Mr Speaker, Sir, I beg to move, "That Parliament approves the financial policy of the Government for the financial year 1st April 1984 to 31st March 1985." As in previous years I shall first review the progress of the Singapore economy in 1983 and the main points of our economic policy before proceeding to deal with the Expenditure and Revenue Estimates for the financial year 1984 and the tax changes to be introduced to meet our social and economic objectives. THE ECONOMY IN 1983 We have done well in 1983. Our economy is in robust health. Investments expanded. Our currency is strong. Real incomes have risen. Inflation was minimal. This happy state of affairs is due in no small part to the past efforts of my predecessor as Minister for Finance, the late Mr Hon Sui Sen. The economic policies, which he laid down, established a sound foundation which enabled our economy to weather the 1980-82 recession and emerge fitter for the experience. He has left us a solid base to build on. In 1983 the United States economy experienced a sharp upswing and the world took its first steps towards economic recovery. The total gross national product of the countries in the Organisation for Economic Cooperation and Development (OECD) rose by 2 1/4%, reversing its decline of 0.3% in 1982. The rest of the world benefitted. World trade recovered to grow by 1% in volume terms. Partly because of the reduction in oil prices, world inflation eased further. In June 1983, the inflation rate in the OECD countries went down to 4.9%, the lowest annual rate of increase since 1972. However, the path to recovery was hampered by old obstacles. Unemployment remained high especially in Europe. The international financial system continued to be plagued by the debt problems of a number of the developing countries. Although timely intervention by international authorities prevented a major financial crisis from erupting, the debt problem remains a threat to sustained world economic expansion. In addition, protectionist sentiments were widespread in spite of the upturn in economic growth. As an open economy Singapore benefitted from the world economic recovery. Our economy expanded by a commendable 7.9% compared with 6.3% in 1982. There was a resurgence in foreign demand for our goods and services. Led by the marked recovery in output of the electrical and electronics industry, the manufacturing sector picked up from its decline of 6% in 1982 to grow by 2%. As a result of our good manufacturing performance and the recovery in world trade, our re-exports and non-oil domestic exports grew significantly. The financial and business services sector grew by 16% and was the largest contributor to our GDP growth. Construction remained the fastest growing sector. The main thrust to the sector's expansion came from the accelerated public housing programme. Transport and communications, however, slowed down to grow by 8%, the first single digit growth since 1975. The tourist trade was adversely affected by the 4% drop in the number of tourist arrivals, the first decline in 20 years. Despite the faster economic growth in 1983, our workforce rose by only 2.6% compared with 5.2% in 1982. Our efforts in urging industries to use labour more productively are showing encouraging results. There was a marked reduction in the number of workers in the manufacturing and transport sectors because of automation and mechanization. Consequently, productivity improved significantly, growing by 5% compared with 1% in 1982. We continued to have full employment. Inflation was low throughout 1983. Consumer prices rose by 1.2% for 1983 as a whole, one of the lowest rates in the world. Because of the lowering of oil prices and the strong Singapore dollar, imported consumer products were generally cheaper. Our inflation was therefore largely due to domestic factors, a trend which we will have to watch closely. Last year, I warned the House that we must be prepared for no growth in real incomes if the world economy were to deteriorate further. Fortunately, as a result of our strong economic performance in 1983, Singaporeans were able to enjoy a bigger increase in real income. As measured by GDP per capita real incomes rose by 7.6% considerably higher than the 5.1% increase in 1982. INDUSTRIAL DEVELOPMENT I shall now elaborate on specific areas of our economic policy. Although our manufacturing industry is now recovering from the setbacks that it suffered as a result of the world recession it will be some time before industrial production returns to the level of 1981. Industries producing electronic components, electrical and electronic consumer products as well as computer related equipment such as disk drives were behind the recovery of the manufacturing sector in 1983. As some of these products are in the forefront of new technological developments, this augurs well for the upgrading of the manufacturing industry. Our economic restructuring policies have stood us in good stead. Investors continued to place their confidence in Singapore as an attractive location for investment. New investment commitments were $1.8 billion in 1983, slightly higher than in the previous year. Substantial investment was committed in the petroleum industry for process upgrading and energy conservation. A major portion of other commitments was for the manufacture of computer-related equipment and components, construction materials, food and chemicals. Nearly half of the total investment commitments were new and diversification projects, a substantial improvement over recent years. This is a welcome trend as it is such investments which bring the new technology that is needed for our industrial upgrading. I am also encouraged by the fact that local manufacturing companies continued to commit substantial