo-China and sponsored a UN Resolution on Kampuchea. Towards the end of this week, ASEAN will sign an Economic Cooperation Agreement with the European Community in Kuala Lumpur. There are other areas of successful cooperation - in banking, industries, tourism and agriculture. In the Eighties, we will continue to seek and foster closer economic cooperation within ASEAN for we have a stake in the stability and prosperity of the ASEAN region. Manpower Development The critical factor determining our economic performance in the Eighties will be the availability and quality of our manpower. We now have a full-employment economy. In 1979, our unemployment rate was a low 3.3%. The stock of job seekers registered at the Employment Service at the end of 1979 was 8,600, a drastic fall from 15,200 in 1978. Growth under such a full employment situation must come from economic restructuring. Our restructuring efforts and our manpower development are as inseparable as Siamese twins. To realise the full potential of our population, we must upgrade our economy to provide higher skilled jobs which also pay better. To succeed in our restructuring exercise, we need an abundant supply of skilled, technical and professional manpower. We are, therefore, assessing the requirements for professional, technical and skilled manpower in the Eighties. Our universities and technical institutions will need to expand rapidly. We shall be short of engineers in the Eighties at the current rate of output from the university. The University of Singapore will be asked to expand and reconstitute its Engineering Faculty to produce more and better-suited engineers to service and manage our expanding economy. Ways to promote and broaden continuing education for those who are already working have to be found. The Skills Development Fund could be used to fund continuing education in addition to the retraining of workers. As university education provides professionals with only the basic training, we will have to ensure that they can measure up to international standards of professional competence. This is all the more important if we are to develop Singapore into a knowledge-intensive services centre. We must, there- fore, ensure that there are no closed shop practices of professional cartels. We shall seek further liberalisation of registration requirements for professionals like architects, doctors, engineers, accountants and lawyers. To help overcome shortages of labour, policies will be reviewed to attract more females to take up employment and to encourage older people who are still fit to remain in employment. Concluding Remarks on Economic Policy In the Budget Statement last year, I remarked that the world in 1979 looked like becoming a more difficult place to make a living in. I was not wrong in my assessment, But, happily, Singaporeans responded with an extra spurt. We ended 1979 with a performance better than 1978's. The world in the Eighties, including 1980, does not look like a bed of roses either. But there is a streak in the Singaporeans that gives us confidence, and that is, they dare to achieve. Our job as a government is to set out our objectives, direction and modus operandi clearly and unequivocally, and lead. The rest is up to Singaporeans to achieve and excel. It is this quality in Singaporeans, to compete and excel, that gives confidence of success in our further liberalization of the economy as we restructure. In the latter part of the Sixties, we began to shift away from import-substitution industries. We recognised that a policy of import-substitution behind tariff walls will at best give us short-term gains but will stifle our growth in the longer term. Protected industries, sheltered from competitive pressures, will become inefficient and stunted in their growth potential. Moreover, as we depend on the world markets for large scale expansion of manufacturing activities, our products must be internationally competitive. This cannot be achieved with tariff protection. We therefore stopped introducing new protective duties around 1968. In 1973 and 1977 we removed a wide range of protective duties. Last year, we announced that the protection of locally assembled motor vehicles will cease from 1st August 1980. Nevertheless, there are still a number of protective tariffs remaining. These duties have been in existence for more than a decade. The protected industries should have grown into adulthood by now, If not, they will never mature. Singapore practises what it preaches. We preach free trade and open competition. We shall, therefore, remove all protective duties other than those included in the ASEAN Preferential Trading Arrangement (PTA), most immediately, some in phases. Details of these tariff removals or reductions will be gazetted by the Ministry of Finance separately. We have offered our ASEAN partners preferential tariffs on a number of items under the ASEAN Preferential Trading Arrangement. These duties will have to remain as we have to fulfil our commitments. The level of these duties. however, will be reduced as we progress in the ASEAN PTA exercise. Mr Speaker, Sir, I have included the discussion of protective duties in my Concluding Remarks instead of in the main body on Development Strategies because our action to remove tariff protection has an impact wider than the direct effect on the industries concerned. Our action removes the last vestiges of protectionism in the pursuit of an open, competitive economy wedded to the world's fortunes. It is an act of confidence. THE FY 1980 BUDGET Mr Speaker, Sir, I shall now move on to the Budget for the coming fiscal year. The FY 1980 Budget has been formulated on the basis of the following guidelines: (a) Financial prudence: We shall continue with the prudent policy of keeping Government recurrent expenditure