Hansard, 1991-03-01

Under the provisions of clause 2(d) of Article 46 of the Constitution of the Republic of Singapore, the following Members have been granted permission to be or to remain absent from sittings of Parliament (or any Committee of Parliament to which they have been appointed) for the periods stated:- Mr Chew Heng Ching - from 4th to 7th March, 1991. Mr Philip Tan Tee Yong - from 5th to 7th March, 1991. Mr Wong Kan Seng - from 8th to 10th March, 1991. TAN SOO KHOON Speaker, Parliament of Singapore

Order. On behalf of hon. Members, I welcome the Hon. Nicholas Dondas, Speaker of the Legislature of the Northern Territory of Australia, who is present in our gallery. [Applause].

"to provide for the issue from the Consolidated Fund of the sums necessary to meet the estimated expenditure for the financial year 1st April 1991 to 31st March 1992", recommendation of President signified; presented by the Minister for Finance (Dr Richard Hu Tsu Tau); read the First time; to be read a Second time on the next available sitting of Parliament, and to be printed.

"for making supplementary provision to meet additional expenditure for the financial year 1st April 1990 to 31st March 1991", recommendation of President signified; presented by Dr Richard Hu Tsu Tau; read the First time; to be read a Second time on the next available sitting of Parliament, and to be printed.

Resolved, That notwithstanding the Standing Orders, the First Supplementary Main Estimates of Expenditure for the financial year 1st April, 1990 to 31st March, 1991 (Paper Cmd. 4 of 1991) and the First Supplementary Development Estimates of Expenditure for the financial year 1st April, 1990 to 31st March, 1991 (Paper Cmd. 5 of 1991) be taken today. - [Dr Richard Hu Tsu Tau].

Order read for consideration in Committee of Supply [Allotted Day].

First Supplementary Main Estimates of Expenditure for the financial year 1st April, 1990 to 31st March, 1991, contained in Paper Cmd. 4 of 1991. No notice of amendments has been received. Question, "That the sums stated for the heads of expenditure as shown in page 4 of Paper Cmd. 4 of 1991 stand part of the First Supplementary Main Estimates", put and agreed to. Question, "That the sum of $82,664,820 shall be supplied to the Government under the heads of expenditure for the Public Services shown in the First Supplementary Main Estimates of Expenditure for the financial year 1st April, 1990 to 31st March, 1991", put and agreed to. Resolution to be reported.

First Supplementary Development Estimates of Expenditure for the financial year 1st April, 1990 to 31st March, 1991, contained in Paper Cmd. 5 of 1991. No notice of amendments has been received. Question, "That the sums stated for the heads of expenditure as shown in page 3 of Paper Cmd. 5 of 1991 stand part of the First Supplementary Development Estimates", put and agreed to. Question, "That the sum of $494,549,300 shall be supplied to the Government under the heads of expenditure for the Public Services shown in the First Supplementary Development Estimates of Expenditure for the financial year 1st April, 1990 to 31st March, 1991", put and agreed to. Resolution to be reported. Thereupon Mr Speaker left the Chair of the Committee and took the Chair of the House.

Mr Speaker, Sir, I beg to report that the Committee of Supply have come to certain resolutions. Resolutions reported - "That the sum of $82,664,820 shall be supplied to the Government under the heads of expenditure for the Public Services shown in the First Supplementary Main Estimates of Expenditure for the financial year 1st April, 1990 to 31st March, 1991, contained in Paper Cmd. 4 of 1991." "That the sum of $494,549,300 shall be supplied to the Government under the heads of expenditure for the Public Services shown in the First Supplementary Development Estimates of Expenditure for the financial year 1st April, 1990 to 31st March, 1991, contained in Paper Cmd. 5 of 1991."

Mr Speaker, Sir, I beg to move, "That Parliament doth agree with the Committee on the said resolutions."

Question put, and agreed to. Resolutions accordingly agreed to.

Mr Speaker, Sir, I beg to move the Motion* standing in my name under item No. 2 on the Order Paper. *The Motion reads as follows: That this Parliament, pursuant to section 7 of the Civil List and Pension Act (Chapter 44) resolves that the Schedule to that Act be varied by deleting the figures "$837,400", "$1,744,400", "$310,000" and "$94,800" in the second column and substituting the figures "$849,700", "$1,868,900", "$311,800" and "$31,900", respectively. Sir, it is proposed to increase the provisions for the Privy Purse and salaries of personal staff to $849,700 and $1,868,900 respectively. These marginal increases for FY91 are necessary to provide for normal salary increases, a possible increase in the rate of employers' CPF contribution, and more staff to cope with the anticipated workload increase. A higher sum of $311,800 is required to meet Expenses of the Istana household in FY91. The increase of $1,800 is minimal. The allocation for Special Services in FY91 is reduced from $94,800 to $31,900. Expenditure in FY90 was high because of the need to replace the First Lady's car. It is, therefore, necessary to vary the provisions in the Schedule to the Civil List as indicated in the Motion before the House. Sir, I beg to move.

Question put, and agreed to. Resolved, That this Parliament, pursuant to section 7 of the Civil List and Pension Act (Chapter 44) resolves that the Schedule to that Act be varied by deleting the figures "$837,400", "$1,744,400", "$310,000" and "$94,800" in the second column and substituting the figures "$849,700", "$1,868,900", "$311,800" and "$31,900", respectively.

