Hansard, 1989-03-14

In accordance with the provisions of paragraph (7) of Standing Order 87 and paragraph (5) of Standing Order 88, I have fixed the times for the conclusion of consideration of the heads of expenditure in the Main and and Development Estimates of Expenditure for FY 1989/1990 in the Committee of Supply. These times have been notified to hon. Members and will appear in the Official Report (Cols. 201 - 204). Committee of Supply - MAIN AND DEVELOPMENT ESTIMATES OF EXPENDITURE FOR THE FINANCIAL YEAR 1ST APRIL, 1989 TO 31ST MARCH, 1990 (Cols. 201 - 204)

asked the Minister for National Development whether a signalized zebra crossing will be installed at Simei Street 3, near Changkat Primary School.

Mr Speaker, Sir, the PWD will signalize the junction of Simei Street 3 and Simei Street 1 in June 1989. Students living in nearby HDB flats will then be able to cross Simei Street 3 at this signalized junction for Changkat Primary School which is within walking distance.

The following Question stood in the name of Mr Chiam See Tong - 2. To ask the Minister for National Development whether he will consider converting Singapore's only hot spring at Sembawang into a tourist attraction and/or recreational centre.

Question No. 2, Sir.

Mr Speaker, Sir, the land on which the hot spring is located used to belong to Fraser & Neave. In 1985, it was acquired for MINDEF's use. However, MINDEF has agreed to allow F & N to continue to draw the water from the hot spring by piping it to their factory for bottling. The bottling plant is located on a site adjacent to the acquired land. If, after finalizing its plans, MINDEF is able to release some of the acquired land, my Ministry will consider developing the released land for recreational use. The water from the hot spring can be piped to such a development without the spring itself being accessible to the public.

asked the Minister for Communications and Information whether the Telecommunication Authority of Singapore will install public telephones at the void decks of all the Housing and Development Board blocks in Simei Housing Estate.

Sir, the answer is yes. Telecoms will install public pay phones at all new HDB blocks with void decks in Simei Housing Estate. There are already 42 such phones in the estate. The remaining 16 blocks will also have public phones by the end of the month.

asked the Minister for Finance if he will state which fully Government owned companies have been privatized either partly or wholly and what amounts Government has been paid in each case.

Mr Speaker, Sir, from November 1985 to January 1989, the Government has partially divested its shareholdings in three fully Government-owned companies. These are Singapore Airlines Ltd, Resource Development Corporation Ltd and Singapore National Printers. The total sales proceeds from these divestments amounted to $850 million.

Sir, has the Government any plans for more divestment this year?

The Government's policy on divestment has been stated. It has not changed. Divestments will continue in the future. The precise timing of these divestments will depend upon market conditions and detailed studies being undertaken right now.

asked the Minister for Finance if he will state the partly Government owned companies in which the Government has given up its shareholding and the amount received in each case.

Mr Speaker, Sir, from November 1985 to January 1989, the Government has divested its shareholdings in 24 first and second tier companies which were partly Government-owned. Of the 24 companies, 17 were fully privatized and 7 partially privatized. The total sales proceeds from these divestments amounted to $430 million.

asked the Acting Minister for Health if he will give the maternal mortality figure for 1988 and what steps he is taking to redress the situation.

Mr Speaker, Sir, a maternal death is defined as the death of a woman while pregnant or during delivery or within 42 days of delivery or termination of pregnancy, from any cause related to or aggravated by pregnancy. The maternal mortality rate refers to the number of such deaths per thousand live and still births. In 1988, there were 8 maternal deaths, giving an estimated maternal mortality rate of 0.15 per thousand live and still births. In addition, three women died of medical causes within 42 days of delivery, but their deaths were not in any way related to the pregnancy or delivery. The maternal mortality rate for Singapore has ranged from 0.05 to 0.2 per thousand live and still births since 1976. The 1988 rate of 0.15 compares favourably with an overall rate of 0.3 per thousand births for the developed countries and 4.5 per thousand births for the developing countries. All maternal deaths are investigated thoroughly at hospital and Ministry levels. Corrective actions where necessary, are taken immediately to ensure that we continue to have a high standard of obstetric practice.

Sir, will the Minister confirm that he is not alarmed and that medical facilities are adequate now that we are promoting more births in Singapore?

Sir, yes, the Ministry is in fact quite happy with our figure. Because the 1988 figure is only about half the rate of the developed countries. This shows that our facilities are of a high standard.

asked the Minister for Finance (a) what proportion of the total Singapore budget revenue is represented by amounts collected in personal income tax and amounts collected in corporate taxes for the last 12 years; and (b) whether he will publish such information in the annual reports of the Inland Reveneue Department in future.

Mr Speaker, Sir, I can only provide the information requested for FY 86 and FY 87. In earlier years, tax collection data was only broken down into major tax categories such as income tax, property tax, stamp duty, etc. Further breakdown into sub-categories would require data extraction manually and I do not propose to do so as it is time-consuming and costly, unless Dr Lee has a specific reason for wanting the data. In FY 86, personal income tax and corporate income tax collected were $852 million and $1,321 million respectively, and they accounted for 8% and 13% respectively of total Government revenue in that year. In FY 87, the corresponding figures were $962 million and $1,487 million, or 7% and 12% respectively. The Finance Ministry will arrange for such information to be published in the Annual Report of the Inland Revenue Department in the future.

Order read for Resumption of Debate on Question [3rd March, 1989] [2nd Allotted Day], 'That Parliament approves the financial policy of the Government for the financial year 1st April, 1989 to 31st March, 1990.'. - [Minister for Finance]. Question again proposed. 12.40 pm

Mr Speaker, Sir, in the Budget speech, the Finance Minister stated quite clearly that the high economic growth that we have achieved last year was due to a surge in external demand. Indeed, if we look back over the last 10 years, apart from 1985, economic growth for Singapore has always been dependent on the degree of external demand that we can meet. Similarly, in the next 5-10 years, our future growth will have to be dependent on our ability to meet this external demand. We must therefore remain competitive vis-a-vis other countries which are fast catching up. We have to compete with Hong Kong, Korea and Taiwan. Of late, Thailand has come into the picture, and even Malaysia, after its downturn in the last several years, is showing signs of revival. Compared to Singapore, these countries are much more flexible in being able to adapt to external factors, mainly because their resources, whether in manpower, land or other infrastructural support, are far more abundant than those we have in Singapore. Their costs of doing business because of these relatively cheaper resources are at most times lower than ours. We in Singapore have not got this flexibility. If we look at the causes of our recession in 1985, we will see that one of the major factors why we had not done well that year was because of our high costs, in particular labour. It was only through some severe measures of curtailing wages that we were able to restore our competitiveness vis-a-vis other countries. The question is how long can we carry on in this way. If external demand does fall and if we are not flexible enough to adapt ourselves, we will lose the market to other countries in the region. In the Economic Committee's Report in 1985, there were many measures recommended and subsequently implemented to revive the Singapore economy. And we are all pleased to say that all these measures have the desired effect. We are once more competitive. But in the euphoria of high growth in the last two years, there has been some concern expressed, especially in the business sector, that the Government may be pulling back a bit too fast in withdrawing some concessions that were introduced in 1985 and introducing new ones, such as increased levy on foreign workers, additional contribution of CPF, the latest being the first signs of consumption tax being levied. If we look at the growth rate in the first quarter of this year, as the Minister has also pointed out in the budget speech, there are already signs that we may be slowing down. The question that we want to ask ourselves is whether, in having to absorb some of these new measures, our flexibility would be reduced. And if external demand falters, whether we will be in a position to get a fair share of our export market. One has to note that some of these measures, the ones on CPF, foreign workers' levy and the ratio of foreign workers to domestic workers, once introduced are not likely to be pulled back easily. If we cannot do a turnabout in the space of one or two years, we will find that we will be at a disadvantage once again. And, as against other countries in the region, we will not have other balancing factors to improve our competitiveness. Sir, the economic growth of a country like Singapore depends very much on the private sector and its initiative to promote industries and services and, in particular, to be in a position to export. Hence, the main aim of the Government must be to enable the private sector, in whatever 0investments they are in, in whatever industries or services they are engaged in, to achieve a satisfactory return on its business. The high cost of doing business through levies of one kind or another will eventually erode these returns and the private investor, after suffering such erosion, may have no choice but to redirect his investment to other countries that yield better returns. There is nothing wrong in the private business making money or achieving a satisfactory return on investments. But in the past few years it seems that there is a perception, that is, when the Government sees that some of the industries are recovering from the doldrums of the recession, the Government thinks that perhaps this is now the time to make sure that the private business does not earn too much money, and therefore soaks up some of the profits by way of levies and statutory contributions. (I must declare my interest because I am also in the private business.) I think this is the perception that many people in the private sector seems to harbour, and the pulling back of these measures within so short a period of time after the recession cannot but give the private sector an indication that in bad times the measures will be effected but as soon as there are signs of recovery this will be taken back. I think we can take this short term view if our industries are in Singapore for short term purposes. But if the private sector is to stay here on a long term basis, then Government policies which affect their well-being must of necessity be also of a long term nature. One possible solution is perhaps to tamper the increases of these levies or the restoration of these levies by spacing them out. Because knowledge is never perfect. Industries have different competitors, are in different competitive positions, and each and every one of them will have to adapt its own way of doing business in accordance with the general Government policy. In the absence of exact knowledge, I think it may be discreet to allow these cost increasing measures to be spaced out over time so that industries have a longer time to prepare and absorb the effects. There is no doubt that the current budget is a happy budget despite some reservations on the measures which I mentioned just now. But I think the key to survival in the long term for the private sector is really that they must be put in the position where they can improve their own businesses vis-a-vis competitors in the region without having to fight on the home ground and to find ways and means of absorbing these increases at the risk of blunting their competitiveness. The question of labour shortage has been mentioned by many a Member in this House yesterday, which is probably the main cause of the problem that we are facing in the private sector today. The shortage of labour not only restricts the amount of labour but also increases the cost of labour in doing business. Frankly speaking, I do not have the answer. I am not too sure whether the Government has the answer too as to how to allocate the scarce labour resources to the industries and services on the one hand and on the other hand to balance the maximum number of foreign workers that we will allow. I think perhaps if I may suggest to the Minister that in the coming year we can enter into a more detailed dialogue with the industry and services because it is only through this dialogue discussion where we can determine the peculiarities of industries as to their labour requirement and in toto we will be able to come up with a labour policy that is flexible enough and yet serve both the requirement of the Government and that of the private sector. On this note, may I congratulate the Minister for a happy budget and look forward to more pleasant ones to come.

Mr Speaker, Sir, I would like to join my other colleagues in this House to congratulate the Finance Minister for his practically painless budget. Sir, since I came into this House in 1980 this is the first time that the Budget Statement has been so thoroughly discussed after it was delivered on 3rd March 1989. Sir, the Finance Minister even went on television last week to discuss this subject with a panel. Maybe the Finance Minister has good reasons for debating it in public before the debate in this House. Sir, like other Members in this House, I welcome the various measures and concessions made by the Minister. Nevertheless, I would like to comment on a few of them. First, let me take corporate tax. This reduction with effect from Year of Assessment 1990 from 33% to 32% is a welcome one. It would appear, Sir, that this modest reduction signals that the corporate tax will gradually be reduced in the longer term if economic conditions allow. Sir, if I may be permitted to say, the Financial Secretary in Hong Kong is popularly known as Mr Half Per Cent and I sincerely hope that the One Per Cent label will not be stuck on to our very generous Finance Minister. Next I turn to property tax. The decision to extend the rebate to 30th June 1990 and, with effect from 1st July 1990, property tax rate to be reduced from 23% to 16% and the 4% flat rate - all appear to be on paper concessions but, in reality, are they concessions? The property tax at the rate of 16% is still higher than the 23% with a 50% rebate. Effectively, Sir, the property tax burden will increase by 4.5% of the annual value of the property. This, I believe, Sir, will push up operating costs and to some extent erode competitiveness. The impact of this will be even greater if the annual value of property is to be stepped up with the buoyant property market. Sir, the 4% concessionary rate on non-HDB owner-occupied residential properties has also the same effect of increasing property tax on such properties. Additionally, under the current situation, Sir, revision of annual value does not impact on the property tax payable. But with the 4% rated property tax, this I believe will be pegged to the annual value, thus increasing the burden on the property owner with a possible upward revision of annual value. Sir, on the CPF I fully agree with the Minister that we should prevent the scheme from being used as a tax shelter. My colleagues, Dr John Chen, Mr Leong Horn Kee and Mr Loh Meng See have spoken very strongly on this subject. I would urge the Minister that in preventing abuse, innocent people should not be unduly penalized. Maybe the Minister can consider amending the CPF Act to peg the CPF contributions on additional wages to a ceiling, a fixed percentage or a fixed sum, say, $40,000 per annum. Sir, this I feel will go a long way not to upset the present system and at the same time not defeat Government's move to encourage flexi-wage. Sir, on consumption tax, much has been said. The re-instatement of the tax on PUB and TAS bills signals the shift of Government policy from direct taxes to indirect taxes as a source of revenue. However, Sir, while corporations enjoy a 1% corporate tax reduction, they are exempted from the consumption tax. On the other hand, the ordinary employee has to bear the burden of such taxes, without the direct burden of taxation being reduced. My question is, is this consistent? Sir, overall, as far as consumption tax is concerned, I am satisfied that the Government has adopted a very cautious approach and I hope that it will continue on this cautious course. Sir, next I turn to the subject of pay increases for civil servants and, possibly, Ministers. I would say from the outset that there is no way that the public sector can match the remuneration in the private sector. If I may plagiarize Kipling, let me say, Private sector is private sector, public sector is public sector, and never the twain shall meet. Sir, I do not oppose salary increases for civil servants and Ministers. I think they deserve it. But when comparisons are made with the private sector, it must be made between apples and apples. Comparisons must be made at a number of levels, not only at the top in each profession. Sir, I would like to make the following comments as far as civil servants' salaries are concerned. The responsibilities of civil servants are enormous. However, it must be pointed out that, unlike politicians, civil servants are relatively secure in employment and this must be taken into account in any wage comparison. There is less security of tenure in the private sector, as far as I know, when compared with public sector. Sir, as a result of this, I think it is absolutely necessary for the Government to delink the salaries of civil servants with those of Ministers and other political appointees. At this point of time they appear to run on parallel tracks. In fact, grade for grade, you can identify a civil servant with a politician. As for Ministers, Sir, I support some increases in salaries for them and, more importantly, apart from salary increases, I frankly think it is necessary to give them some of the trappings of office, possibly cars. You see Ministers driving around in their own cars. I wonder what will happen if they get into an accident. Maybe some trappings of office, like a car, chauffeur, and maybe even an official residence in keeping with their status, rather than just upping salaries. In the private sector, Sir, salary means a total package. So if you want to compete with the private sector, why not compete on the basis of a package rather than just upping salaries. Mr Speaker, Sir, in conclusion, I would urge the Finance Minister to seriously consider delinking the salaries of civil servants from those of politicians.