down to the minimum and within the revenue expected to be collected within the fiscal year, but consistent with a high standard of administration. (b) Development objectives: The Budget should reflect the thrust and objectives of our policy to restructure the economy and of our development strategies for the Eighties. It should balance economic growth with social objectives. Investment in infrastructural development should be matched by investment in people and improvements in housing and other social amenities. The FY 1980 Budget provides $4,019 million in the Main Estimates. This recurrent expenditure is fully covered by the expected revenue of $4,113 million. It is 19% higher than that for the last fiscal year and in my view is the minimum required to maintain the public services at a high standard. The need to exercise effective control over the utilisation of manpower, given our policy to encourage economy in the use of labour, is reflected in a net total increase of only 957 posts, including those created by Establishment Warrant in the course of this financial year. This is an increase of only 1.4% over the FY 1979 establishment. Of these new posts, 533 are for the Ministry of Education in connection with their revised primary education system, the computerisation of education data and establishment of new schools. With the conversion of Radio and Television Singapore into a statutory corporation, 1,422 posts are taken out of the Budget. The FY 1980 establishment will, therefore, be reduced by 465 posts to 69,226 posts compared to the FY 1979 establishment of 69,691. The Budget, however, recognises that as steps are taken to minimise staff increases, Ministries and Departments have to mechanise, automate and computerise. They must also upgrade or retrain the skills of officers. The Budget therefore provides funds for new and better machines and for computerisation as well as for training of civil servants. The importance of infrastructural development is again emphasised in the Budget. 47% of the FY 1980 Budget. or $3,617 million, is for development. Expenditure on economic services will amount to $1,755 million, or 49% of total development expenditure. This includes a sum of $1,047 million for industrial and commercial development (largely as loans to the Jurong Town Corporation and to Industrial and Commercial Enterprises) and $430 million for the development of Changi Airport and roads in the Republic. Our economic restructuring programme and the long term economic health of our country require that we harness our workers to produce higher value-added and skilled manufactures and services. We must maximise the talents of our people. Human resource development is therefore one of our top development priorities and is reflected in our Budget. More and better education and training of both teachers and students are necessary to upgrade the quality of our workforce. The Budget provides for higher expenditure for our schools, training institutions and universities. Economic development must bring about a material improvement in social services. A sum of $1,133 million is provided for public housing, accounting for 31% of the Development Budget. The provision for economic services and public housing together account for 80% of the total Development Budget. REVENUE I now move on to tax changes and revenue estimates for the new fiscal year. It is not possible to bring cheers for all. There will be cheers and there will be tears, but our compass must be the overall good of Singapore. The total revenue estimated for FY 1980 is $4,113 million. This represents a fall in collections of $167 million or 3.9% compared with the revised estimates for FY 1979. The drop is due to the exceptionally high revenue receipts in FY 1979 which came from land sales and back payments of land premia and also property tax arrears from statutory boards. Income tax remains the largest single source of revenue and it is expected to show an increase of 7% or $93 million over the revised estimates for FY 1979. For FY 1980, income tax is expected to yield $1,423 million. Property tax collections, however, are expected to fall by some $30 million mainly because of the phased reduction of property tax rates to a level of 23% in 1983. The total budgeted expenditure for FY 1980 is $7,636 million, comprising a recurrent expenditure of $4,019 million and a development expenditure of $3,617 million. The expected revenue of $4,113 million for FY 1980, therefore, falls short of the total Budget by $3,523 million. Of course, we cannot expect to finance the entire development expenditure with Government revenue. The question is how much of this should be financed from public borrowings and how much from additional taxes. I, therefore, come now to the moment of anxiety. TAX CHANGES Withdrawal of Protection for Cigarettes and Tobacco I have earlier announced that we will not protect local industries against competition from imports. This applies also to the manufacture of cigarettes. At present, the manufacture of cigarettes is protected through the imposition of an import duty higher than excise duty. Withdrawal of protection is in keeping with the development strategy to expose to competition those industries which should have grown out of the fledgling stage. I have, therefore, decided to remove this protection for cigarette manufacture by harmonizing excise duty with import duty. Excise duty on cigarette manufacture will therefore be raised from $4 per kilogram to $9 per kilogram. The import duty of cut rag will also be increased from $35 per kilogram to $36 per kilogram. This approach in removing protection is in line with our policy of discouraging smoking. The revision of duty which is expected to yield an additional $21 million per year will come into effect today. There is