Resolved, That the proceedings on item 3 on the Order Paper today be exempted at this day's sitting from the provisions of Standing Order No. 1. - [Mr Wong Kan Seng].

3.39 pm

Mr Speaker, Sir, I beg to move, "That Parliament approves the financial policy of the Government for the financial year 1st April, 1991 to 31st March, 1992."

In last year's Budget speech, I announced that the economic performance in 1989 was excellent with growth of 9.2%. The expansion was broad-based; "we had firmly left the shadows of the 1985 recession behind us". Although it seems that I may have spoken too soon, I am pleased to report that, notwithstanding the slowdown in the developed countries, the Singapore economy turned in a good performance in 1990 with growth at 8.3%. This was the fourth year in a row that we have achieved growth that exceeds the growth in indigenous labour and productivity. Our performance was comparable to the other 3 Asian NIEs and the economies of ASEAN. Korea grew by 9%, Taiwan by 5%, Hong Kong by 3%, Malaysia by 9%, Indonesia by 6-7% and Thailand by 10%. The financial and business services sector was again the leading sector. It grew by 15%, slightly higher than in 1989. The expansion was fuelled by offshore banking and treasury activities. The manufacturing sector also did well with growth of 9.5%. The growth was broad-based with several industries like chemicals and petroleum showing double-digit growth. The good performance of the manufacturing, and financial and business services sectors generated greater demand for transport and communications services. The transport and communications sector grew by 8.8%. Buoyed by entrepot trade, the commerce sector expanded by 7.8%. The construction sector grew by 7.2%. Although growth was strong, there were signs that strong demand had led to some overheating in the economy. The inflation rate of 3.4% was higher than in recent years. While this was partly due to the increase in oil prices which led to increases in petrol prices, utility charges, MRT and bus fares, it was also partly due to the underlying pressure on resources, particularly labour. The strong economy created 60,100 jobs, mainly in manufacturing and commerce. The labour market continued to be tight with the unemployment rate at a record low of 1.7%. Nominal wages rose by 9.4%. With inflation as measured by the GDP deflator at 3.0%, this translates into a real wage increase of 6.4%. In 1990, business costs rose by 7.3%, bringing us back to the level of 1982. A big factor was labour cost. Real wages rose by 6.4%, above productivity growth of 3.4%. As a result, the wage share in GDP rose from 42% in 1989 to 44% in 1990. Although this is still below the previous peak of 48%, we should watch it carefully. Increases in labour and fuel costs have also pushed up costs of other services like transport and utilities. Rentals have also risen. Many of these cost increases are inevitable because of the rapid growth of our economy. Neither should we try to avoid them since it is important that cost increases that reflect the relative scarcity of a resource should be allowed through if our economy is to function efficiently. This will send the right signals to entrepreneurs to take steps to conserve the resource or to make better use of them. The Government cannot cocoon businesses from the resource constraints that we face as an economy. It must be stressed that while absolute cost levels in Singapore have increased, our competitive position vis-a-vis the other Asian NIEs has been maintained. Of course, we recognise that Singapore is not only competing with the Asian NIEs. Regional economies like Indonesia, Malaysia and Thailand will increasingly move into our markets. The Government will continue to monitor our relative competitiveness vis-a-vis the Asian NIEs and the regional economies. The private sector must do its part to restrain cost increases and increase productivity.

In November last year, the Ministry of Trade and Industry's forecast is that growth for 1991 would be 3-6%. A slowdown was expected in view of the general decline in growth rates in the major industrial countries. Since the 1985 recession, our economy grew at 8-11% each year during 1987-90, which is above our long term sustainable growth rate of 4-6%. However, growth has been slowing down gradually since the first quarter of 1988, when it was 12%, to 7.8% in the second quarter of 1990. It would have slowed down further even without the Gulf crisis. The Gulf crisis added more uncertainty to prospects for 1991. When Iraq invaded Kuwait in August, one of the immediate effects was a jump in oil prices. As oil price hikes contributed directly to two previous world recessions, fears that the world would be plunged into another recession were widespread. The slowdown of the major economies was confirmed by the fourth quarter results of the US which recorded its largest negative growth of 2.1% since the 1982 recession. The major OECD countries all experienced slower growth in 1990 and the trend is expected to continue into 1991. Fortunately, the regional economies, particularly Thailand, Indonesia and Malaysia, are growing strongly. Their buoyant economies will help to sustain economic growth in this region. This was one reason Singapore's growth remained fairly steady in the second half of 1990. The major uncertainty in November was the possibility of a war and its impact on economic growth especially the price of oil. War broke out in January. However, it did not have the impact on oil prices and industrial production which had been expected. In fact, oil prices fell, and stock markets around the world rose. The recession in the US is expected to be short and mild. Germany and Japan are expected to register positive growth in 1991. Combined with strong growth in the ASEAN region, the outlook for economic growth in 1991, although still far from certain, is on the whole less gloomy than it was in November 1990. The latest surveys of business expectations conducted in December 1990 before the beginning of the war show industrialists and businessmen to be generally pessimistic about the economic conditions in the next six months. Since the start of the Gulf war on 17th January, the number of travellers to Singapore fell significantly. Business in the commerce and retail sectors has been adversely affected, with hotel occupancy rates dropping sharply and retail sales down. Our export-oriented sectors will be directly affected by any slowdown in global demand. Overall growth in the manufacturing sector is likely to be steady, but lower than that of 1990. Prospects for the commerce sector are dampened by slower growth in tourist arrivals and lower consumer confidence. However, regional trade is expected to grow in line with growth in the regional economies. The construction sector is expected to perform well because of orders contracted in the previous year. Finance and business services, which has been the fastest growing sector, should perform well even if it does not register the high growth rate achieved in 1990. Taking all these factors into account, in 1991 the economy should have no problem in achieving the originally forecast growth rate of 3-6%. However, we need to remain vigilant as future performance will depend on how quickly the Gulf situation is resolved. We must be prepared for quick changes in the economic environment. I urge employers and employees to continue with their efforts to adopt a flexible wage system so that rewards for workers can respond quickly and flexibly to changing economic circumstances. Although Singapore does not expect to enter a recession in 1991, wage increases this year should be moderate in the face of the general slowdown and uncertain economic prospects. In addition, wage increases should take into account adjustments in CPF contribution rates. Since 1986, the employers' contribution rate has risen by 6(r) percentage points to reach 16(r)%. Employees' contributions now stand at 23%. We are still some way from the long-term target of 20% contributions from both employers and employees. As we expect the Singapore economy to grow moderately this year, we should not postpone a further cautious adjustment to CPF contribution rates. Therefore, with effect from 1st July, 1991, the employers' CPF contribution rate will be increased by 1 percentage point to 17(r)%. The employees' rate will be reduced by half a percentage point, from 23% to 22(r)%. The total contribution rate will increase by half a percentage point, to 40%. On their own, these adjustments will raise labour costs, but the effect will be small compared to the annual rise of around 9% in prevailing wages. Furthermore, provided employees and employers take the CPF adjustments into account in wage negotiations, our overall competitive position should not be adversely affected. I would like to remind them that CPF increases are part of wages, and encourage them to conduct their collective bargaining accordingly.