investments, amounting to $520 million in 1983. They accounted for 29% of total investment commitments. Besides the traditional fields, local investments increased in modern supporting industries such as those producing precision metal products and engineering plastic components. To promote the growth of local companies, the Small Industries Finance Scheme (SIFS) provided $92 million in concessionary loans to 265 cases in 1983. The qualifying level of the SIFS Scheme has been modified so that companies with fixed assets not exceeding $3 million can now apply for assistance under the Scheme. Many small local companies may not be aware of the range of services that statutory bodies such as EDB, SISIR and TDB can provide for them. The Ministry of Trade and Industry has therefore asked these bodies to pool their resources so as to address the technical, promotional, financial and manpower problems faced by small industries in a more comprehensive way. If local companies are to do well in the longer term, they must look for business opportunities in the newer technologies. In the last Budget Statement, I informed the House that some local companies have ventured into non-traditional areas such as computer equipment and robotics. Such non-traditional or "venture capital" investments, as they are sometimes called, are inherently risky. The risk of failure is high. To assist enterprising local companies which are prepared to enter these new fields, I am pleased to announce that local companies which invest in approved venture capital projects in new technology industries will now be able to write off up to 50% of the equity invested in such projects if the projects incur losses. Companies that are interested in this area should approach the EDB. Through its international network of offices, the EDB can assist them in locating suitable foreign partners with a view to setting up joint venture projects in Singapore. If we are to reduce our dependence on foreign workers without sacrificing high economic growth, we have no choice but to speed up the pace of automation and mechanization. The potential for doing this is greatest in manufacturing. I am therefore pleased to report that in 1983 the Skills Development Fund has approved grants for 220 manufacturing projects under its Interest Grant for Mechanization Scheme. These grants will help companies to acquire about $87 million worth of new automated equipment. More robots are being used in industry. To give a further boost to robotisation, a robot leasing company has been established to provide consulting services as well as lease industrial robots and accessories. Companies wishing to automate and robotize their operations should consult the EDB on the range of tax incentives that are available to them. Where there are significant labour savings, the EDB will recommend to the Income Tax Department that the company should be allowed to write off the cost of the robots purchased in one year. Training facilities in the skills required for the operation and maintenance of automated equipment are also being expanded and upgraded. Our efforts to encourage Research and Development (R&D) are proceeding as planned. More companies today are placing emphasis on R&D. Twenty-one local companies have so far been awarded grants totalling $1.9 million under the Product Development Assistance Scheme (PDAS), while grants totalling $18.6 million have been given under the R&D Block Vote to fund 23 research projects. To further encourage private sector initiative in research and development, the scope of the R&D Block Vote was liberalized. Previously, private companies were required to team up with public bodies such as the National University of Singapore before they could receive financial assistance for their R&D projects. Under the revised scheme, deserving projects can be considered for grants even without the participation of a public sector organization. The first phase of the Science Park was completed at the end of 1983. Twelve standard units of research laboratories were made available for leasing to companies. The DNV Marine Technology Centre, a major tenant in the Park, commenced operations in September 1983, several months ahead of schedule. Companies involved in the development of industrial and educational robots and low-cost microcomputers and related peripherals will take up occupation in the Park this year. Prospects Ahead To remain internationally competitive, our manufacturing industry will have no choice but to become more technology and skill-intensive. The industry will have to face growing competition as a result of increasing automation in developed countries. With large-scale automation, companies in the advanced countries which do not already have plants overseas will have little interest to invest in new offshore capacity. At the same time, increasing protectionism has accelerated the trend towards investing in the markets rather than in lower cost offshore production centres. A "reindustrialization" movement is taking place in developed countries and concerted programmes are being mounted to promote investments in the new technologies. Hence the environment for attracting foreign investments to Singapore will become more difficult. However, so long as our workers are productive and our business environment is conducive to private enterprise, there will always be niches in manufacturing where Singapore will continue to be competitive. These include specialized industries which cannot be totally mechanized as well as industries which are unlikely to go into full automation in the initial years. Our existing base of manufacturing companies is another potential source of new investments as the companies expand and upgrade their operations. We should also examine new