Mr Speaker, Sir, I would like to begin by thanking Members for the keen interest they have shown in this year's budget debate. Although Members are generally supportive of the budget, many have commented that it was rather cautious, and some have reflected businessmen's concern over the planned increase in CPF contribution in a year when the economy is expected to slow down. Let me explain Government's thinking in formulating this year's budget. For the past four years, our economy has expanded at an average rate of more than 9% annually. This far exceeds our sustainable long term growth rate of between 4% and 6%. Growing at such a fast pace has led to over-heating of our economy and a severe shortage of labour. The unemployment rate has fallen sharply from 3.3% in 1988 to 1.7% last year. The result is strong pressure on wages and annual real wage increases have risen from 2.4% in 1987 to 6.4% last year. Of the four years, wages in the last two years grew faster than productivity. Inflation which was at half a percent in 1987 has gone up to 3.4% in 1990. An appreciating Singapore Dollar has largely neutralised the effects of imported inflation so that wage rises accounted for a large part of the rise in inflation. With a labour force growth of around 2% and productivity increases of between 3% and 4%, our domestic economy can only support non-inflationary growth in the 5% to 6% range. Significantly higher growth rates, as we have seen in the last four years, must eventually feed through into higher wage inflation, with its all undesirable side effects. Job-hopping has already become very widespread, especially among the young. This, in time, will erode the work ethic. More importantly, another two to three years of head-long growth in which wages greatly exceed productivity will seriously undermine our competitiveness. If this coincides with a downturn of the external sector, we could easily see a replay of the 1985 recession. With the early end of the Gulf War and the stabilisation of oil prices, the outlook for the world economy has visibly improved. I believe that our economy should have no difficulty in achieving GDP growth rates in the upper end of the 3%-6% growth forecast. The settling back of GDP growth to the 5% to 6% range should take pressure off the labour markets, remove speculative frenzy, and allow the economy to consolidate after four years of high growth. Against this background, businessmen should not expect the Government to provide stimulus to restore domestic GDP growth to the 8%-plus range. This, however, does not mean that we cannot grow at a faster pace. To achieve higher growth and yet not exert pressure on domestic factors of production, industries will have to move their labour intensive components into the other two legs of the Growth Triangle, or deploy their surplus capital farther offshore into the industrial markets. This growth path is well-trodden by small but highly developed countries like Switzerland. For the service industries which cannot readily export their activities, the path for non-inflationary growth has to be via the upgrading of skills and diversification into higher value-added areas. The emphasis in this budget is hence on overseas investment, offshore markets, and the promotion of areas of low labour intensity and high value-added. The budget is mildly stimulative in specific areas. Government development spending is 22% higher, but mainly in areas of infrastructure which do not compete with the private sector or add to productive capacity. Some help is offered to the tourist and retail consumer sectors most hurt by the Gulf War and its aftermath via the cess reduction and the personal tax rebate. Let me now deal with the specific issues raised by Members. I will not address all of them, as some would be more appropriately dealt with in the Committee of Supply. Cost of doing business. Several Members have spoken about the rising cost of doing business in Singapore, and how the one percentage point increase in employers' CPF contribution would worsen the situation. Members will recall that the employers' CPF contribution rate was reduced from 25% to 10% during the last recession. This was a big sacrifice on the part of our workers to help the nation regain its competitiveness. Government recognises their contribution and is committed to restoring the cut in employers' CPF contribution in tandem with the nation's economic performance. Hence, the restoration of employers' CPF contribution. However, the restoration of employers' CPF contribution cannot be done overnight without seriously affecting the cost of doing business in Singapore. With good economic performance over the last four years, Government has gradually increased employers' CPF contribution to 16 1/2%. This year, our economy is expected to grow in the upper end of the 3% - 6% range. There is, therefore, no good reason to postpone a further cautious adjustment to CPF contribution rates. An increase in employers' CPF contribution will undoubtedly contribute to wage cost increases. It is therefore important that the increase in the employers' contribution rate be taken into account in wage negotiations. If this is done, our overall competitive position should not be adversely affected. Some Members have asked Government to review the long term CPF contribution rate of 40%. They felt that this rate might