Recent events have vividly reminded us that we live in a global village. Distant happenings have an instantaneous impact on us. I was told that when the Iraqi Foreign Minister Tariq Aziz and US Secretary of State James Baker met in Geneva just before the war, dealers in financial markets started to trade as soon as they saw live TV pictures of the two emerging from their talks. Even before the ministers made any statements at the press conference, CNN viewers around the world could see from their faces that the talks had not gone well. In the few seconds between the pictures and the statements, the financial markets moved. Those dealers who had not seen the two ministers' expressions obviously lost out. This is why the Government has decided to allow financial institutions to put up their own satellite dishes, and why it encouraged them to sponsor the relay of CNN over Channel 12. The war has also caused many travellers to cancel their travel plans to Singapore. Tourist arrivals in Singapore have fallen by one-quarter between the first and second halves of January. Consumers too have responded - first by rushing to stock up essential food commodities, and later by being more cautious in their spending. MAS has reported that withdrawals of cash from banks during the recent festive season were below normal. These examples show us how quickly information travels and how immediately it can affect our lives. How should Singapore respond to the challenges of living in a fast-changing and inter-connected world? We need a two-pronged strategy. Externally, we must build as many linkages as possible with other economies. Internally, we must be nimble and flexible. Building External Linkages Building external linkages is not a new concept to Singaporeans. International networking has been and will remain the key to economic growth and prosperity. We have seized opportunities to place ourselves in a position to be of service to others, be they multinational corporations looking for a value-for-money production location, or shippers looking for frequent connections and efficient port clearance, or businessmen looking for loans or even private individuals seeking medical treatment. We have built networks of varying sizes in different sectors and with many countries. Some of these networks are bilateral and geographically close, eg, day-trippers to and from Peninsular Malaysia, and more recently Batam island. Others are multilateral and global, eg, international air-courier services. In recent years, a number of economic groupings have been formed in our part of the world. These include the Growth Triangle, the Asia Pacific Economic Co-opera-tion (APEC) forum, and the East Asian Economic Grouping (EAEG) suggested by the Malaysian Prime Minister Datuk Seri Dr Mahathir Mohammed. Then of course we have ASEAN and arrangements that spring from ASEAN, eg, the ASEAN-US Initiative which links the six members of ASEAN with the US. Singapore is also an active member of GATT which counts as its members almost all trading economies. These economic groupings are not trade blocs. They are a more institutionalised form of networks. They help like-minded countries come together, in order to speak with one voice at international forums. They also provide a framework within which countries can take action to maximise their economic advantages. That is why we support and promote them. Let me use the Growth Triangle as an example. Singapore, Johor and Batam have all benefited from having closer economic linkages with each other. Johor has the potential of becoming a growth centre in Malaysia, just like the Klang valley and Penang. It also benefits from the higher purchasing power of Singapore - Singaporeans travelling to Johor by car alone are estimated to have spent more than half a billion dollars there last year. Singaporeans can in turn enjoy the attractions offered by Johor - beautiful beaches, land for industrial estates, lower labour cost for manufacturing operations. Similarly, Batam benefits from its proximity to Singapore - it can make use of Singapore's infrastructure to develop its industries, even while building up its own facilities. On its part, Singapore encourages more of our labour-intensive industries to re-locate to Batam. Had Batam not been so close to Singapore, or had it not been able to access Singapore's services and infrastructure, companies would have been understandably reluctant to move. By building linkages to different countries, regions and groupings, we can keep the Singapore economy on a steady course. The Singapore economy is like a ship sailing in choppy waters. External linkages are like stabilisers; the greater the number of stabilisers, the greater is our security. Some observers see a parallel between the present economic situation in Singapore and the previous recession in 1985. But there is one major difference. Whereas in 1985 the regional economies were in difficulties because of falling commodity prices, this year the region is expected to do well. So although we will undoubtedly be affected by the current US recession, the impact will be buffered considerably by the overall buoyancy of the region. Building a Flexible Economy Having well-diversified linkages is only half the story. Domestically, we must be nimble and respond quickly and flexibly to changing circumstances. Both business and Government have had to make quick adjustments to cope with situations arising from the Gulf war. In addition to allowing financial institutions to install satellite dishes, the Government will also be taking steps to help the hotel and restaurant sector cope with the current short-term problem caused by the Gulf war. I will elaborate on this later. Quick and nimble policy responses will help us weather any external shocks. However, the Government cannot change its policies so frequently that the business environment becomes unpredictable. The market is a much more responsive and flexible mechanism for making these constant adjustments, and should be exploited wherever possible. A good example of this is the introduction of the quota system for vehicle COEs. When the quota system was first introduced, quota premiums were high, reflecting the strong demand to buy cars. Now that demand has decreased, quota premia have dropped equally fast. Car-buyers benefit by paying less taxes (ie ARF, COE). In fact, some cars cost less today than they did before the quota system was introduced. All road-users benefit, because the car population is controlled and roads are less congested. The market has worked for the common good. If we had depended on increased ARF to control the car population, as we used to do, we could not have adjusted the ARF rates as quickly and accurately as the quota system automatically did. We have also sought to link wages to economic growth and the contribution of workers. Instead of rigidly applied annual increases, we seek to pay our workers more when times are good and their productivity and company profitability grow. In return, when the economy is less well off, workers who accept lower pay or even reductions in pay to overcome economic difficulties benefit through greater job security. That is how we got out of the last recession. The lessons have been learnt well. Now, more than 70% of companies have some form of flexible wage system in place. This enables us to react to any falls in demand without having to resort to retrenchment as a first response. If the economy performs better than expected, workers also get to share in the fruits by bringing home bigger bonuses. In other areas too, we should move more towards greater reliance on the market to be the balancing wheel or stabiliser. Although the market mechanism is not a panacea, in many instances it can help us to allocate scarce resources efficiently, whether the resource is industrial land, or road space, or the right to employ foreign workers. It will take some time to work out proper schemes to harness market forces constructively, and design mechanisms which are as distortion free as possible. Our ability to make full use of the market to operate efficiently is one of our competitive advantages which we should preserve.