Thank you, Mr Speaker, for giving me this opportunity to speak. I rise to speak in support of the motion by the Minister for Finance. The Minister in his budget statement has nailed to rest allegations that this is a Pay-And-Pay Government. The various reliefs which he has given and the general sigh of relief from car owners (temporarily, of course) show that this is a hard-headed Government that is readily prepared to adopt appropriate and correct fiscal policies to achieve social objectives. This finally must be the test of good financial statesmanship. Yet most certainly we have not heard the last, for there is nothing more certain in life, I was told, than death and taxes. A school teacher of mine once said that one does not have a good life until one has a good death. May I add that we do not really know we have a good Government until we have good taxes. The Minister was rightfully cautious regarding 1988 in his last Budget and as it turns out the Singapore economy has done better than expected to achieve the highest growth rate in a decade. The characteristic prudence exercised by the Minister in the Budget is reflected in the deficit position of $1.6 billion in 1987 to a surplus position of $1.3 billion in 1988. This surplus position is a good break from the earlier two years of deficits in 1986 and 1987. At the same time, the proportion of Government expenditure in GDP has fallen from 32.9% in 1987 to 24.4% in 1988. In 1989, the ratio of about 24% is expected to be maintained. This robust performance of the economy is a result of significant growth performance of the private sector, a growth derived largely from record investment and strong exports. The reason for private sector performance in attracting foreign investment and achieving exports is due to our competitiveness, as underlined rightfully by the Minister. It is with regard to keeping Singapore internationally competitive that regulatory costs should be minimized. Our adjustments, such as employer's CPF contribution, foreign workers levy, should bear in mind this underlying dependence on international competition. The Government states that due to resource constraints, our long-term growth rate is between 4-6% based on labour entrants and productivity increase. It seems to me that unless the Government is prepared to put into practice this sensible target, we are not going to solve our long-term economic growth, labour and productivity problems. 4-6% is a very reasonable, sustainable growth rate for our economy at this stage. However, we only seem too eager to exceed it. In economics, we cannot have our cake and eat it. As our economy grows by about 10% per annum the factors which account for this growth can, among others, be attributed to investment and foreign labour. The EDB is doing a good job at attracting investment with a record investment commitment in 1988. Can the economy sustain this without drawing more foreign labour? With the foreign levy increasing and the foreign labour dependency ratio reduced, domestic wage will be forced up with no correspondence to productivity. The danger is real, therefore, that as a result of the structural rigidities and the crowding out effect, we are forced into a wage spiral with the foreign levy tail wagging the economy dog. The Minister in his Budget has mentioned that the Government is committed to containing the growth of the public sector in spending and employment through improvements in productivity, mechanization and computerization. Perhaps this orientation of the Government to contain growth can be applied in a wider context in the overall economy. Will the Government be prepared to regulate foreign investment from overseas and evaluate the social benefits/costs of foreign investment commitment? In this evaluation, the Government must be prepared to accept a lower growth rate for the economy through forsaking, postponing or scheduling some of the investment projects so as to contain the foreign labour problem and to achieve our wider social, economic objectives in economic growth. Last year, according to the Minister, more jobs went to foreign labour than to local labour in the manufacturing sector. Raising the levy to tackle the influx of foreign workers seems to be a case of the doctor trying to cure the symptom rather than the cause of the illness. One of the major causes of the demand for foreign workers is the investment projects that come on-stream each year. The EDB is doing a fantastic job of bringing in foreign investment. Manufacturing investment totalled a record $2 billion in 1988, a large part of it is from the foreign sector. The Minister has expressed concern that we should be wary of the political and social cost of such influx and dependence on foreign workers. Perhaps it may even be necessary to regulate the flow of investment of certain value and of labour requirements. This will enable the economy to digest the labour shortfall currently experienced. A Board of Investment to regulate the investment injection into the economy, both public and private, may be appropriate at this stage. Such a board may even evaluate and decide on the suitability of certain investments based on a set of criteria, from time to time updated by the Government in consultation with the private sector, responding to changing circumstances and the shifting balance of international trade and competition. This regulatory control will mean an even, and possibly, though not necessarily lower growth, more nearer to the 4-6% long-term sustainable target of the Government. It will also put into the economy certain stabilizers so that we will not always be worrying about whether the economic growth will hit 10% with all the distortions and expectations caused to the economy on account of the labour shortfall. It is more meaningful at this stage of our economic growth to aim at stable growth rather than high growth because we have already achieved full employment with more than a sufficient buffer. To aim at stable growth rate makes it easier to plan and easier to translate our productivity effort to the labour force and to consolidate the technological content in our economic growth. However, while the preparedness to go for a lower growth is present, we should not let up our programme of restructuring. The effort to upgrade and train our own workers to be more productive and the efforts at automation and capital intensity should raise our total factor productivity. Gradually, with a lower growth rate in the GDP and raising productivity, our real growth in indigenous disposable income per capita, net of all levies, should rise faster than what is apparent in GDP per capita. The Minister has mentioned of the need to put in place a regime of consumption tax in the next few years so as to widen our tax revenue sources. The concern springs from the need to reduce direct taxes to remain internationally competitive and to raise expenditures substantially on health and other social services. In principle, the introduction of the consumption tax must be supported. For the long-term incentive for the private sector, the consumption tax is more appropriate than the direct tax on income because it taxes those who use up economic resources in consumption rather than on those who work hard to produce goods and services to generate income. In general, it provides a greater incentive to save because for a given rate of tax, the rate of return for the saver on his reduced consumption is higher than the case when the saver is taxed on income, when evaluated as a rate of return on postponed consumption. However, in introducing the consumption tax, the Government should be careful about three points. Firstly, it should not be too regressive so that in applying a given tax rate on goods and services it weighs unequally on the rich and the poor. The Government can take care of this by setting rates and limits wisely. For example, in applying a tax on utilities on $40 it should consider what is the utility charge for the average household income at the 25th percentile. This is to validate 1DPM's policy of raising the standard of living of the bottom 25% of the population. Certain basic goods and services needed by the poor, who are usually unable to save, should not be taxed or taxed very lightly. Secondly, in implementing the consumption tax, the Government should consider the impact on prices. In effecting a value-added-tax or a general sales tax, competitiveness of our exports should not be eroded. Also it should not be taxed such that the competitiveness of our foreign trade sector is affected. Such an outcome can only be achieved by not levying a value-added-tax in our exports while imports should be subject to a VAT at a given exchange rate. Thirdly, the Government should not rush the scheme with its characteristic efficiency. It should take its time bearing full view of the possibility of a general rise in prices and the differential impact which this tax will have on different sectors of the economy and the population at different times. It would require considerable political skill of the political leadership to phase it in. Mr Speaker, Sir, I support the motion.

Mr Speaker, Sir, I rise in support of the Government's financial policy presented by the Minister for Finance. Sir, my colleagues have covered much ground yesterday. I agree with most of the views expressed by my hon. colleagues on the various tax measures which are being announced. I shall confine myself to a discussion on the proposed implementation of some form of broad-based consumption tax. I speak in support of the proposed implementation and I think this should be implemented speedily whilst the economy remains strong. The principle of a shift from reliance on direct taxes on income to be complemented by a broad-based consumption tax should be supported. However, the shift must be clearly linked. The implementation of the consumption tax must be linked to corresponding changes in tax rates and personal reliefs. I urge the Minister to view the consumption tax as a growing source of alternative revenue, and not as additional income. I fear that the Minister for Finance, when he spoke of the consumption tax as a stable source of revenue which is less sensitive to economic fluctuations, he is moving from the position when he first broached the plan to impose a tax on consumption to shift the tax burden. It now appears that the tax on consumption is going to be an additional source of income without a corresponding change in direct tax rates. The Minister has in no uncertain terms stated that direct taxes will only be reduced as long as we can remain internationally competitive. Sir, many countries have found out the high cost in the form of brain and talent drain as a result of high direct taxes on incomeand are shifting from direct tax to tax on consumption. Even Japan has passed legislation to impose a 3% sales tax. The high cost of direct taxes does not reward adequately effort and enterprise so that talent has been lost as the more talented and enterprising leave for countries with lower taxes. This phenomenon is not unexpected. A lowering of personal tax rates will not only help us retain our enterprising and talented but it will be an attraction to enterprising foreigners. Even governments in developed countries are reaching for the talented from outside. With a small talent pool, we must take the lead and be a step ahead of the competition when it comes to making ourselves competitive on tax rates. Sir, I am mindful of the effects of consumption tax on the lower income. To this group we can mitigate the problem if we increase the level of personal relief. There is strong argument to increase the personal relief which has remained at $2,000 for too many years. The shifting of taxes to tax on consumption will negate the Government's argument that an increase in personal relief will result in a narrowing of the tax base. In fact, a broad-based consumption tax will bring in almost the entire population into the tax base. Therefore, there is a case to argue for a substantial upward revision of the personal relief which is presently $2,000. I estimate that a $1,000 increase in personal relief will compensate for nearly $3,000 of annual personal purchases if a 3% sales tax is levied. Sir, such a shift to consumption tax will in fact bring in a larger number of taxpayers into the tax base. Presently, a large number of Singaporeans are paying little or no taxes. These are the self-employed and although some are no doubt successful, they are paying rather low taxes or no tax at all. With the imposition of a consumption tax, this group will bear a more proportionate share of the Government's revenue. Instead of being purely regressive, by bringing in the successful self-employed, the mix of direct taxation and a consumption tax may be viewed to be less regressive. Whilst I support the implementation of some form of broad-based consumption tax, I am also mindful that the less fortunate in our society must be adequately protected. The increased personal relief will go some way towards mitigating the effect of the tax on the lower income. However, for those who are on public assistance and are not presently paying taxes, there must be an increase in the level of support so that they will not be adversely affected. The increase in public assistance should go some way towards minimizing the effect of the tax. Therefore, I think the level of public assistance should be reviewed. The Minister has taken note by the implementation of the 5% tax on public utilities and exempting those bills below $40 a month. Since the tax will bring in only $7 million, the exemption level should have been pegged at a higher level of, say, $50. Moreover, the exemption level does not take into account the possible increase in utility rates and the vagaries due to the fact that consumers are billed on estimated consumption in some months. For example, an estimated consumption in one month of, say, $35 may result in a $43 charge in the following month if the actual consumption per month is only $39. So, because of the estimates, a 5% tax on $43 is levied. From the business sector, there is a fear that the implementation of the consumption tax will have an adverse effect on the tourist industry. However, this depends to a large extent on the level of the tax and the facilities available for departing tourists to redeem the tax. If the level is low and facilities are made available for departing visitors to obtain a rebate, then the effect on the industry is minimal. I am confident that the Minister will take the tourist industry as a major factor in his consideration. In summary, Sir, I support the implementation of some form of broad-based consumption tax. This tax should not just go towards creating another source of government revenue. It must instead be a shift from the direct tax system. This can be achieved if direct personal taxes are lowered to continue to motivate our talented and enterprising. At the same time, a lowering of direct taxes will attract the talented and skilled foreigners to Singapore. For the low income group, there is a strong argument to increase the level of personal relief. The shrinking of the tax base will be more than offset by the sheer numbers who will have to pay the tax on consumption. For those who are on public assistance and those without income, the level of financial support must also be increased to offset the adverse effects of the new tax. Finally, Sir, the effect on the tourist industry will be minimized if certain steps are taken to ensure that facilities are made available for departing tourists to claim a refund on the tax. I am confident that the Minister will take this into consideration.