be too high, considering its impact on wage cost. I do not propose to address the issue here, but will leave it to the Minister for Labour to take it up in the Committee of Supply. Moving on to the broader issue of rising business costs, I would say that most of these increases were inevitable because of our rapid economic growth. I would like to stress the importance of allowing such increases through if we want to send the correct signals to businesses to optimise the use of our scarce resources. Several Members have expressed concern that many Government-mandated cost changes have been made outside the budget. As I have explained in last year's budget debate, it is not the intention of Government to deliberately introduce major cost increases outside the budget. Wherever possible, Government will time the announcement of major fee revisions to coincide with the budget cycle. Members of the House should, however, understand that it is not always possible to do this, especially if the changes involved were not introduced specifically for revenue or budgetary reasons. Take the case of the upward revision in the foreign workers levy for the marine industry. Prompt action was necessary in that instance to contain the sharp increase in demand for foreign workers. Government also had to give those from the industry affected sufficient advance notice so that they can make the necessary adjustments to their operations. With regard to other major fee increases, such as the revisions to utilities, tariffs and postal rates, these were necessary to meet rising operating costs. That being the case, it is not appropriate to postpone them until the budget. Having said that, Government shares the concern that cost increases, whether originating from the public or private sector, should not unduly undermine our international competitiveness. On the Government's part, it will continue to monitor its statutory charges and fees so that increases occur, when they do, in a gradual manner. Corporate Tax Some Members were disappointed that no reduction was made to the corporate tax rate to offset the increases in business cost. The business community should not always look to Government for tax breaks for this purpose. Tax breaks, particularly reductions in corporate tax, are expansionary fiscal measures. They are appropriate if our economy has excess capacity. But with a tight labour market and a fully-employed economy, they will just add to the pressure on labour costs and prices. As it is, our corporate tax structure is already very competitive. This is due to several features in our corporate tax system. One of these is that we have a very low corporate tax rate. The present rate of 31% is among the lowest in the world. For shareholders, the effective tax rate could be even lower than this because of our imputation system. We have also very generous depreciation allowances in comparison with most other countries. The presence of various incentive schemes further enhances the tax competitiveness of certain sectors of our economy. In addition, our extensive network of 26 tax treaties alleviates substantially double taxation of income. Overall, our aim is not to compete to have the lowest tax rates in the world, but to keep our rates sufficiently low so as to attract a continuing flow of high quality investments, and to ensure that entrepreneurs will find it attractive to base their operations in Singapore. Let me assure the House that Government will continue to monitor global tax developments closely. We will always ensure that our tax structure is kept internationally competitive and adequately rewards effort and enterprise. Some Members have commented that Government has not given adequate assistance to local entrepreneurs, in particular, our small and medium sized enterprises (SMEs). Contrary to this, I believe that our SMEs are well taken care of. The EDB has a division to look specifically into the development of these enterprises. There are also in existence a number of tax incentives for SMEs. These include the pioneer, post-pioneer and investment allowance incentives. Besides these incentives, there are many financial assistance schemes to help SMEs. These include the Small Industries Finance Scheme, the Market Development Assistance Scheme, the Product Development Assistance Scheme, Business Development and Small Industries Technical Assistance Scheme. These schemes are aimed at helping SMEs to improve their operations and products, and hence to compete internationally. Through them, the SMEs can obtain low-cost financing for their operations and also grants to cover a substantial part of the costs incurred by them in market, product and business development. The Member for Cairnhill has asked whether Government would consider introducing a two-tier progressive corporate tax system whereby smaller companies will enjoy a lower tax rate. I would like to point out that under our full imputation system, the two-tier structure will in effect lead to a tax deferral for small companies. This is because once their profits are distributed, these will be subject to tax at the shareholders' marginal rates. There are also a number of problems with a two-tier tax system. For example, companies may be tempted to reduce their overall tax burden by hiving off parts of their operations to subsidiaries. Those with a fluctuating income