Mr Speaker, Sir, I shall now move on to the Budget for the next financial year.

War in the Gulf, political unrest in the Soviet Union and the stalled GATT negotiations have created considerable uncertainty for the world economy. The United States is now in a recession. Germany, the rest of Europe and Japan are also expected to grow at a slower rate. The best way for us to deal with slower growth in our main markets is to trim our sails and remain internationally competitive. The private sector must continue to play a leading role in our economic development. Government will provide a fiscal environment conducive for the growth of this sector. On the revenue side, our policy will be to raise sufficient revenue to finance expenditure while maintaining a competitive tax structure. On the expenditure side, the public sector will be kept lean and trim so as to contain its share of the nation's financial and manpower resources. For this year's Budget, Government will concentrate on manpower and infrastructure development. Growth in operating expenditure will be restrained so that more funds can be channelled towards education, investments in infrastructure and improvements to the quality of life in Singapore.

Development expenditure is expected to increase from 6.4% of GDP in FY90 to 7.3% of GDP in FY91. Operating expenditure, on the other hand, is kept at 12.5% of GDP, below the medium term ceiling of 13.0% of GDP. Overall, Government expenditure as a proportion of GDP will increase, from 22% of GDP in FY90 to 23.9% of GDP in FY91. This is still within the 25% limit that Government has set for the long term. Total expenditure in FY91 is projected at $15.8 billion, an increase of $2.1 billion or 15.4% over the revised FY90 expenditure of $13.7 billion. Recurrent expenditure accounts for $10.9 billion or 69.3% of total expenditure, whilst development expenditure accounts for $4.9 billion or 30.7% of total expenditure. The Ministries of Education, National Development and Defence will account for half, while Social and Community services will take up almost a third of total expenditure in FY91. This reflects Government's priorities which are national security, quality education, affordable housing, a clean and green environment, good healthcare services, and improved facilities for the arts, sports and recreation to raise the quality of life in Singapore. Statutory expenditure on debt servicing will be $2.7 billion or 16.9% of total expenditure. Recurrent Expenditure Total recurrent expenditure for FY91 is projected to be $11.0 billion. This represents an increase of $1.3 billion or 12.9% over the revised FY90 expenditure. The rate of increase for FY91 is lower than that in FY90 over FY89, but as a percentage of GDP it is one percentage point higher at 16.6%. Expenditure On Manpower or EOM is projected to rise by 11.1% to $2.2 billion. EOM for FY91 constitutes 3.3% of GDP, marginally higher than the 3.2% recorded in FY90. The increase is mainly to cater for normal salary increments and the provision for essential vacancies. This has, however, been mitigated by a reduction in the total staff establishment, largely the result of efforts by Ministries to optimise manpower resources. In March 1988, I announced in this House that Government should aim to maintain 'zero-growth' in its staffing level as at 1986. I am pleased to inform the House that the total authorised establishment of Ministries and Government-funded statutory boards in FY91 will be trimmed by about 1,300 posts or 1.2% to slightly over 99,400 posts. This is 7.4% below the actual staff strength as at 31st December, 1986. The staff complements of the Ministries of Health, National Development and Finance will be reduced owing to restructuring or privatisation of some of their functions. Staff increases are, however, allowed for some Organs of State and Ministries, including the Ministries of Education, Home Affairs, Foreign Affairs, Communications and Trade and Industry. These increases are required for new programmes. Other Operating Expenditure or OOE is projected to increase by 4.6% to $985 million. The increase is relatively low because of the exceptionally high "one-off" expenditure in FY90 arising from Government's $88 million contribution towards the 25th Anniversary Charity Fund. Excluding this item, the increase is $132 million or 15.4%. This is mainly due to higher provisions for investment management fees, cash grants to stallholders in markets and food centres affected by HDB's redevelopment programme, child care subsidies and financial assistance to voluntary institutions. Higher capitation grants to special education schools and financial assistance schemes in independent schools also account for the large increase. A sum of $18 million has been budgeted as Government's dollar-for-dollar contribution to the endowment fund for the newly approved Singapore International Foundation. An additional sum of $7 million is also set aside to match contributions to be received in FY91 for the 25th Anniversary Charity Fund from public pledges made in 1990. Grants-In-Aid or GIA will increase by 4.7% to $1.3 billion. The increase is largely to meet higher operating deficits of the tertiary institutions. Pensions expenditure is expected to rise by 6.3% to $318 million. This is mainly due to the increase in the number of pensioners and the rising cost of medical subsidy to pensioners. Debt servicing costs are projected to increase substantially, from $2.0 billion in FY90 to $2.7 billion in FY91. This represents an increase of $636 million or 31.3%. The increase is to meet interest payments on new domestic loans expected to be raised in FY91 and to cater for higher interest charges on floating rate stocks issued to the CPF Board. Development Expenditure Development expenditure in FY91 is projected to be $4.9 billion. This represents an increase of nearly 22% over FY90. Excluding expenditure on public housing, direct Government development expenditure will rise to $2.2 billion, an increase of nearly 60%. Major development projects include reclamation at Buran Darat, Telok Ayer Basin and Changi East; and the construction of the Senoko Refuse Incineration Plant, the new Institute of Health and National Dental Centre, hospitals, polyclinics, single session secondary schools, roads, and civil defence facilities and shelters. Capital subsidy for public housing is projected to be $819 million. This includes a capital subsidy on the sale of HDB flats, and provisions for specific works and the upgrading programme, as well as capital grants to Town Councils. Capital grants to other statutory bodies will amount to $1.5 billion, an increase of 20.2%. The major items of capital expendi- ture include payments for the MRT system and Changi Airport Terminal Two; development of infrastructural facilities and attractions at Sentosa and the Singapore Zoological Gardens; development of university campuses and staff quarters, independent schools, aided schools, junior colleges and vocational institutes; and the upgrading of facilities for the Singapore Broadcasting Corporation. Grants are also provided for the Economic Development Assistance Scheme administered by EDB and to meet depreciation expenses of facilities attributable to subsidised patients in the restructured hospitals. The projected development expenditure includes a contingency provision of $318 million for new development projects that may be approved for implementation in FY91. A sum of $200 million is also provided for Public Sector R&D expenditure in FY91, of which $117 million has already been committed. The balance of $83 million will be available for new R&D projects. The newly established National Science and Technology Board, under the Ministry of Trade and Industry, will co-ordinate all R&D projects with effect from the new financial year.

Last year, I informed the House that my Ministry had embarked on a programme to set up Management Accounting Systems in all Ministries. These Management Accounting Systems, or MAS for short, will allow Ministries to track and analyse the cost of their services, products or activities and to gauge their cost-effectiveness. Under the Block Vote Allocation System introduced in FY89, Ministries are accountable for the way they deploy their manpower and funds, and for the results they produce. In this regard, the MAS will serve as an important tool for the Ministries to identify poor performance, inefficiencies and waste and to take remedial actions. Phase One of the MAS Project is under way and will be substantially implemented before the end of FY91. This phase of the project covers the Ministries of Finance, Education, Health, National Development and Environment. Phase Two, which will begin in FY91, will cover the Ministries of Home Affairs, Communications, Law, Information and the Arts and Foreign Affairs. The MAS project for the Ministries of Trade and Industry, Labour and Community Development is originally scheduled to be undertaken in Phase Three. It may be subsumed under Phase Two if manpower resources permit. To identify costs accurately under the MAS, additional financial systems will have to be introduced to supplement the Government's cash basis of accounting. A Fixed Assets System, acronymed FAST, has been installed to record the stock of Government's capital assets and to compute depreciation expenses. FAST will also allow Government to compute how much money to set aside to provide for the replacement of capital assets. Most Ministries have been trained on the use of FAST. They are now entering their asset records into the system. Following the corporatisation of the Management Services Department in July last year, the responsibility for undertaking the planned zero-base reviews of Ministries and Organs of State has been assumed by the Auditor-General's Office. These reviews are an integral part of our efforts to keep Government programmes and practices up-to-date, relevant and cost-effective, and to weed out inefficiencies and waste. In FY90, zero-base reviews of the Ministries of Community Development and Communications and Information were completed and a similar review of the Ministry of Home Affairs initiated. Zero-base reviews for another four Ministries and two Organs of State will be carried out over the next one and a half years.