Mr Speaker, Sir, several Members have expressed their concern over the introduction of consumption tax yesterday. I share this concern over the impact consumption tax would have on the lower income. However, I believe the Minister is equally concerned and this has been shown by the very cautious manner in which he has decided to introduce consumption tax. His concern over the impact of the tax would have on the lower income has led him to exempt the first $40 on the monthly PUB bill from the tax. The lower income would therefore be unlikely to pay consumption tax on this item. He has also levied tax on the telephone bill for residents. We know that the vast majority of people living in 1-room flats, and most people also in 2-room flats, would not have telephones. So they would not be paying this tax. I share the view expressed by the Member for Brickworks GRC Mr Chay Wai Chuen that we should take into account the situation of the lower 25%. And I think the implementation of these two taxes has reflected the concern for the lower income. If the Minister continues to take into account the circumstances of the lower income, particularly the 25%, and selectively levies consumption taxes, then I believe the poor would be largely spared the burden of consumption tax. Whilst I am concerned with the possible impact that consumption tax may have on the lower income, I must state that I support the shift in tax policy. Why? First of all, we must recognize that giving favourable treatment to the lower income whilst desirable, has its limits. The best way of helping the poor is to get them jobs, and better-paying jobs, and jobs come from investments. Since we have to compete for investments, we must take into account the attractiveness of the cor- porate tax. We need not lower the corporate tax too fast because it would mean a faster introduction of consumption tax. So if the Minister is labelled as Mr 1%, so be it. I fully support him for not lowering the corporate too fast, too soon. Regressive as the tax may seem, I think the greater evil is in losing investment. So we will not be helping workers, and especially lower income workers, if we discourage investors. The second reason for this shift to consumption tax is our changing demographic structure. Whilst most are familiar with the reason for keeping our corporate taxes competitive, I think we need to look at the impact of the the tax base because of the change in the demographic structure. We know that the Government has got incentives for procreation. But the success of these policies, at best, remains uncertain. And even if some measure of success is achieved, we will still have a higher proportion of older people in the years ahead. By now, we are all familiar with the figures of today, 8.2 workers, or 8.2 taxpayers, will support one aged person aged 60 years and above. And by the year 2030, only 2.2 workers, or 2.2 taxpayers, will support each elder citizen. If the corporate tax cannot be increased sufficiently because of expansion of business, then revenue must come from elsewhere. Should this burden be faced by the income taxpayers, the workers, in the future? It is a possibility. But I am sure that workers in the future, especially when 2.2 taxpayers have to support each elder citizen, they would balk at the prospect of a higher tax burden. So we need to raise revenue from a different base. Hence, the consumption tax. So I view the financial policy as one that looks long term. The aim is to broaden the tax base - corporate tax, individual income tax, and consumption tax. At the same time, the procreation incentives aim at raising the number of taxpayers, so as to lessen the need for a higher consumption tax. And I believe it is wiser now to gradually introduce consumption tax. We make it easier for everyone to adjust if we allow ourselves more time for the introduction of this broad-based consumption tax. And if we consciously take into account the circumstances of the lower income, we can mitigate the effects of consumption tax on them. Let me turn to some other short-term problems that have also been expressed by Members of this House. As may be expected, several Members expressed the concern of employers on the proposed 4% restoration of employers' contribution to CPF, and also the foreign workers' levy. And it seems to me that there are more Members speaking out on behalf of employers than for workers. I think as regards the employers' CPF rates, there ought to be justice. Let us not forget that when the rate was slashed, it was slashed by 15 percentage points in one stroke. Workers accepted this in good faith. Today, we are not talking about restoring the cut in full. We are only talking about restoring 4 percentage points. And our wage costs are currently competitive. This came about because in 1986 and 1987 workers practically suffered a wage freeze. And if employers' contribution to CPF is taken into account, workers actually suffered a wage cut. You compare this with the other Asian NIEs - Korea, Taiwan and Hong Kong. They have not exercised wage freeze during the period; in fact, their wage cost has been going up. And last year the wages of Korean workers, Taiwan workers and Hong Kong workers rose at a much faster rate than the wages of Singapore workers. So whilst we talk about euphoria over high growth, I do not think it is right to say that there has been euphoria over high growth in wages in the last few years. If there is no restoration of employers' contribution to CPF now, then when are we going to restore this cut? Is this to become an elusive dream to be chased by workers? We all know that in the past two years, profits have been up; employers are laughing all the way to the bank. So against this back-drop, workers will lose faith in employers and the Government if the employers' CPF rates are not restored by 4 percentage points this July. As for the foreign workers' levy, we cannot talk about helping the lower income without considering the depressive effect a large inflow of cheap foreign workers would have on lower end wages. I think this levy is necessary to balance the distortionary effect that foreign workers have on our labour market. Is the proposed rise to $250 per foreign worker per month too high? I think it would be better for employers to calculate whether that sum can finance the installation of automation equipment or robots. That is the way to beat the labour shortage without social cost of foreign workers. I agree that in dealing with our short-term problems, dialogue is always useful. Do we need longer time to prepare? I do recall that several years ago Government announced the policy of phasing out foreign workers. The Economic Committee changed that somewhat to say that we will have a smaller pool of revolving foreign workers. Is this to be taken to mean that Government has forsaken its previous policy and therefore employers should be allowed a free inflow of foreign workers? I think not so. From my perspective, enough time has been given to employers. And I hope that we will not only talk, but we will also act to automate, to make use of robots to raise productivity. So, if we want to help the lower income, if we want them to shoulder the consumption tax, then let us move into better paying jobs and let us not to be overly dependent on cheap foreign labour. Sir, I support the motion.

( In Mandarin): First, let me express my support for the Budget. Yesterday, several Members had given their constructive views on the Budget, such as on the consumption tax and others. To put it simply, it is a painless yet compassionate Budget. It also shows that the Government is firm on its stand on upholding good traditional cultural values. The Member for Siglap raised the topic that the increase of $1,500 tax relief for the wife is not enough. This brings to my mind the role of women in our nation building. They also have great contribution to play in our economic development and social progress. Therefore, they have an important position in our modern society, particularly when there is shortage of manpower and the desire not to depend too much on foreign labour. Therefore, women are basically welcome to come out of the kitchen to work outside. From a personal point of view, career women can also have an important role in helping the family enjoy higher income and maintain certain living standard of the family; moreover they have also the duty of inculcating value concept in the children. To modern career women, they are at a loss to know what to do. There are women who prefer to give up working and stay at home to look after the children. The Government should give them more tax relief, higher than $1,500 as a recognition for their contribution to the family. As for working women, the Government should have a comprehensive plan which should include: (1) building more creches and providing other facilities for working mothers in order to relieve their burden of looking after the children; (2) promoting flexible working time to facilitate the employment of married women; and (3) increasing the quantum of tax relief for women. At this transitional period, I hope the Government would consider not to increase the levy on foreign maids, because before more facilities like creches are popularly set up to meet the need, there is still the practical value and need for housewives to depend on house maids. At this juncture of labour shortage, the use of female labour would definitely help the situation. Our present problem of labour shortage should not be overlooked, particularly in the fields of manufacturing, construction, engineering, etc. Automation is the solution to labour shortage. This is the best means. But it cannot be done in just a short time. As long term solution cannot solve immediate problem, this situation has become a bottleneck in economic development. The Government's effort in promoting automation is very positive. However, the entreprenerus' will of automation is not universal. The cause may be mainly due to the shortage of funds and the difficulty in getting loans. If we depend too much on foreign labour to solve the problem of labour shortage, it will bring about great harm to our future generations. This can be learnt from some developed countries which have the experience of imported foreign labour. Furthermore, shortage of labour would usually cause the wages to increase, which would in turn cause our industries to lose their competitive edge. The undesirable result of increased wages would not pose undue harm to long term total economic development; it may even be a blessing in disguise. As a result of high degree of economic development, individual income level will be raised. The more capital matching each labour there is, the more marginal productivity there will be, and this in turn will increase the returns to labour undoubtedly. If the marginal productivity of labour could not increase in direct proportion to wages, then production cost would be raised and competitiveness would be weakened. Therefore, we should learn from the Japanese workers and try to maintain high degree of productivity and efficiency. Under the impact of increased wages and shortage of manpower, it is necessary for labour intensive industries to change their form of production, to increase capital establishment and reduce employment of labour. In other words, we must automate, to try to turn labour intensive industries to capital intensive industries, so as to change the form of production in our industries. The Government can play a more positive role in this respect. Foreign investment in our manufacturing industries has taken up 70%. Therefore, to create more employment, we should be more attractive for foreign investments. At the same time, we should also pay attention to our own existing enterprises which can play a complementary role. They are complementary to each other. To maintain our international competitiveness, the most important contributing factor is political stability. Next is human resource. Competitiveness depends on the promotion of education among our populace. That is to say we must in the shortest possible time enable every worker to acquire a skill, and be filled with undaunting spirit of good work attitude and be highly productive and efficient. I hope the Government will give more consideration to this.

Mr Speaker, Sir, I rise to support the motion standing in the name of the Minister for Finance. I wish to focus only on one aspect of the Budget Statement, ie, consumption tax. I hope I can present a more balanced view on this issue. In 1986, the Economic Committee recommended that the "Government should shift from direct to indirect taxes as its main source of revenue". The Minister for Finance has accepted the recommendation, but he has been cautious about its implementation. I agree with this approach. At the outset, I should point out that we already have selective sales tax on goods and services. These include customs and excise duties, motor vehicle taxes, stamp duties, entertainment and betting duties, and taxes on PUB and telephone bills. So what we are talking about is whether the Government should introduce a comprehensive consumption tax, perhaps in the form of retail sales tax or in the form of value added tax (VAT). Further, we are not talking about a complete shift from direct to indirect taxes, but a better balance between these two sources of tax revenues. As a taxation principle, there are sound arguments for introducing a comprehensive indirect tax on consumption. Firstly, consumption tax does not undermine incentive to work, incentive to invest or stifle business initiative, as in the case of direct taxes. Secondly, consumption tax is a high yield tax. Consumption tax is able to generate substantial tax revenues with relatively low tax rates. For example, in 1988, private consumption expenditure was $23.14 billion. Without any exemptions, a 3% general sales tax would yield around $694 million tax revenue, which is higher than the total tax revenue actually collected from both direct and indirect taxes in 1988. Moreover, tax revenue from this source is more stable because private consumption expenditure fluctuates much less than GDP or national income. Thirdly, a general consumption tax is a means of broadening the tax base. Our income tax base remains narrow. It was estimated that in 1983 only 47% of the resident labour force paid personal income tax. It is costly and difficult to tax many self-employed persons. A general consumption tax will bring these people into the tax net. The tax burden will be shared by more taxpayers. Also, part of the capital gains which are used for consumption would also be taxed. However, as many Members have pointed out, consumption tax has its shortcomings. One major shortcoming is its regressiveness, a point which I raised sometime ago. Whether you earn $500 per month or $21,000 per month, you pay the same tax rate. The tax burden in relation to income is much heavier for the lower income group. So there should be exemptions for essential consumer goods. Another shortcoming is that consumption tax itself is inflationary. It raises the general price level and the cost of living. To the extent that these increases lead to higher cost of production and higher cost of operation, our export competitiveness would also be eroded. Thirdly, certain sectors such as the retail trade and tourism will be adversely affected. More Singaporeans may choose to do shopping and make more purchases in Johor Baru, further affecting our retail trade. Finally, the Government has to install an administrative machinery to collect consumption tax. Manpower and other costs of the machinery cannot be ignored. I believe the proposed consumption tax would be more acceptable if this tax proposal is accompanied by the following measures: (a) Exemption of food items from consumption tax. I single out food items because they account for a very high percentage of household expenditure of poorer families. A study by my NUS colleagues shows that for a 4-person household, food items accounted for 49.6% of total expenditure for a household with $500-$750 to spend per month. This percentage spent on food declined to 29.9% for a household with a total expenditure of between $2,500 and $3,000 per month. (b) Increase in personal income tax relief, the same point made by the Member for Tiong Bahru GRC, Mr Chng Hee Kok. If there is an increase in personal income tax relief, taxpayers in the lower income group could be exempted from income tax. In his TV discussion with journalists and a business executive telecast last week, the Minister gave very interesting figures. He said that if personal relief is raised by $1,000, the tax base would be reduced by 7% or 60,000 taxpayers. I believe most of these 60,000 taxpayers are from the lower income bracket. And their individual contributions to income tax revenue are nominal. Alternatively, the Minister could consider giving a tax rebate to these taxpayers from the lower income group so as to alleviate their tax burden. (c) The Minister should explore other avenues of tax and non-tax revenues before consumption tax is introduced. In 1988, the Government had an overall surplus of $3.85 billion. May I point out that part of this surplus was attributable to the one-time transfer of $1.5 billion from the accumulated reserves of four statutory boards. May I suggest to the Minister that instead of transferring the accumulated surplus on an ad hoc and arbitrary basis, he should consider taxing the surplus of revenue-generating statutory boards on a regular basis. The company tax rate could apply to these statutory boards. The Minister said in his statement that "we should begin now to put in place a framework of indirect taxes". I believe he meant laying the water pipes now so that the tap could be turned on when this source of revenue is needed. But equally important is the need to prepare the ground for the proposed consumption tax. MPs, union leaders and community leaders could help in this aspect. However, MPs must be convinced that, on balance, such a tax proposal is desirable or at least acceptable. If many MPs remain unconvinced, how could we persuade our community leaders, workers and constituents something that we do not believe in? One difficulty the Minister may face is that many people believe that the Government has accumulated so much money that consumption tax is not necessary. I wish to urge the Minister to present consumption tax as an alternative means of raising tax revenue and not as an additional device for raising revenue. In this context, may I point out that non-tax revenue has been a major source of Government revenue. In 1987, non-tax revenue accounted for 47.2% of total Government revenue. In 1988, it went up to 50.9%. Major parts of the non-tax revenue come from investment income and interest from loans. Should we not ask ourselves one question: if the Government has not accumulated large reserves and surpluses, how could the Government generate such substantial non-tax revenue and hence reduce the need to introduce consumption tax immediately?