stream could be disadvantaged against those with a stable stream of income. Some may also want to shift income from one year to the next to avoid higher corporate rates. I am, hence, not in favour of a two-tier corporate tax system. The Nominated Member, Mr Leong Chee Whye, has asked whether the Operational Headquarters tax incentive and exemption of foreign income under section 13(7) of the Income Tax Act could be made generally available to local companies wishing to expand overseas. Let me first deal with the issue of the taxation of foreign income. There have been many similar calls for a broadening of tax concessions on foreign income. These range from requests for unilateral tax credit to be given for all taxes paid or spared in foreign countries to a blanket exemption for all foreign incomes. While I agree that such measures could be strong incentives for our companies to expand or relocate some of their operations abroad, I must say that there are many problems with such a liberal treatment of foreign incomes. Firstly, a loophole would be created for residents to channel taxable Singapore income offshore and to remit this back tax-free. For example, income and funds which are deposited or managed here could easily be transferred to a tax haven or low tax country. Secondly, residents may be encouraged to site operations in a low tax country to the detriment of our economic base. Thirdly, we risk being labelled a tax haven. This could result in our foreign investors being penalised by anti-tax avoidance measures in their own countries. There is also the risk that our existing tax treaties may be terminated. For these reasons, my position on the taxation of foreign income is that impediments to the repatriation of foreign income should be removed as far as possible. Where double taxation occurs, we should resolve this through tax treaties. However, any unilateral tax concession for the taxation of foreign income should be considered on a case-by-case basis against its economic benefits for Singapore. On the issue of OHQ status for local companies, let me say that local companies are among those which have been given the OHQ tax incentive. The reason why fewer local companies have been able to benefit from the incentive is that not many have a regional base or a network of companies big enough to warrant an OHQ. However, I would like to inform the House that companies with the potential to grow into a full-fledged OHQ within five years are eligible for the "Lesser OHQ" scheme. It is a scheme to encourage smaller companies to develop into Regional Business Centres and eventually into OHQs. Under the scheme, certain foreign income is exempt from tax. Local companies have been given this incentive. The Members for Yio Chu Kang and Cheng San GRC have asked whether the deduction of general provisions, which would be allowed for banks, could be extended to finance companies. I have explained in my Budget speech the need to encourage our banks to build up adequate provisions. Banks play a vital role in our economy. For this reason, the stability of our banking system must be preserved at all times. This is more crucial now with the increasing fragility of the international banking system. Our banks also operate in a highly volatile environment of the world financial markets. Adequate provisions would allow them to better cushion themselves against losses and diminution in the value of their assets, and lead to a more stable financial system in Singapore. Unlike banks and merchant banks, finance companies do not compete in the international arena. In addition, most of the loans of the finance companies are secured as they can only grant unsecured loans of up to $5,000. For the finance companies, therefore, there is less concern about the exposure to the volatility of the international markets. In view of this, there is no need to extend the deduction of general provisions to finance companies. Individual Income Tax The Member for Potong Pasir has asked for a lowering of the personal tax rates. I have mentioned in my Budget speech that our rates are competitive. As personal tax rates are graduated, the effective rate for individuals in the highest tax bracket is in fact considerably lower than the 33% nominal value, and are effectively below 30%. There is hence no need to alter the tax schedule. The Member for Aljunied GRC, Mr Chin Harn Tong, has commented that the income tax rebate of 5% will benefit the professionals more than the ordinary workers who form the bulk of the population. Members will note that the 5% one-off rebate announced this year is in addition to the 15% rebate of the first $10,000 of chargeable income already in the Income Tax Act. After taking into account these two rebates, the lower income groups would have enjoyed much higher tax savings in terms of the percentage fall in average tax payable, compared to the higher income groups. The 5% across-the-board rebate is a proportional rebate. This means that a person paying more tax will enjoy a higher amount of rebate in dollar terms than one who pays less tax. This is in no way inequitable. Moreover, as the rebate is based on tax calculated at progressive rates, it does not reduce or alter the progressiveness of the existing tax rate structure. The rebate is a simple way of affording tax reduction while maintaining the same degree of progressiveness