Mr Speaker, Sir, I shall now turn to Government's revenue position and proposed tax changes for FY91. Revenue collection for FY90 is expected to reach $16.9 billion, an increase of 9.7% over the FY89 collection of $15.4 billion. The increase is a result of the strong and broad-based economic growth in 1990. This year, our economy is expected to slow down because of uncertainties created by the Gulf war and slower growth in the major developed countries. Revenue in FY91 is therefore expected to show a modest increase of 1.9% to $17.2 billion. However, with total expenditure estimated at $15.8 billion, a surplus of $1.4 billion is still expected. This amount will go towards augmenting our pool of reserves, which we can draw upon in bad times. Over the years, we have gradually reduced our corporate and individual tax rates. Singapore's tax structure is now among the most competitive in the world. There is therefore no need for us to lower tax rates further to maintain our competitive position. Although growth in FY91 will slow down, the economy should have no difficulty achieving a growth rate of 3-6%. A fiscal stimulus for FY91 is therefore also not indicated. However, our revenue position does offer Government scope to pass part of its surplus back to individuals who have contributed to make this another successful year for Singapore. I will elaborate on this later. The state of our economy is visible evidence of the success of Government's fiscal policies. Government will continue to provide a conducive environment for business to thrive and prosper. As in the past, we will use tax incentives to promote the development of specific industries. These industries will include those with high potential, in particular those which are knowledge- and skill-intensive. Amongst the tax incentives for this Budget, I will be introducing a change to our tax system which will further encourage our companies to invest and expand overseas. With our small domestic market, it is imperative that we be export-oriented and outward looking. By venturing abroad, our companies will gain access to new markets, resources and technologies. Last year, I indicated my intention to introduce legislation on a comprehensive goods and services tax or GST but to defer its implementation for as long as Government's revenue position permits. In this regard, I would like to inform the House that work on a draft GST legislation has been completed. A White Paper together with the draft legislation will be tabled in Parliament when it is ready. Let me now deal with the tax changes for FY91.

Corporate Tax As I indicated earlier, our corporate tax rate is amongst the lowest in the world and will therefore remain unchanged at 31%. Tax Exemption on Dividends Paid Out of Foreign Income We have in Singapore an imputation system which passes back to shareholders of a company the amount of tax it has paid, when its taxed profits are distributed. This is to remove double taxation which would otherwise have occurred if tax were levied first on corporate profits and then again on the dividends paid out of such profits. However, the imputation system does not completely eliminate the problem of double taxation in the case of foreign income. There is a franking mechanism in our tax law which ensures that the tax imputed to shareholders upon payment of dividends must have already been paid by the company. If the company has not paid sufficient tax to frank dividend payments, it must pay a tax to meet the shortfall in franking credit. This creates a problem where a company received foreign income and the Singapore tax on this income was reduced by a tax credit allowed in recognition of tax already paid on it overseas. In this case, the reduced Singapore tax will not provide the company with sufficient franking credit to distribute the entire foreign income to its shareholders. The effect is that shareholders will not be able to benefit from the foreign tax credit given to the company. To resolve this, I propose to exempt from tax, dividends paid out of foreign income for which there is insufficient franking credit due to the foreign tax credit given. Where the foreign tax paid is equal to or higher than Singapore's, the entire foreign income, net of foreign tax, will be allowed to be distributed as tax exempt dividends to shareholders. Where the foreign tax is lower than Singapore's, only dividends paid out of a part of the foreign income will be exempt from tax. That part shall be computed by dividing the tax credit by our corporate tax rate and subtracting from it the foreign tax paid. For the remaining foreign income, the Singapore tax will be sufficient to frank dividend payments. Where a recipient of the tax exempt dividends is a holding company, it can in turn distribute tax exempt dividends out of those it has received. This tax concession shall apply to dividends paid out of foreign incomes assessable to tax from Year of Assessment 1992. I hope it will encourage more of our companies to invest overseas and to repatriate their profits. Approved International Shipping Enterprise (AIS) Scheme Owing to our strategic location at the crossroads of East-West trade, Singapore has developed into one of the busiest ports in the world. Our free shipping policy has been very effective in encouraging ships to register in Singapore, and attracting shipping companies and marine-related businesses to locate here. However, many of the shipping companies now in Singapore are merely operational arms which act on decisions made by their headquarters or holding companies located outside Singapore. There is a need to build up a critical mass of shipowners if Singapore is to develop into an international