Mr Speaker, Sir, like businessmen who have expressed their views on the budget in the press outside the House, speakers here so far have all praised the budget as "sound", "well-balanced", "painless", "happy", "good budget". They have good reasons to say this, I am sure, because business is provided with tax cuts, tax exemptions, tax deductions and faster depreciation allowances, though the small and medium enterprises benefit much less than big business. Industrialists call for an exten- sion of property tax rebate and they have got what they want. In addition, the property tax rate will be reduced further to 16% of annual value next year, though as has already been indicated, how many of the tenants will enjoy the benefit has yet to be seen. All the non-HDB owner-occupied residential properties will have property tax reduced to 4%, though some people say that this may not really mean a tax reduction in every case. Personal income tax enjoys a 1% tax cut and there are other tax reliefs. Married couples are given special procreation bonuses in this much-acclaimed budget for the family. Sir, instead of taxes, the budget seems to have something for everyone. It is a budget designed to buy political support, to catch votes the Government has lost. I myself, when I first heard, it, was tempted to give it my full support. But a closer study, Sir, shows that the people who have really benefited from this so-called good budget are very few. Moreover, the budget is also not right in many of its priorities. For instance, increasingly heavy taxes have been imposed on motor vehicles. Though euphemistically classified as a non-tax revenue, such taxes will come to quite a huge sum, $1.28 billion this year, and they may yet be increased again in future. Many people have already been hit. Sir, for most people the car is not a luxury, neither is it a symbol of success. They need the car to earn their livelihood and these car taxes have hit them very hard. Expenditure on Education, Sir, gets only a very slight increase, and that on Health suffers a drop of 5.3% from the revised 1988 expenditure, while the expenditure for Defence goes up by 11.1% to the tune of $2.91 billion or 23% of the whole budget. Such high Defence expenditure takes away budget allocations that should have been spent on social services. This also does not benefit the people. Then there is the proposal to increase again the already high salaries for top civil servants and Ministers. While it may sound fair to revise salaries for those who carry heavy responsibilities in Government work, it is not possible to match salaries in the public sector with those in the private sector. And it is wrong to do so. Civil servants are compensated by perks and job security, not enjoyed by top men in the private sector. Ministers enjoy great political power and prestige. There is really no comparison between the two sectors. If salary increases are to be carried out, as indeed they will be, then they must be accompanied by similar salary and wage increases for those in the lower divisions as well. This has already been advocated by a few of the speakers before me. Sir, those people in the lower divisions are those who really need the salary increases, more than those at the top. Moreover, in principle, Sir, Government should try to close the salary gap between those at the top and those at the bottom, not widen it. Government must be fair to all. We have huge surpluses and the Minister has said: "we can afford it". So why limit salary increases to top civil servants and Ministers? Are those in the lower division of no consequence? Don't they help those at the top to bring in results? Sir, a number of reliefs have been given in support of family formation and Government's call to families to care for their aged and handicapped dependants. These reliefs though welcome will, however, benefit only some but not all the people. And one suspects that some of those reliefs have been proposed merely to fit in with the Government policy of genetic social engineering. For instance, the enhanced child relief is available only to a woman with at least 3 GCE "O" level passes. This precondition effectively debars mothers with lower educational levels from the scheme. This is unfair and discriminatory, especially when it is well-known that most of the lowly educated mothers belong to the low and middle income groups of bread winners. Is there any good reason to limit the age of children to below 12? Is the Government expecting children a little over 12 to work and earn a living? After all, normal child relief is given up to 16 years or over 16 if the child is still studying in higher institutions or if he is incapacitated in any way. As pointed out by the Straits Times on the 4th March, the tax saving varies from person to person. And I quote: 'For a married person having an annual income of $50,000 and a non-working wife, 2 children and a dependant parent, the tax saving works out to $850 [a very small sum] and not many people can earn $50,000 a year.' It is therefore clear, Sir, that very few people will be able to enjoy the full amount of the advertised enhanced child relief of $15,000 for the third child. Only those with high salaries will benefit. The relief enjoyed to the full by the average low and middle couple is the increased normal child relief of $1,500 per child. Nothing much to crow about, as the amount is not even sufficient for the upkeep of a child for more than a few months. It is more or less the same story with the $20,000 special tax rebate for the 4th child. The Minister says that in 1988, last year, only 1,100 couples have benefited from the $20,000 3rd child bonus. And most of these 1,100 couples cannot benefit by more than a mere fraction of the $20,000. This year, the Straits Times says that 2,000 couples will benefit. Again a comparatively small number, not even 0.5% of taxpayers. Only those with high incomes of $6,000 per month will be able to claim the full rebate and they are those who do not really need the money. How many people have incomes of $6,000 per month? The low and middle income couples who really need such 3rd and 4th child bonuses can only benefit in a very small way. The same situation applies, Sir, to the additional rebate equivalent to the 15% of the wife's income in lieu of maternity leave. Only high income working women (they must be working too) will benefit most and there are again not many of them in Singapore. Thus, all in all, the new tax reliefs will benefit only a comparatively small number of taxpayers who are well-off, people like the Ministers. But will these special bonuses induce many married couples to have more children? Since they are targetted at couples with better and higher incomes, it does not look as if the bonuses will achieve the stated objective of increasing the population of Singapore as a whole. They will succeed at best in pushing Government's policy of genetic social engineering to a certain extent. It is unlikely that these procreation bonuses will succeed in inducing many high income couples to have a third and a fourth child. Moreover, many from this group marry late and also have children rather late. Therefore, it would appear that these special procreation bonuses will probably not succeed in fully reversing the declining population that has been brought about by wrong past population policies of the Government. How then can Government help to really promote procreation and larger families, and truly reverse the population downward trend? The answer is: spread the tax benefits, not selectively to a comparatively small number of people, but as widely as possible to all the people. I stress, Sir, all the people. As an alternative to what the Minister has proposed, I suggest the following: (1) In addition to personal reliefs for handicapped dependants, aged parents, children, etc., Government should also increase personal allowances of taxpayers from $2,000 to $3,000 or even $4,000; and of the wife from $1,000 to $2,000 or even $3,000. If husband and wife together can claim personal allowances of $7,000, that, Sir, is only what a couple in Malaysia has been getting for some years. The trouble is that the Minister wants to tax as many people as possible. The previous speaker also says that. The Minister says that a $1,000 increase in the personal income tax relief would have reduced the base of taxpayers by 60,000 or 7% of all taxpayers. But I suggest that the Minister is guided by the wrong principle of taxation. Instead of taxing those who can ill-afford to pay, he should tax those best able to pay, those who can afford it, and those who do not feel it. (2) For the third and fourth child, instead of a special bonus, give the couple outright cash grants of $3,000 to $5,000. (3) Cut down all the hospital maternity charges. Presently, Sir, maternity charges for the third child are $400, for the fourth child, $1,000, and for the fifth child, $1,300. I say, bring the hospital maternity charges for the third, four the and fith child down to the norm of $150 for the first child for Class B2, and $100 for Class C. (4) Give maternity leave for the third and fourth child - paid maternity leave. (5) Of course, the foreign maid levy should not be further increased. (6) If necessary, priority in schools and for HDB flats should be considered as long as that will not cause injustice to other parents. These, Sir, are the concrete steps I suggest as an alternative to proposals by the Minister. We have a serious problem of population decline. We must deal with it seriously and objectively without bringing in side issues like genetic social engineering on the quiet. The loss in revenue, Sir, is very small in comparison to the immeasurable gains the whole nation will have. I hope Government will give serious consideration to what I have said. The Minister has said that the public sector be "contained and gradually reduced in favour of the private sector". He has spoken of privatization on TV. He says that it is going well, meaning I suppose the Government is making good progress in selling off our national assets. I have just heard how much has been sold-off. Sir, we are not in total opposition to privatization. We agree that many Government-linked companies (GLCs) that are doing businesses that the private sector can do, and usually do, should be left to the private sector to run and manage. But we are strongly opposed to privatization of statutory boards like the PSA, PUB, Telecoms or SIA. These GLCs, in fact, form part of the infrastructure which facilitate business in the private sector. Without them, the private sector will not be able to do business at all, much less make profits. Presently, these GLCs are well managed, efficient, very productive and highly profitable.

Hear, hear!

They are assets which have all been slowly built up over the years by the State with taxpayers' money - let us not forget that - and should be treasured. Whatever dividends and profits earned by them should be transferred to the Government's Consolidated Fund, as has partly been done, to be spent for the benefit of all the people. Since these are established profitable monopolies, the private sector naturally would like to grab such non-risk highly profitable assets as going concerns. For Government to privatize these valuable assets today would merely mean giving away public funds to private individuals who can afford to buy the shares or to big business organizations which hope to reap huge profits. There is no good reason why this should be done. Privatization of such invaluable public assets is tantamount to betrayal of the trust that the people have placed in the Government. And we should be warned of the unhappy consequences - increased charges and poorer services - seen in the privatization of Telecoms in the UK. Let me touch, Sir, on the tax changes. The duty on tobacco and cigarettes would be a good tax as it is well known that cigarette smoking is a major cause of ill-health and premature death for many people in Singapore. But the taxes on tobacco and cigarettes do not, and I emphasize that, do not seem to be really designed to stop smokers from smoking. Smokers continue to smoke in spite of the taxes. The only change is that smokers now pay more taxes and, of course, the Government collects more revenue. To me, that seems to be the real idea behind the tax on tobacco and cigarettes. In addition to road tax, diesel tax, increased levies on foreign workers and foreign maids, all of which the Government has conveniently imposed at various times of the year, in between budgets without even the benefit of a debate in Parliament beforehand, there is now the re-imposition of the 5% tax on PUB and telephone bills. This has been touched on by many speakers before me. And as admitted by the Minister, consumption taxes are regressive and inflationary. They hit at retail prices, exports and tourism and could encourage the people to go across the Causeway to do their shopping instead. I merely repeat what has already been said. Moreover, if Government intends to introduce consumption taxes in order to effectively - I must emphasize that - effectively "provide a steady source of revenue", as has been stated in the Budget Statement, then the tax in a country with such a small population like Singapore, must be widespread and not selective. The tax thus unavoidably hits hard those in the low and middle income groups and they are those who form the vast majority of the people in Singapore. Government should remember that the ruling party in Japan lost a safe seat to the opposition in a by-election on the issue of a 5% consumption tax two years ago and should learn a lesson from that. May be that is another reason for the recent amendments to laws to control processions and demonstrations of the people. Government should tax those who can afford to pay. Those with high incomes already have all sorts of benefits and loopholes, and many of them pay only a fraction of what they should really pay in income tax. Consumption taxes, I repeat, Sir, hit at the low and middle income groups. They do not hit at the rich. Perhaps that is why the Minister calls the budget a "good budget". In conclusion, Sir, I would like to stress that to make it a really good budget, the budget should benefit the majority of the people and not just a comparatively small number of people. The reliefs given for family formation and care for the aged and handicapped dependants, though hardly sufficient, are nevertheless welcome. But a large majority of people who need the help of the Government have yet to benefit in personal reliefs. Budget allocation, Sir, is a matter of priorities, and the Government has not got its priorities right. Singapore has had two good years with growth and substantial surpluses. Those in the low and middle income groups have suffered the most hardships when times were bad. Let them benefit a little now when times are better. Only thus can it be said to be a good budget.

