Mr Deputy Speaker, Sir, I would like, first of all, to thank all the hon. Members for their constructive suggestions and the keen interest which they have taken in the Budget debate. While not glossing over the difficult economic times which we are now going through, Members in their speeches have in my view reflected a sense of determination, a sense of readiness to come to grips with economic realities that must augur well for Singapore as we tackle the somewhat rocky road that lies ahead of us. Some of the matters brought up by the hon. Members in the debate, for example, the increased rates of public assistance allowances mentioned by the Member for Serangoon Gardens, more financial assistance for Government-aided primary and secondary schools raised by the Member for Buona Vista, are I think more within the ambit of particular Ministries. I do not think it is appropriate for me to discuss such matters in detail in my reply, but I do hope that the Members concerned will raise the questions again at the appropriate time in the Committee of Supply. I am quite sure that my colleagues in the Cabinet will be very glad to answer their questions in detail. In my reply, I shall first discuss the economic and financial policy of the Government and then go on to discuss particular taxation issues raised by various Members. Mr Deputy Speaker, Sir, the economic circumstances in which this Budget has been framed have been amply spelt out in the Budget Statement and further commented on eloquently by the Member for Chong Boon, the Member for Whampoa and other Members in their speeches. I do not intend to go over familiar ground. Members already know that we do not expect an easy road ahead. But Members may have read in the press recently about the upturn in the leading economic indicators in the United States for January. Some may wonder whether this signifies, as has been claimed by a number of U.S. administration officials, that the recession has ended and the recovery has begun. Unfortunately, January 1983 is not the only month in which the index of leading economic indicators has shown an upturn. In fact, if we were to study the index carefully, we will find that the index has been predicting a recovery in nine out of 10 months since April last year. And yet the U.S. economy continues to be in recession. In the third quarter of 1982, the U.S. economy only showed marginal growth, 0.7%. In the fourth quarter of last year, the U.S. economy actually declined by more than 2%. I am therefore inclined to view the rise in the January index with some caution. And indeed after the initial euphoria, senior economic advisers in the United States Government have also started to warn the public and to express their reservations that the January rise may not indeed mark the beginning of the long awaited recovery. And I think that their caution is understandable. Although the rise in the January index was indeed substantial, the highest in 33 years, it was due mainly to the sharp increase in the money supply which resulted from a sure in the public investing in the new money market deposit instruments which banks and savings institutions in the U.S. can now offer. Last year in April 1982, when the index of leading indicators also showed a significant upturn, the financial components were also a principal factor for the rise in the index. In January, although almost all the components of the index rose, one important component fell. Industry orders for equipment declined and this shows that businessmen are still very hesitant about investing in new equipment. Such a lack of confidence does not augur well for a sustained economic recovery. And it is only with a sustained recovery that our industries and our economy can benefit. While I, like all of us, would like to see an early recovery in the U.S. economy, I think that it is only prudent for us to guard against being taken in by a false spring. The decline in oil prices announced last night will undoubtedly be good for the world in the long run, and therefore it will be good for Singapore. But in the short-term, it may be disadvantageous for us. The drop in oil prices will, for example, affect the export revenues of those of our neighbours who are producing oil and this, in turn, must affect our trade with them. Furthermore, a decline in oil prices must hit those economic activities which service the oil exploration programme in the seas around us. And as we have all read in the press, production at our refineries has also been affected. In so far as the refinery programme is concerned, the Member for Whampoa has asked whether in the light of the present downturn in oil prices whether Government should continue to encourage oil refining activities. The Government has actually not given any tax incentives for any increase in basic crude distilling capacity in recent years. But due to the changing petroleum product patterns resulting from energy conservation, the oil refineries have been forced to modify their refining plants through upgrading projects such as visbreakers, hydrocrackers and platformers. These units essentially take one or perhaps more product streams from a refinery and upgrade them to higher value products. Our investment in the Petrochemical Corporation of Singapore, which has also been a subject of some comments from Members, was committed in 1977. At that time, of course, there was no oil glut. There have been no new investments committed in the complex apart from what was originally envisaged as forming part of this complex. The latest downstream project to produce