a loss in revenue of $50 million, however, from the general removal of protective duties. The net revenue loss arising from trade liberalization is, therefore, $29 million. TAX CONCESSIONS (i) Research and Development I have earlier dwelt on the plan to promote research and development in the Eighties. The purpose is to encourage manufacturers to develop new products and processes, and to modify existing ones. I am pleased to declare that specific tax incentives will be given to promote R & D activities in Singapore. For manufacturing enterprises conducting R & D and R & D institutions servicing them, the following tax incentives will be given: (a) Double deduction of R & D expenditure, other than on buildings and equipment, on a case-by-case basis; (b) Accelerated depreciation over three years for all plant and machinery for R & D; (c) Investment allowance of up to 50% of the capital investment in R & D, excluding building costs, on a case-by-case basis: (d) Extension of the initial allowance of 25% and annual allowance of 3%, presently available only to industrial buildings and structures, to R & D buildings; and (e) Capitalization and writing-off of lump sum payments for manufacturing licensings for a period of five years. These concessions will take effect from Year of Assessment 1981. (ii) Capital Allowances for Plant and Machinery Also, in line with our policy to develop high technology and to assist our enterprises to mechanize, computerize, and upgrade their operations, I have decided to liberalize the tax treatment of capital allowances for plant and machinery as follows: (a) Accelerated depreciation allowance of 33 1/3% over three years will be extended to investment in computers and R & D equipment; (b) The method of granting annual allowances will be converted from the reducing balance to the straight line method; and (c) The existing depreciation schedule will be replaced by another with more realistic rates for write-offs. (This schedule is attached as Appendix II (Cols. 641-644) to my Budget Statement). Appendix II - NEW SCHEDULE (Cols. 641 - 644) The rates in the new schedule take cognizance of the fact that certain assets promote mechanization and automation. Hence, these are given increased rates of allowances. To give an example, under the existing scheme, it takes ten years to write off about 70% of the cost of machinery not used by "industrial enterprises". Under the new schedule, the machinery will be allowed to be written off completely in six years. The new method applies to both existing and new assets with effect from 1st January, 1980. For a depreciable asset bought before the date, the straight line deduction will be computed by dividing the written down value of the asset by the remaining number of years of its estimated life in accordance with the new schedule. The new method of depreciation together with the new rates for write-offs provides for faster depreciation deductions on capital investment. Business firms will have more after tax earnings which they can use to channel into spending on depreciable assets for the purpose of mechanization and automation. The loss in revenue in the first year from this tax concession is estimated to be at least $78 million. (iii) Stamp Duties In previous years, many incentives have been given to promote the development of Singapore as a financial centre. This year, I intend to remove the inconveniences experienced by financial enterprises by removing certain duties altogether and rationalising others at a single rate: (a) Mortgages and Debentures The existing rates of duty on mortgages and debentures will apply but the maximum amount payable is now fixed at $500. (b) Marketable Securities Asian Dollar and Singapore Dollar Bonds are presently granted stamp duty remission on a case-by-case basis. The exemption will now be given across the board. Stamp duty on contract notes for the trading of marketable securities will also be abolished. (c) ACU Offshore Loan Agreements The present 1/2% ad valorem stamp duty, subject to a maximum of $500 on ACU Offshore Loan Agreements, will be abolished. In addition, stamp duties on all other documents relating to ACU Offshore Loans will be abolished. (d) Share Certificates The 0.1% ad valorem duty on Share Certificates will be removed. (e) Share Transfer Deeds The 0.2% and 0.3% duty on Share Transfer Deeds will be standardised at 0.2%. (f) Insurance Policies The existing multifarious duties will be standardized at a single rate of $1 per document. (g) Partnership Agreements The existing manifold rates will be standardized at a single rate of $10. (h) Promissory Notes The duty will be revised to $1 per note. Stamp duties on the following instruments in the First Schedule of the Stamp Act will also be removed completely: Article 3 - Agreement or Memoran- dum of Agreement Article 7 - Appraisement Article 8 - Apprenticeship Deed Article 12 - Average Bond Article 13 - Award Article 25 - Contract Article 28 - Copy or Extract Article 33 - Deed of any kind not described in this Sche- dule Article 37 - Extract Article 43 - Letter of Allotment and Letter of Renunciation Article 48 - Note of Protest by the Master of a Ship Article 54 - Protest of Bill or Note Article 55 - Protest by the Master of a Ship Article 67 - Valuation Article 68 - Warrant for Goods The concessions on stamp duties will take effect from 1st April, 1980. The loss in revenue is estimated at $10 million in the first year. (iv) Concession for Off-Shore Gold Transactions I have received representations that the tax rate of 40% on income derived from offshore gold transactions inhibits the development of the market. I have studied the matter and am prepared to remove this disincentive. With effect from Year of Assessment 1981, the 10% concessionary tax rate will apply to the following