Hansard, 1992-02-28

asked the Minister for Education whether his Ministry has any plan to build a primary and secondary school at Hong Kah GRC west ward and, if so, when the schools will be completed.

Mr Speaker, Sir, the Ministry of Education has plans to build one primary school at Bukit Batok Ring Road and two secondary schools along Bukit Batok Ring Road and Jurong West Street 42 in Hong Kah GRC. The primary school will be completed in 1994 and the secondary schools in 1993.

asked the Minister for Community Development when a void deck community centre will be built in Hong Kah GRC west ward.

Mr Speaker, Sir, there are no plans at present to build a void deck community centre in Hong Kah GRC west ward.

Will the Minister re-consider it if I pursue the matter?

When the matter is re-considered, I shall let him know.

"to provide for the issue from the Consolidated Fund and the Development Fund of the sums necessary to meet the estimated expenditure for the financial year 1st April 1992 to 31st March 1993", 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.

"to provide for making supplementary provision to meet additional expenditure for the financial year 1st April 1991 to 31st March 1992", 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.

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

First Supplementary Estimates of Expenditure for the financial year 1991/1992, contained in Paper Cmd. 8 of 1992. Question, "That the sum of $492,937,900 for Head L which appears in the last column of the schedule of Estimates of Expenditure under the Supplementary Main Estimates on page 2 of Paper Cmd. 8 of 1992 stand part of the Supplementary Main Estimates", put and agreed to. Question, "That the sum of $492,937,900 shall be supplied to the Government under the head of expenditure for the public services shown in the First Supplementary Main Estimates of Expenditure for the financial year 1st April 1991 to 31st March 1992, contained in Paper Cmd. 8 of 1992", put and agreed to. Resolution to be reported.

Supplementary Development Estimates. Question, "That the sums stated for those heads of expenditure which appear in the last column of the schedule of Supplementary Development Estimates on page 5 of Paper Cmd. 8 of 1992 stand part of the Supplementary Development Estimates", put and agreed to. Question, "That the sum of $557,705,600 shall be supplied to the Government under the heads of expenditure shown in the First Supplementary Development Estimates of Expenditure for the financial year 1st April 1991 to 31st March 1992, contained in Paper Cmd. 8 of 1992", 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 $492,937,900 shall be supplied to the Government under the head of expenditure for the public services shown in the First Supplementary Main Estimates of Expenditure for the financial year 1st April 1991 to 31st March 1992, contained in Paper Cmd. 8 of 1992." "That the sum of $557,705,600 shall be supplied to the Government under the heads of expenditure shown in the First Supplementary Development Estimates of Expenditure for the financial year 1st April 1991 to 31st March 1992, contained in Paper Cmd. 8 of 1992."

Mr Speaker, 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 2 in 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 "$849,700", "$50,000", "$1,868,900", "$311,800" and "$31,900" in the second column and substituting the figures "$868,800", "$51,000", "$2,013,200" "$393,000" and "$55,700", respectively. Sir, it is proposed to increase the provisions for the Privy Purse, entertainment allowances and salaries of personal staff to $868,800, $51,000 and $2,013,200 respectively. These marginal increases for FY 92 are necessary to provide for normal salary increases, anticipated higher entertainment expenditure, a possible increase in the employers' CPF contribution rate, and more staff to cope with anticipated workload increase. A higher sum of $393,000 is required to meet Expenses of the Istana household in FY 92. The increase is to cater for additional expenditure on gifts and entertainment and for the President's visits overseas. The allocation for Special services in FY 92 is increased from $31,900 to $55,700. The higher expenditure in FY 92 is for the replacement of machinery and equipment beyond economic repair. 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 "$849,700", "$50,000", "$1,868,900", "$311,800" and "$31,900" in the second column and substituting the figures "$868,800", "$51,000", "$2,013,200", "$393,000" and "$55,700", respectively.

Order. I suspend the sitting and will take the Chair again at 3.30 pm. Sitting accordingly suspended at 3.10 pm until 3.30 pm. Sitting resumed at 3.30 pm

Mr Speaker, Sir, I beg to move, That Parliament approves the financial policy of the Government for the financial year 1st April, 1992 to 31st March, 1993.