maritime centre. The presence of such a critical mass will bring technical expertise and economic spin-offs. It will also foster developments in ancillary maritime services. To encourage major international shipowners to locate in Singapore, I propose to introduce a tax incentive for resident shipping companies called the Approved International Shipping Enterprise Scheme. Under the scheme, the income of an approved international shipping enterprise (AIS) from the operations of its non-Singapore flag ships outside Singapore will be exempt from tax. Qualifying dividends from approved subsidiaries and associated shipping companies of the AIS will also be granted tax exemption. Income derived by the AIS from the uplift of freight in Singapore by its non-Singapore flag ships will be subject to normal corporate tax. AIS status may be granted for a period of up to 10 years in the first instance, and may be extended thereafter. The scheme will take effect from Year of Assessment 1992. It will be administered by the Singapore Trade Development Board. Tax Deduction for General Provisions made by Banks Recent developments in the financial markets have highlighted the growing fragility of the international banking system brought about by deterioration in the loan and investment portfolios of banks. Major international banks have experienced a rise in bad debts because of sudden declines in the financial condition of their borrowers. As a result, banks which have not maintained adequate provisions to cushion themselves against unforeseen losses in their loan portfolios had to report large loan losses. If such losses are incurred by an increasing number of banks, the ensuing loss of depositor confidence will have adverse consequences on overall economic activity. Unlike other sectors of the economy, banks have a unique role in mobilising depositors' savings for productive investment, and facilitating payments in the national economy. Given the increased volatility of the international financial markets, and the need to ensure confidence in our financial system, it is crucial for banks operating in Singapore to build up adequate provisions. This will give the banks more latitude to withstand losses and diminution in the value of their assets. In view of the special role which banks play in the economy, I have decided to allow the general provisions made by banks and merchant banks in Singapore to be tax deductible. This is aimed at encouraging banks and merchant banks in Singapore to build up their reserves, and promote the overall soundness and stability of our financial system. This, in turn, will promote the further development of Singapore as an international financial centre. Allowing tax deduction for general provision is not a revolutionary measure, as a number of industrialised countries already provide for it. The amount of provisions eligible for tax deduction will be limited to 2% of each institution's total loans and investments, excluding Government securities. The amount deductible each year will be limited to a quarter per cent of such loans and investments. The deduction will be allowed with effect from Year of Assessment 1992. Further details relating to the deduction will be announced by the Monetary Authority of Singapore. Tax Incentive for Services Provided by Trust Companies Trustee services are important supporting services to fund managers and investors. Trustee companies act as custodians, nominees, trustees or agents in investments transactions. The promotion of trust business will thus support the development of fund management and securities trading activities in Singapore, and contribute to the growth of our financial sector. At present, a 10% concessionary tax rate is available only to Approved Securities Companies and banks, for income from financial trustee activities. I have decided that with effect from Year of Assessment 1992, a concessionary tax rate of 10% shall also apply to income of Approved Trust Companies from providing specified trust services to non-residents in respect of their non-Singapore dollar investments. With this incentive and our strategic location in the rapidly growing Asia Pacific region, our financial sector would be in a good position to develop as a centre for international trustee activities for investments in the regional financial markets. Tax Incentive for Underwriting and Managing International Securities Issues At present, Asian Currency Units (ACUs) and Approved Securities Companies are taxed at a concessionary rate of 10% on certain types of qualifying income from trading in non-Singapore dollar securities on behalf of non-residents and on their own account. This incentive has significantly promoted the financial sector's development as a centre for trading of international securities. To develop Singapore further as an international financial centre, we need to promote not only the trading of international securities, but also the issuance of such securities from Singapore. The strong growth in the Asia Pacific region has resulted in a greater demand for funds from regional businesses. Investment banks and securities companies should be encouraged to take advantage of this development by providing services for the issuance of international securities from Singapore. I have, therefore, decided to extend the 10% concessionary tax rate available to ACUs and Approved Securities Companies to cover income derived by them from arranging, underwriting, managing and placing international securities issued from Singapore. These securities should be issued by non-resident companies in non-Singapore dollars and placed with non-residents. The incentive will take effect from Year of Assessment 1992.