opportunities outside manufacturing. One area of activities which has come into prominence is that of internationally tradeable services. Services are not new to Singapore. They account for over 70% of our GDP and over 60% of total employment. Net export earnings from services have increased from $892 million in 1970 to $12 billion in 1982. These are mainly in tourism, port services, air transportation, shipping and warehousing. There are, however, new types of internationally tradeable services which can make use of our modern telecommunication and other infrastructural facilities. EDB has started to promote investment in such services. So far, it has concentrated on manufacturing related technical and engineering services. These included process control instrumentation, oilfield services, aircraft maintenance and servicing, and engineering consultancy. The scope of services to be developed will be broadened to include all types of international services where Singapore has a comparative advantage. TRADE DEVELOPMENT Although the world economy has started to recover, and trade has begun to grow again, protectionist sentiment has not abated. Our exports of refrigeration compressors to the United States were subject to a countervailing duty petition. Charges of dumping were levelled against our exports of ballbearings to the European Community and dextrose monohydrate, a sugar substitute, to Australia. Some of the benefits which we received under the Generalised System of Preferences (GSP) for exports of developing countries were removed or restricted. Our exports of office machine components for example now face higher duties for entry into the US. In Europe a quota was set on the volume of our exports of electric capacitors which could enjoy preferential duty. As a nation committed to free-trade we are naturally concerned about the effects of protectionism on our exports. There is unfortunately little reason to hope that protectionism can be rolled back until the developed countries, particularly Europe, have resolved the problem of structural unemployment in their economies. The Government will endeavour through closer bilateral relations with other countries, to mitigate the problem faced by our firms threatened with protectionist actions. However, the best way to counter protectionism is to improve our productivity. We should also seek out new markets and activities where protectionism is less likely. The Trade Development Board commenced operations last year. To ensure that its policies and services reflect the needs of the business community, the Board is tapping the expertise of the private sector in its work. Five advisory committees comprising representatives from a number of industries were formed to advise the Board on trading and marketing. New services have been launched, for example, a centralised trade enquiry service which provides traders with general market information, documentation procedures and customs regulations of foreign markets. The Board also introduced an incentive scheme to encourage manufacturers to produce brochures of an international standard for overseas promotion. To date 12 companies have made use of the scheme. With the assistance of the Board, Singapore companies continued to participate aggressively in overseas promotion activities such as fairs and exhibitions. In addition, 11 marketing seminars and work- shops were organized to disseminate information useful to our manufacturers and exporters, The Trade Development Board will undertake more of such activities in the coming year. The Board has expanded its network of overseas offices. Two new ones were set up in Brussels and Dubai while honorary representatives were appointed in Sydney, Seoul and Dusseldorf. Efforts to explore opportunities in non-traditional markets were also intensified. The Board is drawing up a plan to increase its overseas representation over the next few years. ASEAN Economic Cooperation Regional trade cooperation under the ASEAN Preferential Trading Arrangements (PTA) continued to strengthen. By the end of 1983, the number of items under PTA had increased to over 12,000 items. Several measures were taken to enhance the contribution of PTA to intra-ASEAN trade. These included deepening the margin of preference of items already under the PTA and in future exchanges from the existing 25% to a maximum of 50%. The ASEAN countries are making headway in the area of industrial cooperation. Under the ASEAN Industrial Project (AIP) Scheme, the Indonesian urea project recently came on stream while a similar Malaysian project is under construction. Details of the Thai and Filipino projects are being worked out. In the case of Singapore, we have identified the production of Hepatitis B Vaccine as a suitable AIP. When formally accepted by the other countries, ASEAN will have its first set of five AlPs. To further increase cooperation, the ASEAN countries recently signed a Basic Agreement on Industrial Joint Ventures which aims to stimulate private investments in the region. MONETARY AND EXCHANGE RATE POLICIES Our exchange rate policy has to balance the twin objectives of minimizing imported inflation and safeguarding export competitiveness. Another major consideration is to ensure that international confidence in our economy is maintained. Faced with the uncertainties in the world economy and in the international financial system, the Monetary Authority sought to maintain a stable and strong Singapore dollar. Keeping a stable exchange rate was not an easy task, given the volatility in currency markets which also saw a few competitive devaluations. There was even speculation in April last year that the Singapore dollar was to be devalued i As it turned out, the Singapore dollar actually firmed against the currencies