Mr Speaker, Sir, I rise to support the Minister's financial policy. The Minister has shown commendable restraint in not sharply raising or lowering taxes, be it corporate income, property or car taxes. This style of gradualism or "steady as you go" has much to recommend it. In the same vein, I wonder if the Minister could not have dropped personal income taxes across the board by 1%. This would allow individuals from most income groups to share in the tax reduction. Incidentally, it would also equate corporate and personal rates at the ceiling of 32%. If the Minister felt that this was giving away too much, he could have considered a compensating tax of 1% on retail sales. Ideally, if we must introduce general consumption taxes in the future, this should be the pattern: match consumption taxes with equivalent or more generous reductions in personal and corporate tax rates. Sir, I would like to move to my main subject today which is that of strategic planning and the quality of our economic growth. Our republic has often been described as "Singapore Incorporated" and for good reasons. Our economy is tightly knit, closely monitored and finely tuned. The corporate analogy is useful and can be taken further in the context of strategic planning. In a business corporation, the correct strategic plan determines the long term viability of the corporation. Companies that have no strategic plan or have the wrong plan often fall by the wayside when markets, technology or cost factors change. The best time for strategic planning is when the business is doing well. Time and resource are not a problem then. The worst time to embark on strategic planning is when the business is in trouble, and you are up against the wall. The tendency then is to look for quick fixes. In 1985, when the Economic Committee looked for strategic changes in the direction of our ailing economy, we broke a cardinal principle of good business practice: we engaged in strategic planning in a moment of distress. But we were lucky. The Yen appreciated sharply. Japanese investments flowed into Singapore. The electronics industry surged in the United States as the Japanese competition was beaten back under the load of the high yen. American electronics firms in Singapore expanded output. There were other factors, but the crucial one was that our Government and our labour force rallied to cut costs effectively and restore our competitiveness. We threw off excess baggage from our boat, so to speak, but we also caught a good wind, and we sailed forward. But, Sir, we cannot always count on a good wind. We must improve our boat, enhance its stability in rough waters, and learn to sail against the wind. We must do so because we may not be so lucky the next time. Our economic growth has been vigorous in most of the last 30 years. I would like to suggest, however, that we make a distinction between an economy that is vigorous and one that is resilient. A vigorous economy is one that is growing rapidly. A resilient economy is one that is not easily upset by external changes. To use an analogy, a person may live a vigorous lifestyle, but his health may not be so resilient. One attack of the flu and he may be knocked out for a long time. Sir, I would characterize the Singapore economy as one that is capable of vigorous growth, but not as resilient. This was evident in the sharpness of our decline in 1985 and 1986 when investment and tourist inflows slowed down and external demands declined. The economies of Japan, Germany, the United States and even Taiwan are much more resilient than ours in this respect. I want to suggest that in the strategic planning of our economy we place some emphasis on building greater resilience. Some things are already being done. We have already learnt one lesson, which is never to allow any sector of the economy to become dominant or overheated in contributing to growth, as was the case with the construction sector in the early 1980s. The EDB has also been prudent in promoting investments from a wider choice of countries. Sir, I would like to focus on one other area that will add resilience to our economy. This concerns local business and the related matter of privatization of Government corporations. When we talk about local incustry, we tend to think of small to medium enterprises to which the Government has tried to give assistance. I suggest that we also turn our attention to developing large local companies that are world-competitive in their own fields and that can contribute substantially to national GDP and economic growth. We need not be enslaved by the notion that we are a small city state with no domestic market base and therefore cannot be a large player in world markets. Singapore Airlines has shown that there are niche areas in which a small country can attain world standards. Other small countries have had similar and more numerous successes. New Zealand with companies like Watties, Fletcher Challenge; Switzerland with Nestle, Ciba Geigy and Brown Boveri; Sweden with Volvo, Axel Johnson, Alfa Lavel and so on. If we could in Singapore create another four or five equivalents of SIA in other industries it would go a long way in giving our economy a more diversified and resilient business base and less dependence on foreign investment. These corporations would in turn stimulate supporting industries and give a boost to our service industries like advertising, consultancy and computer software. This is a nice scenario and the conservatives among us might call it a pipe dream. Singapore Airlines is an isolated case, they would argue. But is it? If we had believed the conservatives, SIA would never have happened. A small island with no domestic market for air travel, with limited bargaining power for air routes, would have little chance of developing a world-class airline. But we did succeed. We capitalized on our strategic position, our disciplined work force, and the managerial ingenuity of our pioneers. Significantly, the Government played an important role: the Civil Aviation Department negotiated air rights and built excellent airports, Temasek Holdings gave financial backing, and the civil service made some of its best talent available to run the airline. Sir, the government may again need to play an interventionist and entrepreneurial role if we are to give ourselves the mission of creating a number of world class indigenous companies. This may sound like heresy at a time when privatization is the fashion. But, in fact, there is no contradiction. Privatisation of certain mature government-owned companies is a logical step to take when the Government is no longer needed to ensure their continued viability. As the Minister for Finance pointed out recently in an SBC interview, these companies were set up initially as a stimulus during the early stages of our development. Just as there was a need for Government stimulus in the old days to develop companies like National Iron, Acma, Singapore National Printers, there could equally be a role today for Government in the development of the next generation of major companies in niche areas. Sir, there is nothing revolutionary in this concept. Japan's MITI has for a long time played an interventionist role in the development of major industries in Japan. Government and private sector have cooperated in identifying target industries like computers, superchips, and in planning and executing industrial policy. The Japanologist, Chalmers Johnson, calls this the "Japanese Developmental State". Thus, even in Japan, which is unparallelled in the world in the dynamism of its local industry, the government plays a lead role in target industries. What are the niche areas in Singapore and what is Government's specific role? Sir, I do not have ready answers, but perhaps I could be permitted to put forward some tentative ideas. Singapore is well-developed in telecommunications, finance and information technology. A logical direction is to develop international financial information and trading services similar to those offered by companies such as Reuters and Telerate. This is a multi-billion dollar business for the large players. The combined financial and management resources of Telecoms, Temasek Holdings and private sector partners may be needed to enter and develop this in a major way. I understand that Singapore Technology Corporation has gone into specialized areas in the semi-conductor industry on a fairly large scale. I hope this will also provide the cutting edge for a world class company in semi-conductor design and manufacture. Another possibility may be in the food industry. By world standards, we have only medium-sized companies in food and beverage manufacture and distribution. But as a transportation hub and situated at the centre of one of the world's major food baskets, Singapore has ready access to food supply sources. This could give us an edge in food packaging and distribution, particularly in ethnic foods. Can we bring forth a Singapore-based Watties or Nestle's through rationalisation, foreign acquisitions and government participation? I hope we can. Sir, I would like to leave these thoughts for the consideration of the Minister for Finance. Temasek Holdings and some government agencies sit on rather large cash surpluses which are invested mostly in passive assets. A fraction of these could be invested to forge a new alliance with local industry to develop companies of world standing. Sir, it may well pay handsome dividends in the long run.

I am much obliged to you, Sir. Sir, we had a full day of debate on the Budget Statement yesterday and we heard nothing but only a litany of praises for it. I am not sure whether the lack of any in-depth criticism from Government Backbenchers was due to the sharp reprimand they received from the former Senior Minister, Mr S. Rajaratnam, recently or was it due to the fact that the Budget this year did not introduce any significant tax increases, except for the slight increases of tax on imported tobacco and cigarettes and the introduction of 5% consumption tax on utilities and Telecoms services for a bill above $40. I suspect it is a combination of both. On hindsight, we can see why there is no increase in motor vehicle tax. Sir, may I refer the House to an article written in the Asian Business (Vol. 25 No. 2, February 1989) which says that the price of a motor vehicle in Singapore is the highest in the world. Sir, I have here a published set of car prices in US$ (average) for a four-door saloon - Most Expensive Least Expensive (US $) (US $) ------------------- --------------------- Singapore $33,000 Montreal $10,000 Oslo 28,000 Luxembourg 9,500 Helsinki 27,500 Toronto 9,500 Nairobi 27,000 Jeddah 9,000 Jakarta 25,000 Los Angeles 8,500 'Certainly, owning a car in Singapore requires long, hard work simply to earn enough to pay the breathtaking purchase price (not to mention road tax, extra payment to enter the centre of town, and so on). When it comes to car prices, Singapore is in a league of its own. A recent survey by the Union Bank of Switzerland calculated the average price of a four-door saloon in Singapore is around US$33,000 [figures that I quoted], US$5,000 above its nearest rival, and nearly four times as much as in Los Angeles, where the same car costs just US$8,500.' Just to bring home the point further, I quote: 'An average Los Angeles engineer's salary of US$48,720 would buy 5.7 cars a year. The US$19,700 earned by his Singaporean counterpart would buy 60% of a car [not even one car, only 60%]. A bus driver in Los Angeles (surely a rare animal) could, with his US$34,000 salary, buy four cars a year to get him back home from the bus depot. His Singaporean counterpart, on US$5,280, needs his country's excellent public transport system - he earns enough in a year to buy just 16% of a car.' I think that drives home the point. It would be very difficult, I believe, for the Government to increase the price of a car any further. I think they have to look elsewhere to curb the car population. My only regret is that Government Backbenchers did not examine the Budget Statement more critically nor did they examine the question whether for the long term the Budget would really meet the needs of laying the foundation for a strong, solid economy and for nation building. Government Backbenchers seemed to follow what the man-in-the-street has to say, or to reflect what was in the headlines of the newspapers - a painless budget, a good budget, or a pro-family budget.

What did you say about the Budget just now?

Sure, everybody welcomes the increase in tax relief for disabled dependants, aged parents, wife and children and also the enhanced of child relief for the second, third and fourth child below 12 years of age. Any increase in income tax relief is always welcome. But these increases in tax relief are merely cosmetic, to make the Government look good. The Minister knows. I know. I think everyone in this House knows that the increased relief of $2,500 per year for a disabled dependant is really low. It takes at least three or four times that amount to look after a handicapped child or person. In the absence of an effective welfare programme for disabled persons in Singapore, the Government should be more generous and give a higher tax relief for the dependent disabled. It is important to build a culture of caring for the disabled who are completely helpless and need the rest of society who are normal to look after them. It is important that we build up such caring values and concerned attitudes towards the less fortunate, many of whom were born handicapped. As soon as we stop to care for our disabled and handicapped citizens, then we will begin to die as a nation. As for the wife relief, the increase to $1,500 per year is definitely not enough. Almost every married person I meet says that it is not sufficent. I think it would be fairer if it were increased to $2,500 to bring it into line with that given for the dependent handicapped and the aged. As for the $20,000 tax rebate for the fourth child over a period of five years, people are asking now whether this is an incentive or a message to the Chinese to have more babies. To me, it would appear to be an incentive in line with Government policy, namely, to have a third child and more if you can afford it. This policy, of course, is a complete reversal of the Government policy of Stop at Two. I was surprised yesterday to hear and read in today's Straits Times, the hon. Member for Braddell Heights, speaking in Mandarin, calling the Chinese Singaporeans to have more babies. This is needed, according to him, to balance the population growth amongst the various races. The hon. Member, I am sure, knows that this kind of racialist talk is very bad for racial harmony in Singapore. What makes the hon. Member for Braddell Heights think that the ratio of Chinese 75%, Malay 15%, and Indian 8% contribute a balance of races in Singapore? I can tell you now that none of the PAP Malay MPs or Indian MPs in this House thinks so. No answer? I can ask Malay Members, Dr Ahmad Mattar, or Mr Chandra Das for that matter, whether the Chinese need to have more babies to maintain the balance. And they will tell you the answer is no. Isn't that right?

Would the hon. Member like to give way?

Mr Chiam, are you giving way to Mr Goh?

I have not finished. I've had so many interruptions in between. When you ask a Malay or an Indian what is meant by a balance of the various races, the Malays will tell you that the Malay population need to be increased to at least 33 1/3%. The Indians will also tell you the same. And both of them probably want the Chinese population to be cut down to 33 1/3%. So from their point of view, that is the real balance of races. Is that not correct, Malay and Indian Members of this House?

Speak for yourself.

So I can tell the Member for Braddell Heights to stop once and for all this racialist talk of increasing the Chinese birth rate. I say that in any event, the attempt to increase the birth rate of a modern society is a very complex problem. A single call from the hon. Member for Braddell Heights to the Chinese to have more babies to allegedly balance up the races in Singapore will have no effect on the rate of birth of Chinese Singaporeans. But when it is picked up by others and repeated, it can do a lot of damage to our multi-racial society. Because the Malays and the Indians in Singapore too will say that their respective populations will have to be increased. This kind of talk will lead to Chinese, Malay and Indian chauvinism and make our people more divisive. Now may I touch on the Budget policy objectives. The pattern of our economy is no different from that laid down by the Government in accordance with the advice given by Dr Albert Winsemius, the Dutch economist, sent to help us out by the World Bank in the 1960s. He advised the Singapore Government then to do the following: (i) Get rid of the Communists; (ii) Control the labour movement; and (iii) Set up the right business infrastructure and give generous tax incentives to attract foreign investments. Up till today, the basic pattern for economic growth has not changed in Singapore. The Government has got rid of the Communists and the labour movement is well under control. Our economy has not only relied on foreign investments for growth but is now completely dependent on it. I must make myself clear at this point. I am not against multi-national companies. They have given us all a good living. I want them all to stay. It is due to the continued and large inflow of foreign capital into Singapore that Singapore was able to achieve its "economic miracle" (within inverted commas). Our people are now more educated and we have more capital, in particular our Government. In this light, I agree with Dr Hong Hai. I think he has put it in another way but the message is the same. It is time for us to think seriously to lay down the foundations and establish our own indigenous large-scale industries and set up Singaporean multi-national companies. It is only by making manufactured goods ourselves that we can earn the real money, the large profits, due to the value added factor. Sir, the budget does not specifically state this in its objectives. The budget objectives are: (i) the need to maintain an overall balanced budget over the long-term, but we always end up with a surplus.

What is wrong with surplus? We always have a surplus and you are complaining?

to continue investing in the future; and (iii) to foster growth of the private sector. Sir, there is nothing wrong with having surpluses. But I think the surpluses could be made use or perhaps ploughed back or given back to the private sector which in Singapore today is still trying to get on its feet. To me, these objectives do not have the thrust required for nation building, to lay the solid foundation of our own indigenous economy. These three objectives seem to take into account the premise that we shall continue to enjoy the continuous unabated inflow of sufficient foreign investments. We have seen for ourselves how unreliable it is to be completely dependent on the MNCs. In 1985, when they pulled out in great numbers, our economy went into a nose-dive to a minus 1.8% growth. That must surely be a lesson to all of us. Singapore is vulnerable and it is vulnerable not due to political threats from within but from the vulnerability of our economy. We are just too dependent on the MNCs. Sir, I am not an economist and I can see that it is high time the Government thought less of procreation and moved on how to set the right environment to produce indigenous entrepreneurs in large numbers who not only will be able to set up large-scale businesses in Singapore but also elsewhere. Sir, we have seen that in the Second World War, Germany and Japan were devastated. No single building stood intact in Berlin or Tokyo. And in the case of Japan, it suffered the destruction of two major industrial cities by atomic bombs. Yet, out of the ashes rose two industrial giants. How did they do it? Because they have the indigenous entrepreneurs, industrialists and scientists. They could get things done from scratch. Can we in Singapore? Assume for one moment that all the MNCs and all the expatriates left our shores, what would happen? Can we manage things ourselves? Probably with the passage of time, we could but I would think not at the present state. Our economic growth will probably again take a nose-dive and return to minus zero growth. But this time it will be worse because there will be a downward spiral. Sir, I hope the Government will get its teeth on to the matter and set policies which will really put us on solid foundations and that is the only way to ensure our survival.