Personal Income Tax As our personal income tax rates remain competitive, I do not propose to alter the tax schedule. However, to reward individuals who have contributed to make the past year another successful one for Singapore, I have decided to give an across-the-board and one-off rebate of 5% on personal income tax for Year of Assessment 1991. The estimated revenue loss is $65 million. Tax Deduction for Contributions to Edusave Scheme In line with Government's commitment to invest in our people and to provide equal opportunities for each new generation, the Edusave Scheme will be introduced in January next year. Under the Scheme, funds will be made available for students to pay the second tier miscellaneous fees, as well as expenses for extra-curricular activities and enrichment programmes. For this purpose, an initial sum of $1 billion from our surplus this year will be set aside to establish an Edusave Endowment Fund. The investment income from the Fund will be used to make annual contributions to the Edusave accounts of the first three children of a family. The initial amount per child will be $100. This will be increased to $500 eventually. Parents will be able to contribute the same amount to the Edusave account of their fourth child. This amount will be tax deductible. The tax deduction will take effect from Year of Assessment 1993. Tax Relief for Handicapped Spouse Government encourages families to look after their handicapped dependants by providing reliefs to taxpayers for supporting their handicapped parents, children and siblings. In this connection, I have decided to extend the handicapped dependant relief of $3,500 to include support of a handicapped spouse, provided the handicapped spouse does not have an income of more than $1,500 in that year. Where a husband is claiming handicapped dependant relief for his wife, he will not be able to claim normal wife relief. The new relief will take effect from Year of Assessment 1992. The revenue loss is expected to be about $1 million. Tax Deduction for CPF Contributions of Self-employed Persons Self-employed persons who have made voluntary contributions to CPF, including payments to Medisave, are currently allowed to deduct such contributions from their assessable income. In last year's Budget, the limit for such deductions was raised to 15% of the assessable income from self-employment, subject to a maximum of $10,800 per year. With the revision in the employer's CPF contribution rate to 16(r)% on 1st July, 1990, the tax deduction for voluntary contributions of self-employed will be raised to 16(r)% of assessable income, subject to a maximum of $11,880 per year, with effect from Year of Assessment 1992. This will be further increased to 17(r)% of assessable income, subject to a maximum of $12,600 per year with effect from Year of Assessment 1993, in line with the increase in employer's CPF rate to 17(r)% with effect from 1st July, 1991.