of our major trading partners and, in particular, was remarkably steady vis-a-vis the US dollar. The strength of the Singapore dollar is a reflection of the Government's prudent financial policy and the soundness of our economy. FINANCIAL SERVICES In the last Budget Statement, I announced a tax exemption scheme for the promotion of loan syndication. All income earned by participants of offshore loans syndicated out of Singapore are now exempted from tax. The scheme has met with encouraging support. The Ministry of Finance has received more than 20 applications under this scheme since it started in April 1983 despite the worldwide slowdown in syndication activities. In view of the good response, I have decided to give further encouragement to similar types of financial activities. The tax exemption scheme will now be extended to cover the syndication of guarantees, performance bonds and certain underwriting activities such as underwriting of floating rate notes and revolving underwriting facilities. To facilitate the growth of loan syndication activities, the Government has continued to be liberal in its admission of foreign law firms to service the legal documentation of loans. Eight more have been admitted since March 1983 bringing the total to 23. It is hoped that all these measures will assist in the development of Singapore into a full fledged syndication centre. Another area for promotion is offshore fund management. In September 1983, a tax exemption scheme was introduced for non-resident investors who have their funds managed by approved Asian Currency Units (ACUs) in Singapore. The scheme exempts all income earned by non-residents from tax provided that their funds are managed by approved ACUs and the income is derived from offshore investment, Management fees of the fund managers will be taxed at the concessionary rate of 10%. Since the introduction; 3 ACUs have been approved under the scheme and five more applications are being processed. The potential for growth in this area over the next few years is good. A US-led world economic recovery should increase opportunities for investments, especially in the Asia-Pacific region where Singapore is well placed to play an intermediary role. To further this objective, efforts will be made to seek more foreign shares and securities to be listed in Singapore. The latest was the listing in the Stock Exchange of Singapore of securities guaranteed by the US Government National Mortgage Association under its Mortgage-backed Securities Scheme. Financial futures will be making a formal entry into the Singapore financial scene this year. The link between the Singapore International Monetary Exchange and the International Monetary Markets of Chicago Mercantile Exchange is the first of its kind, providing close to 24 hours trading in financial futures. Because it is a new area of financial activity, various tax incentives will be given to help the futures market develop in the initial years. Since these are foreign currency transactions, the tax incentives will be in line with those given to promote the offshore markets. To further develop Singapore as an international futures market, the number of futures contracts available for trading could be extended to other commodities. A possible area would be in oil futures. Singapore has large storage and efficient oil handling facilities, and the trading of oil futures contract would be a logical extension of our oil trading activities. On the domestic front, greater automation and computerisation by banks are being encouraged to promote efficiency and productivity. More Automated Taller Machines (ATMs) are in use while computerized cash management/terminals for corporate clients have been introduced. An off-line Electronic Funds Transfer System is being planned for implementation in the middle of this year. This system will simplify, among other things, the payment of bills and salaries by electronic means. Two other systems are being studied and should be implemented before the year-end. One is the Automated Interbank Payment System and the other is the Electronic Funds Transfer at Point of Sale terminals. The latter is the next major step towards a cashless society. TOURISM The sector that has yet to recover from the world economic recession is tourism. In 1983, visitor arrivals fell by 4%. The average length of stay also dropped marginally to 3.7 days. Earnings from tourism, however, increased slightly by 3%. On the brighter side, the growth of our convention and exhibition business was sustained. Last year Singapore was the venue for 350 meetings, 57 exhibitions and 520 incentive groups, The total of 927 "convention-type" events represented an increase of over 50% as compared to 1982. In view of the overall poor performance last year, the tourist industry will have to work doubly hard to sell their services. It will have to find ways to maintain Singapore as a reasonably priced tourist destination which gives good value for money. Hard work done now will bear fruit in future years. Hotel room rates are beginning to ease and this should help tourist promotion. I am pleased to note that hoteliers and travel agents are intensifying their overseas marketing activities. In addition, the quality of the work force in the industry will improve with the establishment of the Singapore Hotel Association's training school. The Singapore Tourist Promotion Board will on its part cooperate closely with the tourist industry in promotional and other efforts both abroad and in Singapore. The Board will intensify its promotional activities in the United States, Europe and the Asia-Pacific region. Two new overseas offices will be opened in Osaka and Taipei this year. COMPUTERIZATION The Civil Service Computerization Programme is making good