( In Mandarin): Mr Speaker, Sir, thank you for allowing me to clarify. Yesterday, when I spoke on the subject, it was entirely based on the figures on births and deaths given in a report by the Statistics Department. The Member for Potong Pasir clearly just now has been taking the matter out of context, and twisting the meaning of my talk. We can see very clearly from the statistics that the Chinese procreation rate is far below the replacement level. And the Malays have been over the replacement level. For the Indians, the rate is just above the replacement level. As Chinese make up 75% of the total population and they cannot increase the procreation rate up to at least the level of replacement, then even if the minority races are increasing their birth rates, they will not be able to turn round ---

Sir, I believe you have been very tolerant with him. What is his question? Making a long speech!

He is trying to clarify something he has said. Carry on, Mr Goh.

( In Mandarin):Even if our minorities' birth rates increase higher, it would not be possible to turn round the deficiency of our total birth rate. What I mean to stress on is that if this trend were to continue, then the problem of an ageing population would become very serious and it will certainly affect our total economic viability and dynamism. That was the crux of my speech yesterday. So if you want to depend on the minorities to turn round the deciciency and the imbalance of birth rate, it is not possible on figures. Therefore, it is necessary to depend on the majority, the Chinese, to raise their procreation rate, at least to reach the replacement level in order to turn round the trend. I had not at all---

Have you finished with your clarification? Or are you making another speech?

( In Mandarin): No. At the moment, I am just trying to sum up. I did not talk in the manner of a racialist. There was no racial colour. The one whose talk has racialist colour is the Member for Potong Pasir. So I would urge him to immediately stop his racialist-coloured talk.

Sir, may I have the opportunity to say something in reply?

All right.

Sir, on what basis does the Member for Braddell Heights think that the balance of races should be 75% Chinese, 15% Malays and 8% Indians? He says we must always keep to that kind of ratio, and since the Chinese birth rate is not replacing itself, we must push it up. On what basis? Who in Singapore decreed that the Chinese must be 75% and Malays must be 15%?

Perhaps to make it easier for the Member for Potong Pasir to understand, I did not say that the racial balance or the percentage of the major races must be the same. I spoke on the procreation rate.

That is right. Answer my question? Who decreed that the balance of races must be 75%, 15% and 8% in Singapore?

I think Mr Goh has answered your question, Mr Chiam.

No Malays and Indians will agree with you. 2.45 pm

( In Malay): Mr Speaker, Sir, first, I would like to express my support for the Budget moved by the Finance Minister, Dr Richard Hu. In the budget strategy tabled before us, I believe there are several aspects especially welcomed by most of the people of Singapore. Although the impact of the pro-family package with its tax incentives is too early to know, it would at least give complementary effect to the Government's population policy. The savings to be gained as a result of this package will help couples to put aside some extra funds for the benefit of the family. Mr Speaker, in this connection, I agree with the views of Hon. Encik Ibrahim Othman, who called on the Government to launch a comprehensive family education programme to raise the awareness of parents so that they may enhance the quality of family life. Family life is a very heavy responsibility and a very difficult task, particularly for young couples whose priorities are now in their careers. Among the concerns are the financial costs of raising children and caring for parents living under the same roof. Hence, the tax rebate of $20,000 for children and tax reliefs for wife, aged parents and handicapped dependants must be sufficient if the trend of having large families is to be maintained. Mr Speaker, here I would like to urge the Government to carry out a comprehensive programme to emphasize the importance of family life and having children. We must find ways to change the attitudes of the young people of Singapore who nowadays prefer to marry late. Mr Speaker, the tax relief given for the care of handicapped dependants has been long awaited and is in line with our objectives. I would like to ask the Government to relax the rules which provide that only those living together with their handicapped dependants could enjoy the relief. As Hon. Dr Aline Wong said yesterday, this is because in certain situations there are taxpayers who are unable to live together with their handicapped brothers and sisters. Mr Speaker, the importance of maintaining the competitiveness of Singapore has been outlined in the budget. Generally, the budget offers incentives in this direction, in the form of rather attractive tax reliefs and rebates. Though corporate tax has been cut down by only 1% from 33%, it is already among the lowest corporate tax rates in the industrialized countries. Incentives to encourage companies to reduce their work force through automation are also included. I am sure that the savings to be enjoyed by local companies will increase. Singapore goods and services will thus be able to compete and our position as an exporter in the world market will remain strong. Mr Speaker, the present budget gives more emphasis to social aspects, the benefits being especially felt by those who have families. I am confident that with this budget, the Government's desire that the people focus more serious attention to family life will be achieved, because in the long term it might become an important factor in the future survival of our country.

Mr Speaker, Sir, I rise to join my colleagues in supporting the motion on the Budget Statement. All Singaporeans are very happy to note that last year, the economy grew at an impressive rate of 11%. This is especially commendable given that 1988 was only a year after the worst stock market crash since the Great Depression. Not only was the economic growth the best in this decade, but it was also broad based. Credit must go to the Government for its sound financial and economic policies to stimulate recovery. At the same time, we must also not forget the role of workers. They tightened their belts during the recession, took steep cuts in employer's share of CPF contribution and accepted wage freeze and wage restraint on the understanding that when the economy recovers, they would be compensated for their sacrifices. I am happy to note that the Government has set an excellent example in this respect when it gave a bonus payment of 2(r) months (including one month AWS) to all civil servants when it was clear that the economic growth would exceed 10% last year. Most other employers followed suit, though to varying degrees, and some reluctantly. It is this kind of action by the Government in a good year that will instil confidence in workers in the move towards a flexible wage system. I urge all employers to follow the Government's example in this respect. Good industrial relations is one of the most important factors for economic growth. It should not therefore be taken for granted. Although the 11% economic growth last year is welcome news, one area of concern is that 2.8% of this growth was contributed by foreign labour. Although I sympathize with the plight of employers, I would also like to point out the dangers of overdependence on foreign labour. Too much foreign labour artificially depresses our wage levels and creates social and political problems. I understand that the crime situation in Singapore has been aggravated by such foreign labour. It is better to have steady but sustainable economic growth without too much reliance on foreign labour. Employers therefore should explore the possibilities of extending the retirement age of their workers, employing retirees, housewives and the physically handicapped before resorting to foreign labour. Turning to the budget for this year, it appears to be a painless one for most people except the smokers. If I may say so, it appears painless because all the pain has been inflicted much earlier before Budget Day: on employers of foreign workers, employers of foreign maids, motorists and, worst of all, taxi drivers. I am curious to know why all these taxes and levies could not all have been taken together during the Budget since they were not such urgent matters that could not wait a few more months. Increasing taxes and other levies only once a year will remove feelings of uncertainty and also allow better financial planning by companies and individuals alike. It also means that this House be given the opportunity to debate all these taxes and levies much fuller before its implementation. Now, if I may, I would like to comment on the subject of civil service manpower. I do not deny that the Civil Service and Statutory Boards must have dedicated and able officers at all echelons. To attract and retain such officers, we must pay them well. However, when we look at pay, we must look at the total remuneration package. In the case of civil servants, we must include the housing loan, car loan, pensions (for pensionable officers) and any other perks that they may get. On top of that, we must remember that there is greater job security for civil servants than those in the private sector. Generally, starting salaries of civil servants are quite attractive. The salary scales of different grades are also very comprehensive and attractive. The problem arises because of the slow rate of promotions, especially in the Administrative Service. Administrative officers sometimes wait three to five years for a promotion that brings about an increase of only $500 in pay. For example, from Superscale Grade H to G, to F, and so on. In the private sector, a senior officer may get a salary adjustment in a good year. Secondly, the Civil Service system does not seem to pay officers based on responsibilities carried. There are cases of senior officers seconded to statutory boards being paid less than their subordinates. This situation I think is quite undesirable and should be rectified. The Civil Service should move towards payment for responsibilities shouldered rather than seniority in service alone. I would also like to suggest that Civil Service salaries be adjusted more frequently, but in smaller quantums instead of a substantial amount once in a long while. The Civil Service salaries were last adjusted back in 1982, and that was seven years ago. Adjusting Civil Service salaries more frequently will ensure that they do not lag too far behind the private sector salaries resulting in a spate of resignations before any action is taken to catch up. More frequent salary adjustments will also ensure that those who retire on pensions will not feel short-changed if they just missed the latest salary adjustments. To the pensioner, this is very important because this may mean a difference of hundreds of dollars which he will have to live with, and probably gripe about for the rest of his life. Now I would like to turn to the matter of new development projects. The Minister for Finance mentioned in his Budget Statement that the share of total Government expenditure and of GDP taken up by capital investment has been declining in recent years. As a proportion of GDP, the development expenditure to GDP ratio in FY 89 would be about 8.2% as compared with 12.6% in FY 87. The Minister said that his Ministry will give priority to bringing forward the implementation of major new development projects of Ministries and statutory boards to make up for any investment shortfalls. I would like to ask the Minister what these projects are and how much would they make up for the investment shortfalls. Mr Speaker, I support the motion.

(In Mandarin): Mr Speaker, Sir, when the budget was announced many people described the budget as a painless one, a budget that is well liked by most people. I feel that this is a compassionate, a caring budget and it is just like the usual image of the Finance Minister himself who is compassionate and caring. Why do I say that this is a budget of compassion and caring? Just as even the Opposition Member has said that everyone has benefited something from this budget. However, I do not agree with his description that this is a ploy to gain political capital to win over the voters. If we wanted to do so we would have presented this "well-liked" budget in 1988 or 5 years later. When the Government has shown compassion and care for the people, we should also praise and support the Government. At this moment, we are talking about strengthening the family unit as a nucleus for inculcating Asian value concept. The Government is giving more reliefs to families with handicapped dependants and families which have aged parents, and this is to be appreciated and lauded. In the book of Great Learning of Confucius there is a section on how to govern the country. If one wants to govern the country well and wants the country to be peaceful, the ruling class must be imbued with a love for the elderly and respect for the aged and compassion for the weak. Only then will the ordinary run of the people be imbued with the same sense of filial piety towards their parents and compassion for the less fortunate. This is of crucial importance if we want to build up a society of gentleness and humanity. With the Government promoting such moral concepts, I believe the people will respond to such calls. Mr Speaker, Sir, I would like to make a few suggestions to the Finance Minister. First, on the income tax personal reliefs. The tax reliefs for aged parents and for the handicapped siblings have both been increased. However, tax relief for the wife is increased from $1,000 to $1,500 only. I think this is not fair to the full-time housewife. We have increased the levy for foreign maids and many working mothers were compelled to stop working in order to become full-time mothers in order to look after their children, to cultivate talents for our nation, to help the husband and to teach the children. This is indeed a very heavy responsibility. In keeping with our new population policy, we would like our mothers to have more babies. Therefore, the tax reliefs for housewives and for children should also be increased to $2,500. Another point is that for those mothers who gave birth to the fourth child in 1988, a tax rebate is given. The date of 1st January 1988 was chosen as the cut-off point, perhaps for administrative convenience. For every measure, a date has to be chosen as the commencement date. However, such date has aroused the discontent of some people. Those who took the initiative and gave birth to their 4th child before 1st January 1988 are deprived of the benefit of such a tax rebate. Therefore, I would urge the Government to be more generous in this respect, because when we allowed working mothers to enjoy such tax rebates, we did not specify the dates of birth of the babies. I hope the Government would also extend such benefits to mothers who give birth to their third and the fourth child irrespective of their birth date. If possible, all third and fourth children born after the new population policy was announced by the First Deputy Prime Minister in 1987 should be entitled to such tax rebates, particularly those who took the initiative to have their fourth child should be rewarded for their effort. Thirdly, I would like to talk on the tax deduction for CPF in respect of bonuses. Several colleagues have touched on this matter. I understand that the Government is afraid that certain people with high income and certain trading companies would make use of this loophole to avoid paying tax. They are therefore awarded generous bonuses so that they can be exempted from paying income tax on their bonuses. I think this will run counter to our flexi-wage system. Under this system, the rate of annual wage increase for employees will be lower, currently at an average of 2-3%. Normally, a certain amount of bonus will be given at the end of the year, depending on the performance of the company, and share in the better profits of the company. Under such circumstances, if we limit the income tax relief for CPF contribution on bonuses to not more than 40% of their salaries, I think this is not fair. As a labour representative, I suggest that we fix a certain amount, that is, for those workers whose salary is not more than $1,500, their bonuses should be exempted from this restriction. In other words, their CPF contribution on the bonus should be tax-exempt, because their salary is only $1,500 and the bonus they get will not be very big. Fourthly, the question of consumption tax should be given further study. In order to balance its budget, the Government can get tax revenue from two sources - one, corporate and personal income tax and another way is through indirect tax. I believe the Finance Minister and the Government have carefully considered the ways of balancing the direct and indirect taxes. In order to maintain our competitiveness, we should be careful and prudent in fixing the rates on corporate tax and personal income tax. When implementing consumption tax, the Government should pay attention to the plight of the lower income group. For example, the restoration of Government tax on domestic PUB bills which are in excess of $40, I think is not too good a sign because this will cause the lower income group to start worrying that the indirect tax is aimed at them. Therefore, I urge the Government to review this move of restoring the tax on PUB bills. We should look into the basic consumption per household based on the number of people in the household before we make the adjustment. As we are encouraging people to have big families, to be filial to their parents and to stay with their parents, the present move may well have a counter-effect. Consumption tax, before it is implemented, should be given careful thought. In other words, basic necessities, like rice, oil, milk powder, salt, sugar, etc. should be exempted from such tax. If this tax is to be implemented, the tax rate should not be high in the beginning. We should try our best to start with the lowest rates, and not to impose heavy taxes drastically. I support the Budget put forward by the Minister for Finance.