ethylene glycol was committed in January this year. But it still remains an integral part of the complex as it was originally planned. It is not possible to operate the complex economically without this particular downstream unit. Undoubtedly, this complex will find the going very tough for the next few years. I do not think that we should try to hide this fact. But we have invested heavily in the complex together with our Japanese partners and we must regard this project as an investment for the long term. The Member for Rochore has queried about the impact on Government revenues as a consequence of the decline in oil prices. He mentioned particularly the excise duty on petroleum, It is too early for us to try and work out what will be the decline, although there will undoubtedly be a drop in Government revenue from this source. It will depend upon what are the final prices quoted at the petrol pumps. In connection with this matter, the Member for Thomson has raised the matter of PUB electricity tariffs and suggested that they should also go down when the oil price goes down. I fully agree with him. He will remember that since August 1982 the PUB has adopted a system of three-monthly automatic adjustment of the electricity tariffs. I think this system is more equitable as the consumers will be charged the prevailing fuel oil price paid by the PUB. When the price goes down, then of course the tariff must go down. Indeed in November last year, following a decline in the fuel oil price, the PUB reduced the electricity tariff by 1/2 cent per kilowatt hour. This resulted in a reduction of between 2 1/2 % and 3% in the average electricity rate to our industries and consumers. Since November last year the posted prices of fuel oil have actually not changed, although the spot price of oil has changed. This is why for the three-month period commencing 1st February 1983, there has been no change in our electricity tariffs. The next adjustment will be on 1st May, 1983, and it is likely that we can look forward to good news. Protectionism is another subject which has been mentioned by several Members in their speeches. I think many Members have also highlighted the increasing tendency of countries to resort to non-tariff barriers which are particularly detrimental to our exports. Singapore, as we all know, is an open economy. We rely significantly on our export of goods and services to sustain our economic growth. However, this does not mean that we are helpless or cannot take any action against the adverse influences of protectionism. I think we can mitigate these effects, first, by searching for new markets not only in the non-traditional countries, like the newly developed countries, but also in new product areas which are less susceptible to protectionism, for example, in the high value-added items such as computer peripherals and sophisticated machinery. Members will also know that we have formed the Trade Development Board to assist our manufacturers and traders to promote their products abroad. I am pleased to inform the Member for Geylang Serai that the TDB has an active programme of export promotion, including beefing up our overseas trade offices, increasing the frequency of our trade missions abroad as well as concentrating on improving the core of marketing expertise within Singapore. The Government is also keeping a close watch on developments in protectionist legislation abroad and our offices are always on the alert against such moves and we intend to protest vigorously against any unfair measures to restrict trade. But above all, we must continue to improve our products and services with a view to enhancing quality and reducing cost. We must move towards the production of high quality, sophisticated high value-added products and services because where there are trade restrictions in the form of tariff duties, so long as our products and services can be competitive we can still overcome such tariff and we can also capitalize on economies of scale in order to lower our production cost. By working as a group with our ASEAN neighbours we can also improve trading relationships with other countries. I would like in this respect to mention that the impact of ASEAN as an economic grouping has gained recognition throughout the world. In the last round of our multi-fibre negotiations with the EEC, for example, it was because ASEAN negotiated as a group that each of us, each of the five ASEAN countries, was able to get better benefits than if each of us had negotiated individually. The Member for Whampoa has mentioned that he is more hopeful that this time the international monetary system will not suffer a breakdown because more people are now aware of the problem and are talking about the massive overhang of debts which, as we all know, is giving international bankers recurrent nightmares. We must all hope that he is right and that my fears will prove to be unfounded. Various proposals have been floated in the international financial press about solutions to the debt problem. In particular a person named Felix Rohatyn, a New York merchant banker, suggested an expanded version of the Municipal Assistance Corporation (MAC), which was the instrument he devised to save New York from bankruptcy. In the present case this would mean that it would have to be an international institution guaranteed by governments which would take over the bank debts owed by the developing countries and convert these debts into long-term debts at lower interest rates. The banks who had lent the money would then have greater security of getting