progress. We have significantly increased the pool of computer expertise in the public sector. Ministries and departments are beginning to benefit from the programme. The National Computer Board (NCB), the System and Computer Organization of the Ministry of Defence and the Institute of Systems Science are carrying out joint research in software engineering. The work will not only help computer professionals in the Civil Service to improve their productivity but will also set the pace for applied research in the local software industry. Our institutions are progressing well in the training of computer professionals. The curriculum of the Computer Science Department at NUS has been revised to provide students with more practical skills required by the industry. The first batch of 50 students from the Japan-Singapore Institute of Software Technology graduated in February 1984. The Institute of Systems Science has already produced two batches of about 75 Systems Analysts each with a third batch graduating in August this year. The Institute's new building will be completed by July to enable it to implement its expansion plans. The Centre for Computer Studies in Ngee Ann Polytechnic will graduate its first batch of about 110 students in September this year. Computerization in the private sector continued to grow. The NCB estimated that there are now about 2,600 firms using computers as compared with 2,000 in 1982. Computer utilisation is expected to increase as more companies take advantage of the incentive announced last year which enables capital expenditure on computers and office automation equipment to be written off in one year. MANPOWER DEVELOPMENT In my past Budget Statements, I have repeatedly emphasised the importance of manpower development. This is because our economic growth depends crucially on how fully we maximize the potential of our population through training and educaion. I am pleased to report that we are beginning to see an increasing number of trained young men and women coming out from our educational and training institutes. By 1985 the National University of Singapore, Nanyang Technological Institute, Singapore Polytechnic and Ngee Ann Polytechnic will be producing twice as many graduates when compared to 1980. Once these graduates have acquired the necessary working experience, they will provide the managerial, supervisory and technical expertise for the new industries. Skilled workers will also be available in greater numbers from the VITB and the EDB training centres. The current shortage of professional, technical and skilled manpower will therefore ease in a few years. Apart from the increase in number, the realization of our training and education plans will bring about significant changes in the quality of our workforce. By 1985, output of "graduate" manpower will constitute about 15% of the total input into our labour force. Technicians and skilled workers will account for 65% of the now workers. We are now better equipped to pursue the restructuring of our economy. In the Seventies, we promoted investment on the basis of low wages. Henceforth, we will be able to attract better quality investment on the basis of a pool of well-trained and skilled manpower. The quality of the investments which we have attracted in the past few years will have considerable impact on the structure of our economy in future years. While placing emphasis on the training and education of professional, technical and skilled manpower, we have not overlooked the upgrading of our existing work force. Last year, we launched a pilot Basic Education for Skills Training (BEST) programme to enable workers who did not complete their primary schooling to attain basic standards in English and Mathematics. The rationale behind this programme is that workers who lack the basic numeracy and literacy skills will find it increasingly difficult to undergo retraining and adapt to more advanced technology. Response to the pilot BEST program was encouraging with a total enrol- ment of 23,000 in 1983. In view of the good response, the BEST programme will be expanded in 1984 to take in about 40,000 workers. The training of our workers should not be considered as having ended when they leave our training and educational institutions. Training must be a continuous pro- cess and is best provided at the workplace. No amount of training by public institutions can take the place of in-company training which is better tailored to the needs of the business. Consequently, the Skills Development Fund (SDF) has provided generous support to companies prepared to undertake training for their staff. Last year, employers were encouraged to formulate total, rather than ad hoc, training plans, which could be fully integrated with their development plans. SDF grants will be paid in advance to help them to carry out their plans. The SDF also continued to encourage industry groups to sat up their own permanent training centres. In this respect, the hotel industry training and education centre was successfully set up in 1983 and there are plans to got up and upgrade similar centres for banking, insurance, construction, trading and manufacturing. While our long-term aim is to train our people to their fullest potential, we should not close our doors to talented foreigners who can make an effective contribution to our economy. Over the years, we have benefitted from the influx of talented foreigners who have come to Singapore first to seek work and then to make this island their home. Given our small population and the more than abundant job opportunities in our growing economy, we should continue with this liberal open-door policy. In particular, we should welcome those foreign professionals and skilled workers who have cultural values compatible with