Sir, a point of clarification from the hon. Member for Yuhua.

Mr Chiam, you have already made your clarification.

No, no. I said that the $2,500 given to disabled persons as a relief is cosmetic in nature. But she says it is not so. Can I ask her whether she is saying that this is sufficient to maintain a dependant who is disabled? Are you saying that it is enough?

I do not think that is a clarification, Mr Chiam. You are entitled to your opinion. She is entitled to her opinion. Why do you require a clarification?

No. She implies that it is enough. I say that it is not enough.

So it is a matter of opinion.

So I want to ask her. If she says it is enough, say so. Let us go on record.

I think she has made it very clear. Do you want to say anything, Mrs Yu-Foo?

I did not use the word "enough". Probably he does not understand Mandarin. When we speak in Mandarin, he is always confused. What I am trying to say is that at least the Government is showing some care and is trying to improve the tax relief for children, handicapped brothers and sisters and also aged parents. I do not mean that it is enough. But at least it is a first step that the Government is taking to improve the tax reliefs.

Order. I suspend the Sitting and will take the Chair again at 3.35 pm. Sitting accordingly suspended at 3.07 pm until 3.35 pm Sitting resumed at 3.35 pm

Debate resumed.

Thank you, Mr Speaker, for giving me this opportunity to join in the debate. Sir, Dr Lee Siew-Choh, earlier on, touched on the new population policy. He calls it "an effort in genetic engineering" and also proposes that a cash sum of $3,000, maybe $4,000, be given for every child that is born, whether or not the family can afford to have that child. Sir, a cash grant of that amount would be a good incentive, especially for a family who cannot afford to have more children. However, bringing children up, as all of us know, is not cheap. Every child requires housing, good nutrition, education, nurturing, to make sure that he or she grows up to be a good citizen of the country. Is he suggesting that, for such families who cannot afford to have more children, since they cannot afford to look after them properly, the State should continue to give out cash grants every year to ensure that they are looked after properly? Sir, our population policy is a responsible one. We recognize that bringing up children is a life-long experience and we do not discriminate against anybody, whether he is a hawker, a clerk, a professional. Our message is simple - have three or more if you can afford it. If you are a hawker and you can afford to have more because your business is very good, by all means go ahead. We do not discriminate. Our main concern is to make sure that every child who is born is given a good headstart in life, otherwise the nation will have to carry the burden later on. For those who cannot afford to have more children, have two or three. In this way, they can be assured that they will be able to concentrate on those few children and look after them and nurture them properly. Sir, Mr Chiam also joined in on the population debate but in a different way. He criticized Mr Goh Choon Kang, claiming that he was indulging in racial politics. I wish Mr Chiam had listened more carefully to Mr Goh Choon Kang's explanation. In fact, it was Mr Chiam who was indulging in racial politics, trying to win the votes of Indian and Malay voters. The facts are clear. In 1986, the Chinese total fertility rate, ie, the average number of children per woman was 1.4, one of the lowest in the world. That is only two-thirds of the replacement level of 2.

1. With 75% of the population, if the Chinese do not carry their fair share of the load by having children at the replacement level, then it is very, very difficult for the minority groups to carry that burden. I think this is a national problem every ethnic group should play its part to the fullest. The other problem is that, with 75% of the population today, when this 75% age, it means that 75% of the elderly will also be Chinese. If these Chinese elderly at that time do not have children in their own families to look after them, who is going to look after them? The State? The minority groups? I think that is not very fair. The Chinese must play their full part and try to have more children, make sure that they reach at least replacement level. Our population problem is a serious problem and I hope that Mr Chiam does not turn it into a racial problem as well.

Sir, I think this is an important issue and has to be cleared up. Sir, I am not playing racial politics. I am trying to stop Members from doing so. We can call on all Singaporeans to have more babies. Why should we only call on the Chinese to have more babies? Why do we say that we must have a balanced racial mix? Is that not racialistic? Why must we accept this so-called balanced racial mix and to keep up the quota? Why do we need that? Why can we not say, "All Singaporeans, we are not reproducing ourselves enough. Let us reproduce more." Why should we call on one particular race to do so? If you do that, then all kinds of connotations will arise. I think I do not need to elaborate but it is there.

Mr Speaker, Sir, unfortunately, once again, Mr Chiam has not listened.

No, I did not!

Sir, for the population ---

Tell all Singaporeans to reproduce more.

Yes, we are asking all Singaporeans to reproduce.

That's right. Not Chinese alone.

And we are very happy that the Malays and the Indians have reproduced more and that they are now at the replacement level. What we are not happy about is that the biggest group in the population, the Chinese, have not carried their own share and they are still below replacement rate. We are saying that for that problem to be solved, the Chinese must also contribute their full share and I think the facts are there. The problem is there, we focus on the problem.

May I ask the Minister one question? Is there a quota on population in Singapore?

Sir, that is the first time I have heard of this, and it is from Mr Chiam.

Why is there a necessity to talk about racial balance then? Let us just call everybody to reproduce more. Once you talk about racial balance, racial proper, racial mix, I think we get into very serious problems.

I think Mr Chiam still does not understand. You want to finish the clarification?

Mr Speaker, Sir, I think he is completely out of order in raising this question. May I suggest that Mr Chiam move a motion in this House to debate on this subject so that there can be a full airing on the subject. 3.38 pm

Mr Speaker, Sir, I would like to begin by thanking all Members who have spoken in support of the Government's Budget proposals over the last two days. There have been many useful and constructive suggestions and we will take these into account in the implementation of policies. Regretfully, we have not had the same response from the two Members of the Opposition. Both Mr Chiam and Dr Lee appear to be opposing the Budget on political grounds. Because it is a Budget put up by the PAP Government it must be bad and must be opposed and attacked on principle.

I must say that it is absolutely not true. I am opposing it on ---

Mr Chiam, Dr Hu is not giving way. I suggest you remain seated because you had your say earlier on without any interruptions from anyone.