within the tax structure. Dr Vasoo has commented that the 5% rebate cannot buy even two plates of nasi lemak. I take it that he means that for some taxpayers the rebate will only be a few dollars. If this is the case, then it simply proves that the taxpayers have paid very little tax in the first place. Some Members have asked that tax deduction be allowed for expenses incurred by individuals on education or to service housing loans. As a general principle, such private expenditure should not be granted tax deduction as they are not incurred in the production of income. The result will be a significant erosion of the tax revenue. This principle is also followed in most countries. The Member for Aljunied GRC, Mr Chin Harn Tong, has also asked that the Government consider increasing personal reliefs in view of increases in the cost of living. Government's policy is that as many citizens as possible should pay some tax, however small, so that all share in paying for the cost of public services and facilities. Therefore, we should maintain as wide a tax base as possible. Government does not therefore favour increasing personal reliefs as this would lead to a significant reduction in our tax base. Instead, we have preferred to reduce the overall tax burden for everyone by lowering tax rates at all levels over the years. The Member for Marine Parade GRC, Mr Choo Wee Khiang, has suggested that incentives for the third and fourth child be extended to the husband. I would like to point out that the normal child relief of $1,500 as well as the special tax rebate of $20,000 for the third and fourth child may be claimed by either parent. However, the enhanced child relief is only given to the mother. There is a reason for this. This relief is intended to encourage married women to rejoin the workforce after giving birth. It is therefore designed such that the level of tax savings is pegged to a percentage of a woman's earned income. The purpose of this relief would be defeated if a husband is allowed to claim. This principle similarly applies to the tax rebate given in lieu of maternity leave for the third and fourth child. The Member has also suggested that the handicapped child relief be increased as it is not easy to maintain a handicapped child. He may wish to note that parents of handicapped children already get a higher relief than parents of normal children. Whereas the normal child relief is $1,500, the handicapped child relief is $3,500. In addition, the handicapped child relief is given regardless of age, and even if they are working, provided the income ceiling of $1,500 is not exceeded. This is not the case for normal child relief. The Member for Tiong Bahru GRC, Dr Vasoo, has asked for an education tax relief. Government recognises the expenses incurred in bringing up children, including paying for their education. We have a variety of child reliefs and rebates to help lower such costs for parents. These would include normal child relief, enhanced child relief and double child relief for children studying overseas. Over the years, these reliefs have been increased substantially. Normal child relief was increased to $1,500 for the Year of Assessment 1990, and the enhanced child relief was also raised at the same time. Other than tax measures, education in Singapore at primary and secondary levels is also very heavily subsidised. This has kept the levels of school and miscellaneous fees paid by pupils at affordable levels. The combined effect of tax reliefs for children and heavy subsidies for schools has substantially lightened the burden of parents in educating their children. In addition, the introduction of the Edusave Scheme in 1992 will provide further assistance for parents. Government will continue to ensure that no child is deprived of a place in school because of financial constraints. Some Members have suggested that parents be allowed to contribute to the Edusave account for their fifth and subsequent children and to claim deduction for these contributions. The existing reliefs for children are given only up to the fourth child. It is therefore not appropriate to allow a deduction beyond the fourth child for Edusave. The Member for Marine Parade GRC, Mr Choo Wee Khiang, has suggested that incentives be given to encourage Singaporeans to work abroad. I would like to point out that working abroad is a multi-faceted problem. I do not think that tax is a major consideration. There are other factors such as marriage, national service and children's education which loom large. Government is looking into these other issues. Goods and Services Tax (GST) Some Members have raised concerns over the proposal to introduce a goods and services tax. As I announced in my Budget speech, a White Paper, together with the draft legislation for the proposed GST, will be tabled in Parliament and made available to the public when it is ready. As there will be ample opportunity to debate the merits or demerits of the tax, I will not deal with it today. Water Conservation Tax The Member for Yio Chu Kang has asked whether the water conservation tax could be applied on a sliding scale. The price of water to the domestic consumers is already divided into three different tariff rates, depending on the level of consumption. The first 20 cubic metres is charged at 53 cents per cubic metre, the next 20 cubic metres at 75 cents