income derived from gold transactions with non-residents: (1) Profits arising from the transactions of Asian Currency Units (ACUs) with non-residents, other ACUs, and broker and dealer members of the Gold Exchange of Singapore (GES) in the Singapore and overseas gold markets. This is an extension of the concession so far given to ACUs on income derived from off-shore transactions with non-residents. (2) Fees, commissions and profits of approved broker and dealer members of the GES, that is, those approved by the Monetary Authority of Singapore, arising from their transactions with non-residents, other members of the GES, and ACUs, in both the Singapore and overseas gold markets. Associate members of the GES will not be eligible for the concession. It is hoped that the loss in revenue, estimated at $1.5 million, will be compensated later by the growth of the gold market. PERSONAL INCOME TAX (i) Tax Rates In my Budget Statement last year, I stated that taxes should never be so high as to become a disincentive to hard work or to stifle talents and skill. But "high" is a relative term as different individuals have different thresholds of pain. We know, however, that the wider the tax base the lower the tax burden per capita will be. These are the two guiding principles behind this year's tax changes. As at 31st December, 1979, there were 389,387 individual taxpayers, representing an increase during the year of 30,459 tax-payers. The Inland Revenue Department should be able to bring more taxpayers into the net when its computerization programme is completed. Meantime, steps will be taken to ferret tax evaders. There have been several representations in the past, including some from my colleagues in the House, to increase the tax reliefs for earned income, dependants and other deductible tax items. I decided against an increase in earned reliefs last year and I am deciding against an increase in any of these reliefs this year. The rationale for this decision is the need to spread income tax to cover as many individuals as possible. At present less than 38% of our work-force pay any income tax. The more citizens we have paying income tax, the more voters there are who understand that welfare programmes which sound such attractive give-aways from some magic cornucopia conjured up at election time, must mean an increase in their income tax. Several advanced countries, like Britain, have been hypnotised by this "soak the rich" slogan, only to discover that they have, by heavy taxes on personal incomes, stifled the drive to excel and to succeed of their enterprising and talented, of their professional and even of their skilled workers. We want our skilled workers to increase their earnings as against the unskilled and to pay income tax, but not such that he finds it not worth the time, effort and investment to learn to be a skilled worker. Paying income tax will imprint in the minds of Singaporeans the importance of prudent fiscal and welfare policies since many will have a direct responsibility to pay taxes for Government social expenditure from their own incomes. Between increasing the level of deductible reliefs and lowering tax rates across the board to afford reliefs from inflation, I have opted for the latter. My decision is based on sound principle and on precedent, first established by the Deputy Prime Minister as Minister of Finance, and upheld by the present Minister for Finance since 1970. This general reduction in personal tax rates gives relief to all without shrinking out taxpaying population. Details of the existing and new tax rates will now be distributed to Honourable Members and they are attached as Appendix III (Cols. 645 - 646) to my Budget Statement. Appendix III - PROPOSED REDUCTION IN INDIVIDUAL INCOME TAX (Cols. 645 - 646) Every taxpayer will be given a reduction in tax ranging from 6.8% to 19.9%, depending on his tax bracket. The average reduction in tax is 16.1%. This I consider generous as our Consumer Price Index rose by only 4% last year. The substantial reduction is evidence of our intention not to stymie the application of time, talents and effort in earning income which generates economic growth. The highest marginal rate remains at 55%, but the lowest marginal rate is now reduced to 4%. Taxpayers in the first and second tax brackets, therefore, enjoy the largest reductions in relative terms. Those in the first taxable bracket will, on average, pay only 1% of their incomes in tax. The others are given tax reductions commensurate with their bigger tax liabilities. The new rates will take effect from Year of Assessment 1980. The loss in revenue is estimated at $45.5 million out of a total estimated personal income tax collection of $476 million. The aim of the Government is to reduce the levels of personal income tax in the next two to three years until the maximum effective rate is no more than the company rate of income tax, i.e. 40%. Then there will be no advantage for people to set up companies from which they draw low salaries for income tax purposes, whilst the bulk of their needs are paid by the company whose profits carry only 40% company tax. Such a reduction will be fairer on those wage-earners who cannot hide their incomes, and on those professionals who cannot incorporate themselves into private limited companies because their professions disallow it. Also, income tax falls unfairly. Wage-earners, like those in the Civil Service, who cannot put aside part of their incomes as perks, carry a heavier tax burden than those in the private sector who can. There are also some professionals, like doctors, who have a natural advantage in tax evasion over lawyers or accountants because of the nature of the payments, made by patients in cash to doctors, as against cheques by clients, often corporations, to lawyers and