their money back but they would suffer a loss in recurrent earnings. Such a scheme would, however, require legislative approval from the major developed countries, particularly the United States. I think we all know that Congress is already known to be unhappy about being asked to use taxpayers' money to bail out banks which have got into trouble through their imprudent lending. The situation may change when there is a crisis because adversity concentrates the mind wonder- fully. The question is whether such international cooperative effort can be activated without a major economic crisis to stir Congressmen and Parliaments into action. We have to wait and see. But governments today have more contacts with each other and hopefully we have learnt some lessons from the Great Depression in the 1930s when grievous policy errors were made. I am hopeful that even if we should have another economic disaster, this will not be as prolonged as in the 1930s when the Great Depression lasted for ten years. Under today's circumstances, with the political pressure which the unemployed can exert on legislators, I think that governments will be forced to act in concert and hopefully the Second Great Depression, if it comes, will be over not in ten years but in three to four years. But in those three to four years, we must make sure that our economic structure is not permanently damaged and that hardship to our citizens is minimized where possible. I think the key must be to keep unemployment as low as possible and to keep as many people in the workforce as possible so that their skills will not go stale with disuse, their time is not wasted, and when the depression ends we shall have a head start over other countries. I now come to the subject of local companies, which was raised by the Member for Chong Boon and also by the Member for Kebun Baru. In 1982, local investments amounted to $540 million, which constituted 31% of our total investment commit- ments. These commitments came from both new investment projects as well as projects to upgrade existing manufacturing operations through automation. Investments were in sectors which covered the Petroleum, Shipbuilding and Ship-repairing, Iron and Steel Fabrication, Metal Products, Food and Plastic industries. It is encouraging to note that increasingly new local investment commitments are being made in high growth, high technology sectors, such as computers and computer peripheral equipment, photo voltaic cells and industrial robots. Local companies have also invested in sophisticated equipment to provide the critical components which are needed for the fast growing computer peripheral industry in Singapore. Realizing the importance for local companies to upgrade and automate their operations and diversify into new high technology industries, EDB has instructed its international network of promotion offices to help any local company who wishes to establish contact with appropriate foreign firms. EDB will continue to grant generous tax and financial incentives for such joint venture projects which involve the manufacture and development of high technology products. With regard to the help given by Government, some statistics on applications to the Interest Grant for Mechanization Scheme would be relevant. In this case, for example, last year out of 398 applications received from local companies for the Interest Grant for Mechanization Scheme, two-thirds or 260 had been approved. Another problem which local companies also face is lack of finance. In this case the Government established the Small Industries Finance scheme in 1976. Under this scheme, long-term fixed interest rate finance is provided by Government to participating banks for onward lending to small viable local manufacturing or technical service companies in order to assist their technical modernization and expansion. This scheme has been very successful. The scheme with a little bit of modification is now also extended to cover medium-sized local companies with fixed assets of between $2 million and $5 million. As at the 31st of January this year, a total of $235 million in loans have been granted to 626 local small companies under the SIF scheme. The EDB has also a comprehensive package of tax incentives to assist our local companies to invest in, develop high technology and capital-intensive products. Many local industries have taken advantage of these tax incentives. Again as at 31st January this year, wholly local companies and joint venture companies (that is, a joint venture between a local company and a foreign company) have been granted 43% of the total number of Pioneer Certificates and 68% of the total number of total investment allowance certificates granted by the EDB. Overall, in fact, the local and the joint venture companies have been granted 44% of the total amount of tax incentives granted to industries. This reflects that the Government is alive to the problems which are faced by our local companies and also we realize that there is a need for local companies to acquire technical assistance for them to upgrade into high technology areas. In this case, we have come out with what we call the Small Industries Technical Assistance Scheme (SITAS) which is to encourage small companies to obtain the use of technical consultants to help them in their upgrading effort. Under this scheme, 90% of the approved costs of engaging such consultants can be reimbursed by the Government. I come now to the point on the Science Park which was brought up by the Member for Chong Boon. There are, in fact, quite a number of