per cubic metre and, thereafter, every additional cubic metre is charged at $1.10 per cubic metre. There is, therefore, no need to apply the tax on a sliding scale to further encourage conservation. The tax also recognises the minimum domestic needs of a household by exempting the first 20 cubic metres of water consumed per month from being subject to the tax. For non-domestic users, the situation is different. Unlike domestic households, the non-domestic group is not homogeneous. The amount of water consumed depends on the type of organisation and the nature of its activities. In order not to penalise certain business activities over others, water to non-domestic consumers is charged at a flat rate by PUB. For the same reason, it would not be appropriate to impose the tax unevenly or even to have a threshold level for exemption from the tax if we are to treat all businesses on par. The Member for Eunos GRC, Mr Zulkifli Mohammed, has asked for the profile of the 40% households which will be affected by the 5% water conservation tax. Members may wish to note that the majority of these households are those living in HDB five-room flats, HUDC and private residential homes. Their average monthly bills will be increased by about 30 cents. Entertainments Duty The Member for Cheng San GRC, Mr Heng Chiang Meng, has suggested that revenue from the 5% entertainments duty should be channelled to promote the arts. Government's fiscal practice has always been to pool tax revenue into the Consolidated Fund. Allocations from the Fund are then made in accordance with budgetary process. The Member's proposal, if accepted, will be a breach of this process. It should be avoided as the linking of tax revenue to specific end users will introduce rigidities and does not permit a proper allocation of revenue among competing users. The Member has commented that the arts require more financial support. Members of the House may wish to note that Government's provision for the arts programme has been raised to $7 million in FY91 from $5 million this year. There are also many schemes to help cultural and arts groups, for example, the Projects Grant Scheme, the Theatre-in-Residence Scheme and the Arts Housing Scheme. There are also various tax incentives to promote culture and the arts. These include exemption for donations to arts and cultural bodies given the Institution of Public Character status, and waiver of entertainments duty for cultural performances organised by non-profit making organisations. The Member for Eunos GRC also wants to know the basis for setting the long-term limit for Government expenditure at 25%. He felt that the percentage should be lowered as Government privatises more of its operations. The setting of the ceiling is a self-imposed discipline aimed at containing Government's share of national resources. It is also to ensure that Government's expenditure does not exceed revenue. Government's revenue is around 27% of GDP. Planned expenditure is therefore kept below 25% for prudency reasons, and to give ourselves a comfortable margin for meeting unexpected expenditures. As Government privatises more of its functions, the expenditure ceiling will be reviewed. Dr Vasoo has called on the Government, in view of its budget surplus, to provide more for basic services, such as education, health and housing. Let me assure the Member that although Government has enjoyed a budget surplus for several years, this has never been at the expense of providing basic services to its people. Government will ensure that such services will remain affordable to its population. As I have mentioned in my Budget speech, Government places high priority on the provision of quality education, affordable housing, a clean and green environment, and good health care services. This can be seen from the fact that the social and community services sector, comprising education, health, community development, environment and public housing, will take up the largest share, or almost one third of total Government expenditure in FY91. Expenditure on Community Development, Education, Environment and Health Services has increased significantly from $2.6 billion or 18% of total expenditure in FY87 to $4.4 billion or 28% in FY91. Per capita real expenditure on these services has increased from around $1,000 per annum in FY87 to about $1,400 per annum in FY91, an increase of nearly 40%. In particular, the provision for education has increased to $2.6 billion or 16.5% of total expenditure in FY91 as against $1.7 billion or 11.6% in FY87. Introduction of the Edusave Scheme will further increase Government's contribution to education. Similarly, Government's expenditure on health services has more than doubled, from $449 million in FY87 to $959 million in FY91, after taking into consideration the revenue forgone for the restructured hospitals. Public housing subsidies show a decline from 7.1% of total expenditure in FY87 to 5.5% in FY91, mainly because the public housing development programme has slowed down. The Member for Potong Pasir, Mr Chiam See Tong, has, based on a few expenditure items in the Budget Book, concluded that the Government has not been prudent in the expenditure of public monies and that closer scrutiny is required. I think it is fallacious to draw generalised conclusions on Government's expenditure patterns and priorities by picking out