I find this totally negative approach regrettable and most unfortunate as it colours everything they have said and renders it impossible for them to contribute constructively in the budget process. I am particularly disappointed at Mr Chiam as I had hoped that he would be charitable enough to admit that he has been wrong in his allegations against the Government in the past. In the Budget debate of 1986, he declared that the recovery measures introduced by the Government would not work because Government's credibility with the business sector had been lost because of its inconsistent policies. It had driven away investors and that they would probably not return. This was tough talk which was difficult to counter as 1985 was a year of negative GDP growth. He was joined in these attacks by Mr J.B. Jeyaretnam who also stated in that year that he doubted that the recovery measures would work. In 1987, Mr Chiam continued his attacks emboldened perhaps by the fact that GDP growth in 1986 was only 1.8%. In 1988,his criticism became muted, possibly because the economy had grown by 8.8% in the previous year. This year, there is no longer any claim that Government's economic policies are fundamentally flawed. Instead, he has concentrated on lambasting our Backbenchers and in making invidious comparison on car prices. The examples he quoted are totally irrelevant in the Singapore circumstances. Los Angeles is part of a country in United States which is hundreds, if not thousands, of times larger than Singapore in terms of physical area. We have only 240 sq. miles. So comparing prices in a country of that size and the number of cars you can accommodate against prices of cars in Singapore made high in order to control its rise in numbers is a non sequitur. I find that Mr Chiam's inconsistencies in his criticism of Government rather unfortunate as it reflects a basic failure to understand and comprehend the PAP Government's policies which have been adhered to and practised consistently since 1963 and which have been responsible for the performance of the Singapore economy over the last 25 years. Dr Lee has concentrated on the unfairness of the Budget. He has made calls to tax the rich in order to give more to the poor. The way in which we can help the lower income group is not to give more and more subsidies. I think the Member for Kebun Baru made a very salient point when he said that there is a limit to which we should give support or subsidies to the lower income group because this will eventually lead to a crutch mentality which is neither good for the people concerned nor for the country. The proper way to help them is to give all who can work jobs, and ensure that their pay is adequate for the quality of their work. This gives them a much more dignified approach to life and removes the crutch mentality. For Mr Chiam and Dr Lee's benefit, I think I will digress briefly here to outline some of the basic principles which have guided the PAP Government's policies over the past years. When Singapore became independent 25 years ago, initially as part of Malaysia, it faced formidable obstacles which called into question its very existence as an independent nation. It had a small population with a high birth rate and high illiteracy. There was high unemployment and political unrest. The Treasury was practically empty and its people were either traders or largely trained to serve the British colonial system. There was neither the capital nor the technical know-how to support an indigenous industrialization programme. Given these circumstances, the Government embarked on an open-door policy of attracting capital intensive industries on the basis of their ability to provide capital, technical know-how and markets. The object was rapid economic growth and job creation. It was recognized early that a closed economy based on the soak-the-rich and distribute-the-wealth system would not work in Singapore as there were no resources to distribute. The policy which was adopted and which is practised to this day is a sharing of wealth through economic growth. The benefits of high economic growth are manifold provided they are not consumed by an equally high population growth. It will allow national surpluses, after the basic needs of the people are met, to be invested in raising the quality of education, health, defence, quality of life and in economic infrastructure. Members can see for themselves all the benefits which high economic growth has brought to Singapore. The difference that high economic growth brings is perhaps best illustrated by an example. In 1963, Singapore's GDP was $6.5 billion expressed in 1985 market prices. Over the next 25 years, it grew at an average annual rate of around 10% to reach S$48 billion or $18,000 per capita in 1988. If the Government had adopted a more restrictive policy, with the result that the economy grew at only half the pace, or at 5% per annum, over the same 25 years, the effect would be to lower the 1988 GDP to less than half, or $22 billion, and the GDP per capita to $8,300, also less than half. The 10% growth scenario would have yielded gross GDP over the 25 years of $584 billion compared to $332 billion in the 5% growth scenario. The difference is $252 billion worth of goods and services which would have been forgone if we had in fact grown at 5%. In terms of Government revenue forgone, assuming that Government revenue averages some 25% of GDP, the amount would have been $63 billion. With these figures, I will leave Members to speculate on how much of what we have today in the form of a credible defence force, in public housing, schools, hospitals and economic infrastructure which would be missing if we grew at only 5% and were denied the use of the $252 billion for the economy and the $63 billion for the Government. I believe that the Government has fully discharged its primary responsibilities to the citizens of Singapore by, firstly, providing all its citizens with the basic needs of food, shelter, health care, education, all at affordable costs. Those who want more must be prepared to pay for it. It has also succeeded in providing jobs for all those who can and want to work and to ensure that all who work are adequately rewarded for their effort and enterprise. Singapore cannot afford the luxury of unearned welfare benefits, except for the handicapped and the gravely disadvantaged. Government has also ensured that the people's real income is protected through control of inflation. In other words, inflation must not be allowed to erode the people's income and savings. Inflation has been kept at bay through strict control over fiscal and monetary policies. Despite two major oil shocks, Singapore's inflation rate has averaged less than 4% over the last 25 years and has been much lower than that in recent years. I will now turn to addressing the specific points raised by Members over the last two days. Because of the large numbers involved, I may not be able to cover everything in detail. And what I am compelled to omit, I will take it up in the Committee of Supply during the debate on the Ministry of Finance. I propose to respond initially on the number of general items, starting with corporate tax. The Member for Ang Mo Kio has indicated that the corporate tax rate should be reduced significantly in order to attract MNCs to invest in Singapore, while some other Members have suggested giving incentives to encourage companies to upgrade the skills of their workers. As I have mentioned in my Budget speech, our economy is not in need of a stimulus. The 1% reduction in corporate tax was merely aimed at offsetting some of the cost increases that the business sector had to absorb in the past year. In addition to our very competitive corporate tax rate, we also have a number of specific incentives aimed at encouraging foreign investment inflows. These include the pioneer incentive scheme which exempts a company from tax for up to 10 years and the post-pioneer incentive whereby approved companies are taxed at a rate as low as 10%. In addition, there is the operational headquarters incentive scheme which was formulated to encourage MNCs to set up headquarters in Singapore. Under the scheme, approved headquarters companies are taxed at 10% on their income derived from management, technical or other support services provided to related companies outside Singapore. The scheme also allows dividend income remitted from overseas to be exempted from Singapore tax. In the area of worker training, there already exists a number of incentives and deductions. For example, a tax deduction for approved educational expenses of up to $2,000 is available for individuals to take up relevant courses to improve their skills and knowledge. In addition, training costs incurred for the employees' vocational training as well as continuing general educationare allowed to be deducted against the employer's income. There are also a number of non-tax measures to promote worker training. This includes the Skills Development Fund which administers a number of schemes and provides grants of up to 70% for each allowable cost component related to worker training. The Economic Development Board also has the INTECH or Initiative in New Technology Scheme, which,among other things, aims to imbue in our workers new skills and know-how. It provides assistance for grants of up to 90% of allowable cost, subject to a maximum of $5 million per training project. Government is aware of the need to be competitive and to equip our workforce with the skills and education to cope with new technologies and processes. Members can rest assured that measures will be taken to rectify any shortcomings should the situation warrant it. The Member for Nee Soon Central has commented that the tax rate of 32% for non-residents seems to favour them over residents. The Member may wish to note that resident taxpayers are still in a more advantageous position than non-resident taxpayers. This is because, firstly, residents are able to claim a range of personal and dependent reliefs and deductions which non-residents are not able to in general. Secondly, residents are taxed on progressive rates ranging from 3.5% to 33% unlike non-residents who are taxed at a flat rate of 32%. The effect of these differences is a much lower effective tax rate on residents. The Members for Brickworks GRC and Bedok GRC have suggested that the inflow of foreign workers perhaps could be controlled through the regulation of foreign investments. Although this would appear to be a sensible idea, in practice it is extremely difficult to regulate such inflows at the micro level. Firstly, it is impossible to forecast accurately which of the foreign companies will succeed over the long term. Secondly, even for those companies which are already in Singapore and in the process of expansion, there is no way one can forecast what their markets are likely to be in the future. Take, for example, the large disk-drive industry. The companies were clearly very attractive investors and were allowed in in significant numbers. Even those which are leaders internationally could not avoid the downturn in their exports because it is impossible even for them to forecast what the markets will be from year to year because of the volatility of markets. Although it is possible to control foreign inputs and therefore indirectly control the numbers of foreign workers we require, such fine tuning is not very easy to achieve. The Member for Bedok GRC has suggested that we should engage in more strategic planning. I disagree when he says that the strategic plan put up by the Economic Committee in 1985/86 was wrong in terms of timing. It had to be done. And the fact that it took place during the recession did not mean that it was less valid than one, say, made today. I agree entirely with him on his recommendation that Singapore should actively try to build up large local multi-nationals. It is a very desirable objective and we are beginning to do it in a small way. Unfortunately, it is not an easy process. It is not a question of funding of which we have a great deal. The problem is finding the right industries and, even more importantly, finding the right people to manage them. Just throwing money at projects will lead to a great deal of trouble in the future. The process is time consuming because we have to develop not only the expertise, identify the companies, but also breed the people to manage them. But it is a long-term objective which we must aim for because of the limitations of space and potential for growth in a small economy like Singapore. This is a path which has been well trodden by countries like Switzerland, Sweden and many other smaller developed nations in Europe and also by large countries like Japan, United Kingdom, and increasingly even by the United States. We will try our best but it will be a relatively slow process. I now turn to individual income tax. The extension of the $20,000 special tax rebate for the fourth child and enhancement of relief for dependants have attracted considerable public interest and from Members of this House. The general feeling is that the procreation incentives will benefit only a small number of people and may be ineffective as a procreation measure. The Acting Minister for Health has already spoken on this, so I will not go into a great deal of detail on this particular aspect. It may not be as successful as we had hoped but we must give it a try. Some Members said that we should provide incentives to encourage early marriages and births. Unfortunately, the problem of late marriages and late first order births is a complex one involving many factors such as the adequacy of childcare facilities, values of the people, housing, etc. Hence, it is not just fiscal means which have to be used to tackle such issues. One attempt to do this has been the setting up of the Social Development Unit in order to encourage the marriage of graduate women and graduate men. And it has been reasonably successful so far. The Ministry of Health is actively looking into other ways of promoting these matters. As to whether a special tax rebate should be given for the second child, I would consider it after the effects of the incentives for the third and fourth child have been evaluated. In 1988, admittedly, only 1,321 taxpayers have so far claimed the special tax rebate. Applications are still being made and it is difficult at this juncture to gauge the full impact of the incentive. The Member for Telok Blangah has raised the issue of maternity leave for the birth of the third and fourth child. Maternity leave was not made a legal entitlement because of concern over the additional financial burden to the employer. By giving a 15% tax rebate on earned income in lieu of maternity leave, the Government is in effect bearing the financial burden itself. The additional tax rebate also acts as an incentive for women to rejoin the workforce after childbirth as the rebate can only be used to offset her own tax liabilities. The Member for Tiong Bahru GRC has suggested that tax incentives be given to employers to set up childcare centres for their staff. I would like to point out that there are already a number of deductions for employers who wish to set up inhouse childcare centres. For instance, day-to-day running expenses of such centres are tax deductible and capital expediture incurred in setting up such centres may also qualify for industrial building allowances. Capital grants and subsidies are also available under our financial support scheme administered by the Ministry of Community Development. Similar financial support is also available to approved non-profit making organizations which set up childcare centres in HDB estates. Members have also asked whether the relief for handicapped dependants could be extended to handicapped wage-earners. They may wish to know that the disabled wage-earner is already eligible for higher earned income relief, double the amount granted to able-bodied workers. For those disabled persons over the age of 55 years, the relief is $2,000 more than that for the able-bodied person. The Members for Siglap and Tampines GRC have urged that the tax reliefs for handicapped and aged dependants be given also for such dependants who do not live with the taxpayers. I would like to reiterate that the reliefs were introduced as part of Government's policy to encourage taxpayers to look after their handicapped and aged dependants. To remove the condition that the taxpayers and their dependants must be staying in the same household would run counter to this policy. As a general rule, I would also like to say that the granting of tax reliefs was never intended to cover the full costs of the activity. The taxpayer is obliged to carry part of these costs himself. Government would extend as much help as it considers equitable. But to cover the full costs of looking after the children or dependants would mean that large sectors of the population would become totally dependent on Government, which I think is undesirable in the long term. There are other routes for self-help beyond Government. There are charitable organizations, families, relatives and so forth. Tax exemption for CPF contributions. There are doubts as to whether the cap on deduction for CPF contributions out of bonuses contradicts Government's policy to encourage flexible wages. As I mentioned in my budget statement, the intention was simply to prevent the use of CPF as a tax shelter. On this, I am glad to note that the majority of Members agree with me. The cap on deduction is not inconsistent with Government's flexi-wage policy. I believe that it accommodates variable wage payments of up to 40% of the annual basic wage. With the implementation of the flexible wage system, it is envisaged that in a normal year a worker would receive up to an average of three months of their basic salary as bonus. In a good year, a worker might be paid an additional 1-2 months bonus. His total additional wages in a good year would, in general, be up to five months' pay or about 40% of his annual basic wages. However, some Members have expressed concern that this scheme may penalize certain wage earners who traditionally receive large commissions. The Member for Hong Kah GRC has provided the House with an alternative scheme by suggesting that we should cap the deduction at a certain percentage of total annual income instead, regardless of wage structure. There is merit in this proposal in that it allows the same maximum deduction for everyone with the same total income. However, I would like to point out that many ordinary low wage earners would then not be able to deduct their CPF contributions in full. This is because the cap by percentage total income has to be lower than the statutory CPF contribution rate in order to prevent tax avoidance through the shifting of basic wages to additional wages. Having said that, I think we will examine the merits of the scheme in greater detail to see whether there may be some features worth adopting. Consumption tax. Members of the House have expressed concern over the intention of Government to introduce a broad-base consumption tax in the future. Amongst other things, they are concerned about the negative impact on the lower income groups and on the implications for the tourist and retail industries. I have said in many past budgets that we are fully aware of these limitations and as and when we introduce these measures, they will be fully addressed. And I re-emphasize that this is still the intention of the Government. In my budget statement, I did mention that in the longer-term, we will need to introduce some form of comprehensive consumption tax to complement our system of direct taxes. This is to cover the contingency that we may be compelled by external forces to cut our direct taxes to a level where it can no longer support the revenue we need for Government purposes. Or alternatively, if Government is persuaded by Members and the public to spend greatly increased amounts of revenue on social purposes, social welfare or on health measures which are considered desirable, and this imposes an exceptional burden on the Government budget process, and if the direct tax budget cannot support it, then it will have to come from consumption taxes. We cannot rely on the drawdown of reserves. The Member for Nee Soon Central has said that the proportion of indirect to total taxes collected has increased over the years. He believes that the burden of tax has already been shifted to consumers. I would like to point out that the Member's figures are largely distorted by collections from taxes on motor vehicles and the foreign workers levy which are targetted at a very narrow group of individuals and companies. If these collections are excluded, then indirect tax would only form 35% of total taxes in 1987, as opposed to the Member's figure of 46%. To sum up, a broad-based consumption tax may be necessary if direct taxes are lowered through circumstances outside our control. In the longer term it is also seen as a more stable form of revenue, less susceptible to economic changes. Nonetheless as a start, Government has decided to adopt a more cautious stand through an item-by-item approach. I would like to assure Members that items selected will be those which are easy to collect, which will not adversely affect the lower income group. Care will also be taken to ensure that the effects on our tourist and retail trades are minimal. A good example of this is the imposition of the 5% tax on PUB bills with a cut-off at $40. According to PUB statistics this cut-off will ensure that more than 50% of PUB account holders will not have to pay the tax. I think that this will adequately cover the majority of those in the lower income group. Even those who have to pay the tax, the figures show that the highest 10% - the median value of the monthly PUB tax for the top 10% of PUB bills, is only $120. This higher income group will be only paying a PUB tax of some $4 a month, a figure which will not disturb them, I am sure. I just want to reiterate that in the formulation of any form of broad based consumption tax which would suit Singapore in the long run, every effort will be made to ensure that its less desirable side effects are mitigated. The broad principles which my Ministry will consider include the following: the tax must be broad based with minimal exemptions, it must be equitable, simple to understand, and simple to administer. It should not impact at tourists significantly nor the export sectors adversely, and its regressive nature will be mitigated. We are actively studying various forms of consumption and value added tax systems in use by other countries which include the experience in New Zealand and, more recently, the proposals introduced in Japan. Property tax. The Member for Fengshan noted that even with the property tax rebate rentals are still on the rise. He believes that the benefits arising from the rebate have accrued mainly to landlords and not to tenants. With the recovery of the economy in general and the property market in particular, it is inevitable that the demand for office space will increase, especially for high value retail space. Property tax is only one of the cost elements which determines the value of property rentals. While the 50% property tax rebate has helped to lower business costs, Government would expect these benefits to be shared in some rational way between landlords and tenants. This is best shaped by market forces of supply and demand and, as such, is best left as a matter of private negotiation between the landlord and the tenant. I do not see how Government can actively interfere in this process. The Members for Hong Kah and Yio Chu Kang have asked for the basis of the 4% tax rate on owner-occupied properties. The tax payable on owner-occupied properties will be based on 4% of the annual value as stipulated in the valuation list of the corresponding year. This valuation list is published every year and the annual values are periodically re-assessed in accordance with the conditions specified in the Property Tax Act. The present property tax collection from owner-occupied properties is about 4.41% of the total annual value of such properties. Setting the concessionary rate at 4% is basically a revenue-neutral approach. While some owner-occupiers will have to pay higher taxes because they have been paying extremely low taxes, a greater proportion would be paying lower taxes. The Member for Kampong Glam has also made a general comment that the Property Tax revisions may not benefit the lower income group such as HDB residential property owners. I would suggest to the Member that we should not prejudge the issue as the detailed implementation of the form of assessing HDB residential flats has yet to be finalized. I will now touch on the question raised by the Members for Kampong Glam and Tanglin on off-budget tax changes. Their view is that tax changes should be only introduced in the budget to allow a proper debate on the issues and also to allow companies and individuals to tax plan. This is indeed so. I have no quarrel with this particular approach. But as I have said in a television forum, the tax changes that were introduced before the budget, late last year, were of a type what I would call non-revenue tax. Although non-revenue forms of tax theoretically should also be announced during the budget, but because they are introduced for non-revenue reasons there may be occasions when it is appropriate to introduce the tax off-budget. The two changes introduced last year on car taxes and on foreign workers' levy are good examples. There were special circumstances which made it necessary to make the changes before the budget as it was felt that a delay of several months would make the situation even worse. So the distinction is not semantics or jargon. It is the nature of the tax and the activity. Finally, there were many questions on manpower and on civil service salaries raised by Members. I do not propose to address these as the Minister for Trade and Industry will be issuing a statement sometime this week and it is only one or two days away. There will be an opportunity to thoroughly debate his statement in the Committee of Supply either during the session for the Ministry of Trade and Industry or for the Ministry of Finance. Similarly, on the issues of privatization I prefer to take them during the Committee of Supply. In conclusion, I would say that over the past years, except for 1985 and 1986, our economy has always experienced high rates of growth. However, as our economy matures, we have to accept a more moderate, a more stable rate of growth. This budget serves to ensure that our level of competitiveness is maintained. At the same time we have continued to invest in the future and in our people. In this regard, I have introduced a series of fiscal measures to encourage procreation, family formation and care for our aged and handicapped. With these measures, I am confident that we have laid the groundwork for our future and for our children's future. [Applause.]

Question put, and agreed to. Resolved, That Parliament approves the financial policy of the Government for the financial year 1st April 1989 to 31st March, 1990.

Resolved, "That Parliament do now adjourn." - [Mr Wong Kan Seng]. Adjourned accordingly at Twenty-Four minutes past Four o'clock pm. Committee of Supply - MAIN AND DEVELOPMENT ESTIMATES OF EXPENDITURE FOR THE FINANCIAL YEAR 1ST APRIL, 1989 TO 31ST MARCH, 1990 (Cols. 201 - 204)