The Singapore economy grew by 6.7% in 1991, slower than the 8.3% growth in 1990. This slowdown reflected both domestic supply-side constraints and more adverse conditions in our external markets. Compared with the other Asian NIEs and ASEAN economies, Singapore performed moderately well. South Korea expanded by 8.6%, Taiwan by 7.2%, Hong Kong by 4%, Malaysia by 8.6%, Indonesia by 6% and Thailand by 7.9%. The slowdown in the economy was a result of slower growth in two major sectors: manufacturing and financial and business services. The manufacturing sector grew by only 5.3% in 1991, down from 9.5% a year ago. This was due to a softer computer market and weaker growth in the industrial countries. The three largest industries - electronics, transport equipment and petroleum products - grew by only 0.4%, 4.4% and 3.4% respectively. Growth in the financial and business services sector also slowed. It grew by 5.4%, much lower than the 13% in 1990. While business services in general remained buoyant, growth in the financial subsector fell from 19% to 2.9%. This was mainly due to a decline in offshore banking and foreign exchange activities. Total assets of the Asian Dollar Market contracted by 8.4% in 1991, while the average daily volume of foreign exchange transactions declined by 5.8% from US$79 billion in 1990 to US$75 billion in 1991. The general slowdown in the volume of financial activity was in line with the consolidation of international banks, especially those of Japan and the US, to meet the Bank for International Settlements' capital adequacy requirements. However, the performance of financial institutions in Singapore has remained good because of improved interest margin and a switch into new off-balance sheet activities not captured under conventional methods of compiling value-added statistics. The commerce and the transport and communications sectors have also slowed down moderately. Commerce expanded by 6.4% in 1991, lower than the 8.2% in 1990. Its growth was mainly from entrepot trade. However, domestic trade, hotels and restaurants were affected by the sharp decline in visitor arrivals caused by the Gulf War and the recession in some of our major tourism markets. The transport and communications sector registered slightly slower growth of 8% compared with 8.8% in 1990. Air cargo grew more slowly but sea cargo expanded at a faster rate. In contrast with the other sectors of the economy, the construction sector expanded more rapidly in 1991. It was the fastest growing sector, with growth of 21%. This boom was a reflection of the large value of contracts awarded in previous years. The slower growth in the economy, however, helped to ease pressures on prices. While the average inflation rate for 1991 was the same as that in 1990, at 3.4%, we ended the year with an inflation rate of 2.6%. This was down from a high of about 4% in the first 3 quarters of 1991. The labour market was still tight, with an unemployment rate of 1.9% as at June 1991. 64,000 new jobs were created in the economy, mainly in the construction and commerce sectors. Nominal wages in 1991 rose by 9.2%, slightly lower than the 9.3% in the previous year. With general inflation as measured by the GDP Deflator at 1.6%, real wage growth was 7.6% compared with 5.9% in 1990. As labour productivity grew by only 1.5%, this marks the third year in a row where real wage growth has exceeded productivity gains. As a result, the profit share in nominal GDP fell from 48.6% in 1990 of GDP to 47% in 1991 (see Chart 1 (Cols. 503 - 504)). Chart 1 - PROFIT SHARE (Cols. 503 - 504) In the manufacturing sector, unit labour cost rose by 6.8% in 1991. Although unit labour cost also rose in the other three Asian NIEs, the rate of increase in Taiwan and Hong Kong was lower. The Singapore dollar also appreciated faster than the other NIE currencies. As a result, our unit labour cost relative to the other NIEs rose by another 7.5% (see Chart 2 (Cols. 503 - 504)). This brings our relative competitiveness position to that in 1982 and 1983. Chart 2 - SINGAPORE'S RELATIVE UNIT LABOUR COST IN MANUFACTURING AGAINST THE OTHER NIEs (Cols. 503 - 504)

In November 1991, the Ministry of Trade and Industry or MTI forecast growth for 1992 at 5 - 7%. Since then, international economic developments have not dispelled the overall picture of uncertainty. This uncertainty is reflected in the expectations of the business community. In the most recent survey of business expectations, 16% of firms in the manufacturing sector expect business conditions in the first half of 1992 to improve, 16% expect conditions to worsen, while 68% expect conditions to remain about the same as in the second half of 1991. MTI's assessment is that the slow recovery of the US economy, and the economic problems in Europe and Japan, will dampen our prospects. It has revised the forecast for 1992 growth downwards, to 4 - 6%. The second half of the year is likely to show stronger growth than the first. This is slightly below our medium-term projection of sustainable growth because of less buoyant external demand conditions.