companies which have negotiated to be residents of the Science Park. Their identities will be made public at the appropriate time. EDB is fully aware of the need for proper incentives to be given to attract good tenants to the Science Park. Among the tax incentives, for example, the Capital Assistance Scheme and the Research and Development Grants are available to potential tenants. Also the rentals which were originally $22.75 per square metre for standard factory buildings in the Science Park have now been lowered to $19 per square metre which is comparable to the JTC ground floor rent. For selected Park tenants, EDB is also prepared to negotiate a further reduction in rentals on a case-by-case basis. With regard to the lease rate for land, this is $11.60 per square metre per year. I think we all agree that this is quite reasonable and there is no further need to reduce this rate. The Member for Thomson has brought up the point that Government needs to give some assistance to manufacturing in these difficult times. In fact, of all the sectors in our economy, manufacturing has benefited more than any other sector from Government incentives. In fact, in some ways, they have benefited a little too much. The incentives which are available are investment allowances, investment grants for mechanization, grants for raining costs, research and development grants, the Product Development Assistance Scheme whereby grants are given to local companies and double deduction of expenses of R&D operating costs. The subject of JTC rentals was brought up by the Member for Tanah Merah and also the Member for Thomson. We all know that land is a scarce resource in Singapore. It is a primary requirement for all economic activities and in the manufacturing sector in particular. Like all factors of production, we need to ensure that our land resources are used to the maximum efficiency that is possible. JTC's primary objective is to provide industrial land at low cost to industries and to ensure that this land is used efficiently. Members know that JTC does not sell land. JTC leases industrial land on 30 years' tenure to manufacturing firms who are required to pay an annual rental instead of a lump sum payment. This prevents firms from speculating on the rise in the price of land but rather forces them to concentrate on maximizing the efficiency and productivity of the manufacturing operations. It also prevents the hoarding of land by manufacturing firms beyond what they actually need. JTC land rentals are revised every five years subject to a maximum increase of 50%. The last five-year revision of JTC land rentals was made in 1978. Since then land rentals have generally increased by at least two to three-fold. Revision of JTC land rentals is scheduled for this year. For this revision in 1983, JTC has taken several factors into consideration. This includes the current recession, the Government's economic policy to maintain our competitive edge as compared to other countries, the rentals paid by the existing lessees as compared to new lessees and the need again to ensure the maximum usage of land. After careful deliberation, JTC implemented a three-tier increase in land rentals in January this year. First of all, there is no increase in rentals for existing lessees who are paying the current market rental. For those who are paying a very low rental, the increase is 50% and for those paying slightly higher rentals, which are still below the market rates, the increase is 40%. Out of the 1,791 existing lessees, 57% are affected by the 50% increase and 26% by the 40% increase. Even after the revision of 40% or 50%, existing lessees still pay very low rentals as compared to new lessees. For example, the lessees who are occupying inland sites in Jurong pay 78 cents to $2.70 per square metre per annum and, after a 50% rental adjustment, this will rise to $1.17 to $4.05 per square metre per annum. This is approximately 14% to 48% of the current market rental of $8.40 per square metre per annum. Also to assist firms from having to bear a large rental revision every five years, JTC has given the firms the option to opt for a new yearly rental revision scheme whereby land rentals will be revised every year subject to a maximum increase of 7.6% each year. The rental revision by JTC is necessary to ensure that those companies which lease land from JTC at very cheap rentals many years ago will pay rentals somewhat closer to the economic value of the land today. The new industries which have gone into JTC recently have not been affected by the land rental revision. The Member for Chong Boon has brought up the matter of PUB installing thimbles and suggested that this be encouraged. This was started by the PUB in 1979 to instal thimbles in private high-rise apartments and also in HDB flats. By the end of 1982, the PUB had completed its programme of installing thimbles in approximately 150,000 existing high-rise apartments and HDB flats. New high-rise apartments and HDB flats will have the thimbles installed at the same time when their water meters are installed. Following the Save Water campaign in October 1981, owners of recreational complexes comprising public swimming pools, clubs, cinemas and places of interest were requested to instal water saving devices such as self-closing, delayed action taps or showers and constant flow regulators in their public washrooms. I am pleased to say that the response from the owners has been encouraging. With regard to the commercial, construction and industrial sectors, the use of thimbles is not so effective because of