Property Tax Refund on Vacant Residential Buildings Undergoing Building Works Government's objective has always been to promote home ownership in Singapore. It is in support of this, that property tax on owner-occupied residential properties is levied at the concessionary rate of 4% of annual value as against the full rate of 16%. This year, I intend to give a further concession by allowing a refund of property tax on vacant residential buildings undergoing building works provided the building will be owner-occupied following completion of the works. The tax refund will be limited to a maximum period of two years. This concession will take effect from 1st April, 1991. The revenue loss arising from this concession is estimated to be about $5 million a year.

Entertainments Duty At present, the duty on entertainments, with the exception of racing of horses and vehicles, is 10% of the payment for admission. In keeping with our commitment to create a more vibrant cultural and entertainment scene in Singapore, the duty will be reduced to 5%. The duty on admission to horse and vehicle races will remain at 35%. Details of the changes are in Appendix I (Cols. 265 - 266). The change in duty will take effect from 1st April, 1991. The revenue loss is estimated at $7 million a year. Appendix I - ENTERTAINMENTS DUTIES (Cols. 265 - 266) Tourism Cess Our economy is expected to perform reasonably well on an overall basis this year. However, some sectors, such as hotels, restaurants and tourist-related retailshops, have been adversely affected by the secondary effects of the war in the Gulf. To assist these sectors, the tourism cess rate will be reduced by 1 percentage point from 4% to 3%. The reduction will take effect from 1st April, 1991 and will be for a period of one year. It will cost the Government about $22 million in cess revenue. This concession should help hotels and restaurants to tide over their current difficulties. Duties on Cigarettes and Tobacco Duties on cigarettes and tobacco were last revised in March 1989 to discourage smoking. Although a decline in smoking among older adults has resulted in an overall decline in consumption, there has been a marginal increase in smoking among our youths. In support of the national effort to turn Singapore eventually into a nation of non-smokers and in particular to discourage smoking among our younger population, the import duty on cigarettes will be raised by $15 per kilogram to $100 per kilogram. The import duty on tobacco and excise duty on cigarettes will also be increased by $8 per kilogram and $10 per kilogram respectively to $50 per kilogram. With your permission, Sir, I would like to table Appendix II (Cols. 267 - 268) showing details of the increases. These increases will take effect from today. Appendix II - DUTIES ON CIGARETTES AND TOBACCO (Cols. 267 - 268) Water Conservation Tax With economic progress and a rising standard of living, Singaporeans have been steadily consuming more water each year. Both domestic and non-domestic water consumption have gone up by 4.4% annually over the past 10 years, despite periodic Water Conservation Campaigns and tariff revisions. Early last year, following an unusually dry spell, water stocks in our reservoirs fell to very low levels, highlighting our acute dependence on adequate water supplies and the need for measures to curb the demand for water. To slow down growth in water consumption, a Water Conservation Tax will be introduced with effect from 1st April, 1991. Residential premises which consume more than 20 cubic metres of water per month will pay a 5% tax on the excess amount. The Water Conservation Tax will be in addition to the existing 5% tax on PUB bills of domestic consumers that exceed $40 per month. The majority of households, about 60%, will not be affected by the tax as they consume less than 20 cubic metres of water monthly. The Water Conservation Tax for the non-domestic and shipping sectors will be set at 10% as these sectors do not now pay the 5% PUB tax. Government is actively exploring and developing new sources of water to meet Singapore's future needs. The Linggui dam project in Johor is currently in progress and future requirements may have to come from as far afield as Pahang and the Riau islands. Building reservoirs, dams and pipelines involves heavy capital expenditure. These must eventually be recovered through higher water tariffs. Regular revisions of water rates can, therefore, be expected within the next few years.

In conclusion, Mr Speaker, Sir, the outlook for Singapore this year is one of guarded optimism. Singapore's economic fundamentals remain sound. The ending of the Gulf war has removed a major cause of uncertainty. The Asia Pacific region is also expected to show rapid growth. This will offset some of the adverse effects of the expected slow-down in the major developed economies. Nevertheless, we should be mindful that the situation in the Gulf remains highly volatile. We must, therefore, remain vigilant. The fiscal measures introduced in this Budget are designed to enable us to broaden our economic base and to tap into regional growth. This will build greater resilience into our economy. Our economic policies will also be kept flexible to counter any major problems that may arise. Government will continue to invest in its people. Our economy has performed well for four consecutive years now. We cannot expect such progress to continue without a hitch. There will always be occasional difficulties which will slow us down. But these should not distract us from our long term goal of becoming a developed nation by the turn of the century. I am confident that with a well-educated and highly motivated people working in close co-operation with the Government, this goal can be achieved. Sir, I beg to move. [Applause].

The Question is, "That Parliament approves the financial policy of the Government for the financial year 1st April, 1991 to 31st March, 1992." In accordance with paragraph (1) of Standing Order No. 84, the debate now stands adjourned. Debate to be resumed on what day, Dr Hu?

Monday, 11th March, Sir.

So be it.

Resolved, "That Parliament do now adjourn to Monday, 11th March, 1991." - [Mr Wong Kan Seng]. Adjourned accordingly at Fourteen minutes to Five o'clock pm to Monday, 11th March, 1991. Appendix I - ENTERTAINMENTS DUTIES (Cols. 265 - 266) Appendix II - DUTIES ON CIGARETTES AND TOBACCO (Cols. 267 - 268)