a few individual line items of expenditure. I would suggest that if the Member wants detailed clarification on line items of expenditure, he should do so in the Committee of Supply. If he has not put in the required cut, he might ask a friendly Member of the Opposition to introduce it for him. Dr Lee Siew-Choh has again chosen to attack Government's financial policies. He has trotted out the usual litany of complaints about the Government - that the Government has done very little for the poor, favours the rich and foreign multi-nationals. He wants more subsidies for the poor and higher taxes for the rich. As there is nothing new in what he says, and I have responded to them in the past, I do not propose to discuss his complaints in detail. Instead I will outline for him some aspects of the Government's economic philosophy. The Government does not believe in maintaining a crutch economy in which the rich are taxed heavily to support the poor. Many countries, much bigger, much richer and much cleverer than we, have found that this is a formula for disaster. I believe that most Singaporeans know this instinctively, are not lemmings, and will not be seduced by Dr Lee, the pied piper. The Government's aim has always been to build a stable economic environment in which the talented and industrious, both local and foreign, will find attractive as a place to invest their skills and capital. The continuing flow of high quality investments we have been able to attract over the years is the best testimony to the success of fiscal incentives offered. Dr Lee claims that the Government has given away billions of dollars through these fiscal incentives. Let me remind him that if the fiscal incentives did not bring investors here in the first place, there would be nothing to give away anyway. Instead of eroding the work ethic through subsidies, another basic aim of the Government is to ensure that every Singaporean who can work, will have work, and be paid wages that grow in line with the economy and with productivity increases. Over the last ten years, the unemployment rate has been consistently below 3.3% except for the 1985/1987 recession years. Last year, it stood at 1.7%, substantially below the long-term level of full employment, which is around 3.3%. Providing full employment is the most effective way of providing a human being with the pride of self-reliance, instead of the indignity of having to subsist on State handouts. Despite all Dr Lee's complaints about the rising cost of goods and services through Government intervention, the average annual growth of CPI inflation over the past decade was only 2.2%, notwithstanding two bouts of high oil prices. As a result, the purchasing power of workers' income has been protected, with average annual real earnings in Singapore growing at the rate of 6.6% between 1980 and 1990. This is an outstanding record matched by few places in the world. Finally, a word about Government's policy on subsidies. Government is committed to providing every citizen a high level of basic necessities, such as jobs, education, health, housing and leisure. Beyond that, everyone must work and contribute towards improving the quality of life. There is no free lunch as we cannot afford it. Our accumulated reserves are the nation's insurance policy and must be preserved for the security of future generations. Dr Maurice Choo has raised some questions on the health policy which, I think, are more appropriately answered in the Committee of Supply. And I will refer these questions to the Minister for Health. Dr John Chen has suggested that there should be a 1% tax advantage given to citizens. This is an issue which is being studied by the Government on the basis of the recommendations by RECORD and I think it will be premature for me to make any statement now. Mr Chng Hee Kok has said that we should pay more attention to cost comparisons with the ASEAN competitors. I think I did raise this matter during my Budget speech and indeed MTI keeps a very close watch on comparing costs with Thailand, Malaysia and Indonesia. Finally, Mr Goh Chee Wee has quoted figures to show that 12% or 156,000 workers, a substantial number of workers in Singapore, have wages below $400 per month. I would like to point out that these 156,000 people are accounted for mainly by part-time workers and by students working during their vacation. Therefore, using such figures can be misleading. In fact, in 1989, the average monthly earning for the whole economy in all occupations was reported at $1,427 per month. Finally, Mr Speaker, Sir, I believe that we have reason to be optimistic. The ending of the Gulf War will restore business confidence and this will have a positive effect on our economy. We should be able to achieve our economic growth target this year. 25 years have passed since Singapore became an independent nation. We have done very well. In this short space of time, we have become a modern thriving economy and we are now into a new phase of development. Our businesses must transcend the national boundary. This budget will help them widen their international linkages and create more economic space. It also focuses on our continued investment in our people to enable them to move on to higher value-added and better paid jobs. I am confident that we have what it takes for Singapore to stay ahead in the next lap. [Applause].