the different nature of their usage of water. These sectors account for about 30% of the total water consumed in the Republic. I believe that it is in these sectors that we can do more to reduce wastage. The manufacturing industries can, for example, look into reducing consumption of potable water by re-cycling their water. They could use sea-water or industrial water in their manufacturing processes. The JTC is undertaking a programme to see how water can be saved in these sectors. The Member for Serangoon Gardens suggested that we encourage the formation of science and technology clubs in community centres. Judging from the runaway success of the computer clubs, this shows some promise in promoting the further understanding and appreciation of new developments in science and technology. I shall ask the Science Council to follow up this suggestion of the Member. The Member for West Coast brought up a very important point, i.e. the effect of automation and mechanization on jobs. The rapid pace of mechanization and automation in Singapore has brought about significant structural changes in our economy. So far we have been able to harness the new wave of automation and mechanization to help solve our labour shortage problems and reduce our dependence on foreign workers. On the whole, automation and mechanization have been beneficial. It has not only helped to increase output per worker but it has also reduced the absolute number of workers required in existing economic activities and enable employers to deploy these workers in other activities. The workers who have been displaced by automation and mechanization should be trained for new jobs within their existing firms. In this respect, I would like to mention and to bring to the notice of Members the recent agreement by the Japanese company Nissan who has signed an agreement with the trade unions whereby the trade unions have undertaken to help the company to introduce robots to mechanize the operations, but on the understanding that no workers will be displaced or lose their jobs as a consequence of the introduction of these robots. This is a far-sighted move and should be emulated by our employers in Singapore. Workers must never fear that their jobs are put at risk by the robots, by the new equipment, which have been introduced by employers and companies, and it is foolish of companies and employers to use mechanization and robots as a means of reducing their workers and creating unemployment. This is the surest way to ensure that such a programme will fail, Several Members have spoken about the BEST programme. Here, I would like to acknowledge the assistance of our trade union movement, the NTUC, in getting this programme off the ground. In all fairness, we must recognize that it was the trade union movement who first recognized the need to upgrade the skill not only of those young people who are going to join the workforce but of those people who are already in the workforce so that the workers will be able to work in the new type of industries which we are attracting to Singapore. With regard to the Basic Education for Skills Training (BEST) Programme, a suggestion was made by the Member for Boon Lay, whether workers who had been retrenched and could not find employment could be enrolled in Government-approved training courses and receive Government assistance while undergoing training. On the whole, I would agree with the Member that, as far as possible, we should help retrenched workers to enrol in our training centres and to acquire new and relevant skills which will improve their chances of re-employment. I am not sure whether giving them a subsidy by way of direct financial assistance is a good measure in the long run. The experience of several Western countries has shown that the existence of such benefits is often a disincentive to people to look for work. So far, getting a job has not been too difficult in Singapore because we still have a labour shortage. But the Government will do its part to encourage companies to keep their workers and to retrain them. In this respect the Skills Development Fund is prepared to give generous financial support. The Member for West Coast has also raised the point about those workers who have not been to school at all or who are too old to have the potential to study English and Mathematics which are the aims of the BEST programme. In this respect we must realize that the BEST programme is still at a very early stage. Once the Continuing Education and Training Department of VITB, which is responsible for the BEST programme, has acquired enough experience in running the BEST programme, it should turn its attention to the categories of workers which have been referred to by the Member for West Coast. Perhaps one possible way is to teach them simple practical skills which do not require a knowledge of English or Mathematics. For example, these can be simple mechanical skills. However, there is a limit to what we can do to train employees for these simple mechanical skills. If workers want to upgrade themselves, then at some stage they must at least learn the rudiments of Mathematics or English so that they can handle the more complex machinery which our companies will introduce. In this respect the trade unions can help the Government significantly to reduce any difficulty which the older workers may have in this area. A variety of views have been expressed by Members regarding the Skills Development Fund. The Members for Leng Kee, Chong Boon and Thomson feel that the scheme should be reviewed. The Member for Kebun Baru