A growth rate of 5 - 7% for the medium term may seem a let-down after the average growth of 8.5% in the last 3 decades. However, our GDP is now at a higher base of US$10,000 per-capita, and we have reached full employment. Expansion can no longer be as effortless and rapid as before. The experience of other economies shows the limits of what is possible. Japan has one of the strongest records of economic growth over a long period. Its per capita GDP was around US$10,000 in the late 1970s and early 1980s. Yet its growth rate in that period averaged only 4.5%. Singapore can aim for a slightly higher medium term growth rate of 5 - 7% because our smaller economy can restructure more quickly and ride on successive waves of rapid growth in different activities. Three main strategies are needed to achieve our medium term growth target. We need to enhance our linkages to the world economy, to continue restructuring and upgrading, and to harness market forces as far as possible. Enhancing International Linkages The need to enhance linkages with the world economy may seem obvious, when we are already one of the most internationalised economies in the world. However, there are two reasons why we have to reiterate this. First, as we become better off, we need to guard against complacency. It is tempting, after having achieved some progress, for us to turn introspective. We may quibble over how the cake should be divided within the family instead of continuing to work hard to increase the size of the cake. The rest of the world will not declare a moratorium on competition while we debate on who is best suited to go into certain businesses, whether we should have a more leisurely pace of life or how we should reward the able. It is more difficult to stay "lean and mean" when we can afford to eat better. Linking ourselves to the world will goad us to stay fit and compete successfully with the world's best. Second, as the US economy has grown less dominant, the global economy has changed to a more distributed structure in which Japan plays an increasingly important role. The Asia Pacific region is also growing in significance. Singapore has always looked to the industrialised countries to supply technology and markets. We should continue to do so, but we should begin to balance our international outlook with a more regional one. The formation of new institutional arrangements, like the Single European Market or SEM and the North American Free Trade Area or NAFTA, has implications for Singapore. The SEM and NAFTA will group together markets of 350 million people each. Their members have repeatedly assured us that these groupings will not turn protectionistic. Indications so far are that in some sensitive areas like cars, the instinct to protect domestic interests is still strong. Even without explicit trade barriers, the existence of common standards and free movement of goods, services, capital and even people across borders within each region would give an edge to traders who are inside vis-a-vis traders who are outside. Singapore will be an outsider in Europe and North America. We have to work harder to gain access. Our stake in the global trading game is big - we are the world's 18th largest exporter and 15th largest importer. Any constriction in the volume of world trade would have a large impact on our small economy. The impact of these arrangements goes beyond trade restrictions. MNC investments may be diverted from Singapore towards North America or the EC. Often, it is not only the fact that a market is protected but the possibility that access may become difficult that affects the flow of investment funds. For example, Japanese car-makers have set up plants in the US and the EC to assure themselves of continued access to these markets. Today, it may be cars. Tomorrow, it could be products like disk drives which form a significant part of our exports. While we continue to make the best of opportunities in our established markets in the West, we should actively seek out new opportunities closer to home. Already, nearly two-thirds of our tourists come from Asia. Half our trade is with Asia. As the dynamic Asian countries enter the ranks of middle-income countries, more opportunities will open up. Foreign investors have seen this coming and are busy expanding to this region. The creation of the ASEAN Free Trade Area or AFTA will make ASEAN more attractive to investors. AFTA will have a population of 350 million, comparable to the EC. Admittedly, AFTA's purchasing power is only one-fifteenth that of the EC and one-twentieth that of NAFTA. But ASEAN as a whole is much larger than any single one of its members. As the ASEAN countries develop, and purchasing power goes up, AFTA will become an increasingly significant market. AFTA will enable investors to enjoy greater economies of scale, often by locating plants throughout the ASEAN region, thus capitalising simultaneously on the different strengths of each ASEAN member. Beyond ASEAN, Singapore will continue to play an active role in the Asia Pacific Economic Co-operation or APEC grouping, which comprises the key Pacific economic powers and the North East Asian economies. We will, of course, continue to enhance our economic links to the industrialised countries. They will remain an important source of technology and investment for this region. Upgrading and Restructuring Rapid growth in the Singapore economy has been accompanied by rapid structural change. In broad sectoral terms, we have seen the relative decline of entrepot trade and the emergence of manufacturing, banking and tourism. Within manufacturing, saw-mills have disappeared, and been replaced by new industries making disk drives and pagers. In the financial sector too, innovation and change have been rapid. New activities have grown much faster than traditional lending business. Singapore is now the fifth largest forex trading