our own and who can be easily assimilated into our society. Apart from adding to our talent pool, the presence of good quality foreign professionals will provide the necessary competition to spur our own population to greater heights of achievement. WAGES One of the fundamental requirements for success in our economic restructuring is to ensure that better work is rewarded with better pay. Wages should be determined as much as possible by market forces. Only then will we be able to allocate our scarce labour resources to the more productive industries. The National Wages Council (NWC) has served us well in the past in moderating wage increases at a stage of our development when we had to compete in the world market on the basis of low wages. As we have now to compete on the basis of a skilled, better paid and more productive workforce, we must allow market forces to determine our wage level. Hence, we started last year to move away from the tripartite collective wage negotiations conducted at the national level and instead to promote union-employer wage bargaining at the individual company level. Towards this direction, Government representatives on the NWC played a less active role in determining the wage guidelines. Nevertheless, while we believe in direct bargaining as a way to introduce more market considerations in wage determination, it would be dangerous to rush the process. Direct wage-bargaining will be allowed to evolve in accordance with the readiness of employers and unions. PRODUCTIVITY As reported earlier, our productivity performance last year was gratifying. While an increase in our productivity was expected as a result of the economic recovery, the final results nevertheless represented significant gains in efFiciency obtained through greater automation and mechanization. This was particularly so in manufacturing and transport and communications where the labour force actually shrank despite an increase in output. Given our limited manpower resources and our intention to have a wholly Singaporean workforce by 1992, we must sustain the productivity gains if we are to continue to have good rates of economic growth. The National Productivity Board through its various activities, will help to mould workers' attitudes and instil in them the will to be more productive. In this respect, it is encouraging to note that a national survey on "Productivity Will" conducted in September 1983 revealed that most employees possessed positive work attitudes. The increased awareness of the importance of productivity was reflected by the four-fold increase to 1460 in the number of Quality Control Circles (QCC). Response to NPB courses and seminars on productivity was also encouraging. In view of the positive attitudes of our workers towards productivity improvement, it is up to employers to respond in kind by better management methods and investments in capital equipment and training. In respect of capital equipment, the Government will provide the necessary tax incentives and financial assistance. Companies will be failing in their duties if they do not take advantage of the incentives provided to upgrade productivity. In particular, companies in the commerce and retail sectors should make a special effort as productivity in the sector has lagged considerably behind the rest of the economy. To help them, I allowed expenditure on computers and office automation equipment to be written off in one year in the 1983 Budget Statement. This year, I propose to extend to all sectors the option of accelerated 3-year depreciation of equipment purchased which is presently enjoyed only by manufacturing enterprises. The details will be outlined in Part III of my Statement. ENERGY & WATER Oil prices did not rise in 1983. This was a welcome relief for consumer nations like Singapore. Under mounting pressure from the continuing glut in the market official oil prices were in fact reduced early last year. Singapore benefitted from the reduction. For the second time within a year, we were able to reduce electricity tariffs by as much as 9% for the lowest tariff block. 1984 should see another year of stable energy prices for consumer countries. This will provide favourable conditions for continuing economic growth and low inflation. Whilst the easing of oil price was a boon to our economy, it should not be allowed to dampen our drive for energy conserva- tion. Last year, whilst the economy grew by 7.9% compared with 6.3% in 1982, total electricity consumption rose by 10%, twice the rate of 1982. To a large extent, this was due to greater mechanization and automation, the installation of now plants, brisk construction activity and the opening of several commercial complexes. However, the trend is worrying as it will increase our dependence on oil and undermine our competitiveness if prices start to rise again. We must therefore continue to pursue energy conservation earnestly. In May this year, another Energy Conservation Campaign will be held to remind the public and firms of the need to conserve and to use energy efficiently. We will also have to see if there are measures similar to the OTTV (Overall Thermal Transfer Value) surcharge which can be adopted to induce energy efficiency. This measure has had notable success in enforcing energy considerations in the design of buildings. Of the 200 buildings that originally did not comply with standards, only nine were still paying the surcharge by the end of 1983. Last year, I drew the House's attention to the relentless rise in our water consumption and the limited land that we have for water catchment. We experienced a dry spell in the first half of last year and domestic water consumption rose by 7% in 1983. The PUB held a Water Conservation Campaign in September to drive home the