is a strong champion of the SDF. We should not just look at the disbursement figure of $27 1/2 million which has been mentioned several times. A further sum of $102 million is due to be paid out when companies complete their approved training programmes. I do not think that small companies are at a disadvantage as there are many avenues through which they can avail themselves of the SDF funds, for example, by using the Interest Grant for Mechanization scheme. Moreover, several trade or industry associations, like the textile trade and the hotel trade, have joined together to set up industrial training programmes which are funded by the SDF. It is in this way that our small local companies can make use of the SDF funds which they have contributed. In fact, almost two-thirds of the total SDF grants have gone to our local companies. Since most of our local companies are small, this shows that our small companies have also made use of the SDF funds. Furthermore, the annual commitments of SDF grants have been increasing. In 1980 it was about 18% of the annual collections, in 1981, 49%, and in 1982, 60%. Perhaps in 1983 it will reach 100%. The number of applications received in 1982 has more than doubled compared to that received in 1981. I am glad to see that the momentum in training is quickly building up, although I would like to remind Members that we are still a far cry from the state when training is required as an integral part of a company's operations. My fear is that with the present recession some companies may be tempted to cut back on their training programmes in order to reduce costs. This is most undesirable. Not only will it be a setback for us but I believe it will also impair the ability of companies to take advantage of the recovery which must come one of these days. The Member for Yio Chu Kang has speculated that fees for training courses have gone up because it is so easy to get money from the SDF. This may be true, but the SDF has built into its criteria an evaluation of the cost effectiveness of the training programmes which it subsidizes. Companies have also been advised that they should weigh the likely benefits of the training programmes to which they send their workers. If the prog ramme is not cost effective, the SDF will reduce the level of support which it gives or, indeed, reject the applications from the companies. If companies wish to pay a high price for some programmes, that is their privilege, but the SDF will make sure that this is not at the cost of the SDF funds. The Member for Yio Chu Kang has also brought up a number of points on the development of Singapore as a financial centre, particularly with regard to the management fees incurred for managing funds. Members will know that these management fees are incurred by companies which deal in stocks and shares and are fully deductible if they are part and parcel of the expenses in buying and selling the stocks and shares and the profits from these sales are subject to tax. But, on the other hand, companies which are engaged in investment holding and do not deal in stocks and shares are subject to tax only on the investment income, not on the profits realized from the sale of such stocks and shares. Companies will have to make up their minds whether they wish to be dealing companies or to be investment holding companies. They cannot have the best of both worlds. Nevertheless, the Ministry of Finance has been most generous in giving a concession by allowing a deduction of 50% of the management fees incurred by the investment holding company. Furthermore, there is the problem of defining what is capital gain and what is dealing gain. There is, in fact, an abundance of case laws which can give guidance in deciding whether in any particular case the gain is income gain or a capital gain. In fact, to my knowledge, no country in the world has given an explicit explanation of what is an income gain as against a capital gain. If the Member for Yio Chu Kang has any information which we do not know, I would be very pleased to hear from him. As regards land, this is a topic which has been raised by several Members, including the Members for Clementi, Whampoa and Rochore. We must use land carefully in Singapore because it is a finite resource. We must also ensure that there is always sufficient land set aside to generate economic growth while, at the same time, to satisfy the housing, recreational and social needs of our population. We all know that developers of land for economic use are motivated by profit consideration, as are all businessmen. I am not sure whether it is wise for the Government to direct businessmen to build hotels, offices or condominiums. I think it is best to leave such decisions to the businessmen. But it is right that the Government should make sure that as much informati6n as possible is available to the businessmen so that they can make a careful and considered judgement. The Government is monitoring the situation to ensure that our Master Plan continues to be relevant and appropriate in the light of new economic and social circumstances. I think that with the high pace of construction and high usage of land likely in the next few years, I am inclined to agree with the Member for Whampoa that perhaps it is time now for the Government to make an overall study of the economic use of land in Singapore in order to ensure that this finite resource can be put to the most efficient use. This is a matter which we will take up with the Ministry of National Development. Mr Deputy Speaker, Sir, do I have to stop at 8.00 o'clock.?