accountants. The Inland Revenue Department will vigorously bring more evaders into the tax net. But we shall be deceiving ourselves if we believe that we can get all the successful hawkers, restaurateurs, property brokers and freelancing commercial intermediaries to keep and render proper accounts. It will be many years before we can insist on proper book-keeping and accounting which the developed societies have evolved. Even in these societies, new forms of tax evasion such as barter, or exchange of services, have defeated the tax collector. For the next stage of our economic development to succeed, we must make it worthwhile for our young to spend time and effort to acquire skills and knowledge that will enable them to earn and to keep more of their incomes for their efforts. At present those who earn between $20,000 and $100,000 a year, the technicians, engineers, managers and professionals, are carrying the greatest burden of income tax. The Government proposes to spread these tax rates more equitably. We shall be wise to take note of the results on those societies where personal income tax has been used to equalise spendable incomes in the name of progressive taxation. It has blunted the incentive to out-perform one's peers; it has levelled the gifted and the industrious down to the mediocre and the indolent. It has narrowed the difference between what the highly skilled takes home as against the unskilled. The results have been ruinous for economies like Britain. Over-emphasis on dividing up the national cake equally has ended up in smaller pieces of a non-growing cake. On the other hand, the Japanese and Germans have concentrated on making the national cake bigger and have achieved it by rewarding hard work and high performance, giving a thicker slice to those who have contributed more. The result, even for the unskilled who are entitled to the thinnest slice, has been a piece of cake larger than a thicker slice of a smaller cake. The moral for us is to concentrate on creating a bigger cake through giving full rewards for effort, skills, hard work and enterprise. (ii) Relief for Handicapped Persons I have one more tax concession in my bag. Some years ago, the Minister for Finance extended the allowance for handicapped children to include those over 16 years of age. This year, I intend to make a modification to this relief. If a taxpayer maintains a brother or sister who is incapacitated by physical or mental infirmity and who does not earn any income and continues to depend on the taxpayer, he will be entitled to claim a deduction of $750. The allowance is presently given only to parents of handicapped children, This relief is given only to taxpayers who maintain such a member of the family in the same household. The deduction may also be apportioned if more than one taxpayer maintain the same handicapped brother or sister. It will take effect from Year of Assessment 1980. Conclusion The tax changes this year will result in a net revenue loss of $164 million in the coming fiscal year. But if they have the desired effect of stimulating effort and economic activities, this loss will be made good by an expanding economy in subsequent years. In case the signals of tax reductions, in particular, in personal income tax rates, are read wrongly, I want to emphasize that these reductions are given not because we are elated over our good economic performance, or because the Treasury coffers are overflowing, but because we anticipate some very difficult years ahead, including this year. The primary objective of the tax liberalization this year is to create maximum room for Singaporeans to exercise their enterprise to the utmost so that they are better prepared to cross the treacherous waters ahead. Tax is a cost item and, in some instances, an impediment to efficiency and effort. We are reducing this cost and impediment. This is, therefore, a go-getter Budget. Individuals, partnerships and corporations must go for the opportunities. They must not delay. They must catch up on skills, technology, modern management and exports. They must not be trapped in indolence and low-skilled, low-valued industries and services. We face the uncertainty of superpower conflicts in the political and military arena. We face the certainty of higher fuel prices. We face the grim prospect of the region being destabilized by external forces, and the oil life-line being cut. We are unsure of the outcome of the Presidential Elections in the United States this year, and hence the global impact of its policy changes. On the other hand, we are sure of sluggish world economic growth cohabitating with inflation. We, therefore, have the perfect recipe for trouble. We have spelt out our strategy to deal with the difficult times ahead, If we stiffen our resolve, remain robust, we stand a good chance of pulling through the next few years as planned. But we must dare to achieve, and think ahead. Savings is essential to the growth of our economy. This year's revenue is estimated to exceed recurrent expenditure by only $94 million. We shall draw down $2,482 million from the Development Fund to finance development expenditure. This still leaves a deficit of $1,041 million in the Development Budget which has to be borrowed from private savings, primarily from the Central Provident Fund. Without this generation of savings in the past, we would have to raise taxes, or curtail our development expenditure, to the long-term detriment of our economy. Our economic prosperity today is achieved through a partnership of government and individual effort, public and private savings. Present-day Singaporeans must, therefore, save a part of their earnings to secure their own future, and their children's. They must at all times avoid waste. They must not squander their tax rebates. Sir, I beg to move.