message that we need to be frugal in our water usage. The Board also mounted an exercise to encourage companies to use industrial water. Five companies with large water consumption have agreed to install facilities to receive industrial water. There are plans to extend the industrial water network to Tuas. The Government has further decided to grant a 50% Investment Allowance to commercial and industrial enterprises which install plant or equipment that can save water by a substantial margin. With economic growth and rising standards of living it will not be easy to moderate the growth in water consumption. However, we should not lose our resolve for conservation as, without large water resources of our own, we have no choice but to be frugal in water usage. CONSTRUCTION The construction industry continued to perform impressively. The public housing programme is proceeding according to plan. In 1983, HDB completed a record 40,000 flats. This year, it expects to deliver another 48,000 units. With work on the MRT coming on stream, major developments in and around Marina Centre and the accelerated public housing programme, the construction industry will be kept busy again this year. The industry was able to meet our expectations because of expanded and improved productivity. Building materials were in abundant supply and prices were kept down. Contractors were able to bring in more foreign workers to meet their labour needs. Many reputable overseas contractors have set up operations here to tender for public and private sector contracts. Apart from keeping tender prices low, their presence also benefits the industry through technology and knowledge transfer. The Government's call for mechanization received good response. Forty-five applications for investment allowance have been received involving capital expenditure amounting to $74 million. With increased mechanization, our construction workers were able to turn in a considerable productivity growth of 9% in 1983. The construction industry, however, has a long way to go to catch up with productivity in other sectors. The Government is therefore setting up the Construction Industry Development Board to upgrade the building industry. Apart from reviewing standards and building regulations to adapt them to industrialized building technologies, the Board will also encourage the private sector to set up factories to produce prefabricated and precast components. In this connection, I would like to reiterate that the Economic Development Board will provide tax incentives for supporting industries which manufacture construction components. Another major task is the training of construction workers. The Construction Industry Training Centre has received encouraging response from Singaporeans. Many employers have also agreed to provide on-the-job training. I the response and support continue to be good, the Government will consider setting up a second training centre to teach more specialized construction skills. Of special significance for the industry was the start of construction on the MRT project in October 1983, a mere 11/2 years from the time that the decision to proceed was taken. Implementation of the MRT was timed so as to take advantage of low tender prices arising from the recession. A total of 10 contracts were awarded in 1983, at prices well below original estimated cost. Another gratifying factor was the extent of local participation. Of the 10 contracts awarded in 1983, five were joint ventures with local partners. This augurs well for the effective transfer of technology and specialist construction skills. The construction industry, like the other economic sectors, must thrive on free market competition. The Government's role has been and will continue to be a supportive one. Contractors should take advantage of Government incentives and assistance to venture into new building systems. They can best succeed if they also build up a permanent workforce of skilled Singaporeans. CONCLUDING REMARKS Mr Speaker,Sir, this time last year, I took a gloomy view of the world economy. I noted that protectionism was rising. The international financial system teetered on the brink of a breakdown. The US economy showed no signs of recovery. In the event we performed better than expected. However, notwithstanding the widespread optimism that seems to be the fashion in international financial circles today, I am not yet persuaded that we are out of the woods. Protectionist sentiment in the industrialised countries has not receded. The problem of a high level of international indebtedness still hangs over us although, fortunately the international monetary authorities and financial institutions have managed to contain the crisis so far. The unexpected strong turnaround of the US economy in 1983, brought about by a surge in consumer spending, has given the world a respite. There are, however, doubts over how long the recovery will last. A crucial element is the course of American economic policy in the run-up to the Presidential elections. If the huge US federal budget deficits are not reduced, interest rates will remain high and this can stall the economic recovery. In Singapore we face a serious problem of labour shortage which can set a limit to our growth potential. The repatriation of unskilled and semi-skilled foreign workers from non-traditional sources must go on if we are to succeed in our economic restructuring. This means that future growth can only come from productivity improvement. Singaporeans must therefore work hard and be more productive if we want to continue to better our standard of living. If we do not slacken we can ensure that the growth we achieved in 1983 will continue into 1984. Mr Speaker, Sir, this concludes the first part of my Budget Statement.