centre in the world. Singaporeans have accepted these rapid changes as part of the process of growth. To achieve 5 - 7% growth in the medium term, we need to continually upgrade and restructure. Domestic businesses which have survived largely intact despite rapid changes elsewhere in the economy are now feeling the pressure. They find it difficult to hire workers, and their rentals are rising. Government is mindful that change and adjustment are unsettling and even painful for individual firms. We will make it easier for them to manage the transition. We will help traditional businesses to upgrade and innovate, to use new technology to produce a better product. For example, although the garment and textiles industry is often seen as a "low-tech" industry, it achieved productivity growth of more than 6% in 1991. This is above the average for the manufacturing sector. This shows how constant upgrading and the infusion of new technology can give a new lease of life to a traditional business. Government will also help those who wish to leave their businesses to do so. It will make sure that there are always employment opportunities elsewhere in the economy. But it cannot provide lower rents, or an unlimited supply of foreign workers, to enable old businesses to remain what they are. Doing so would offer false hope, deprive other more productive sectors of scarce resources, and delay unavoidable adjustments, making them more painful later. The growth rate will fall. Overall, Singapore will be worse off. Efficient Allocation of Resources The problems of restructuring and upgrading are part of a wider economic problem: how to allocate scarce resources so that they are used efficiently and optimally. Efficient resource allocation is central to economic growth. Thirty years ago, economists were divided on the key ingredients of economic growth. One group, from the Massachusetts Institute of Technology, argued that resource allocation was the key issue. The other group, from Cambridge University, argued that Government intervention and income redistribution were the key issues. Time has however proven the Massachusetts group right. The free market is the best system known for allocating resources efficiently. More than 200 years ago, Adam Smith wrote eloquently about how each individual working for his own interests in the free market ensures the best possible outcome for all. Smith's advice did not always prevail. India, after independence in 1947, moved away from what they considered to be the exploitative market system of their ex-colonial masters, and sought to progress through state planning and self-sufficiency. Imports were to be substituted by domestic production. The spinning wheel became the symbol of self-sufficiency and national pride. The Government would direct resources to the most important sectors through central planning. Essential goods and services were subsidised to ensure that people could afford them. For India, pursuit of self-sufficiency resulted in 40 years of poverty, stagnation and abysmal services. The subsidies have led to enormous, crippling distortions. The International Herald Tribune reported that a 500-kilometre train journey costs US$3, travel across New Delhi costs 10 US cents, and Indian university students pay US$1 a month in tuition fees. The result of these subsidies is poor and inefficient service, rather than better service and greater access. Yet it is almost impossible to remove the subsidies once people have got used to the low prices. This approach to development has prevented the Indian economy from performing anywhere near its potential. In 1947, India's per-capita income was comparable to that of the Asian NIEs. Today, Hong Kong's per-capita income is 30 times that of India while Korea's is more than 10 times. In the 1960s and 1970s when the Asian NIEs forged ahead at 9% growth, the Indian economy averaged only 3.5% growth. Last year, India ran into a serious financial crisis. Its official foreign reserves dropped to the equivalent of 3 weeks of imports. Commercial lending dried up. India had to seek financing support from the IMF. Both as a condition of IMF financing, and because the Indian Government had concluded that change was imperative, India moved decisively on a comprehensive reform programme. It tightened monetary policy, devalued the rupee, reduced subsidies, liberalised domestic industry and reduced barriers to foreign direct investment. India's experience illustrates an important principle: that distortion of price signals leads to inefficiency, wrong allocation of resources, and overall slower growth. This applies whether we are talking about the whole economy or about sectoral issues. Even in education, where there are good reasons for the Government to intervene, and not leave matters to private enterprise, economic forces cannot be stifled. As Adam Smith wrote in the Wealth of Nations, the effort of teachers falls without the spur of competition: `In every profession, the exertion of the greater part of those who exercise it, is always in proportion to the necessity they are under of making that exertion. This necessity is greatest with those to whom the emoluments of their profession are the only source from which they expect their fortune, or even their ordinary revenue and subsistence.' `The endowments of schools and colleges have necessarily diminished more or less the necessity of application in the teachers. Their subsistence, so far as it arises from their salaries, is evidently derived from a fund altogether independent of their success and reputation in their particular professions.' [The Wealth of Nations, Book V, Chapter I, Article II] In short, productive forces will wither away if they are not rewarded according to their value. Insulation from market forces will eventually lead to declining fortunes. This is an additional argument for independent schools. In sectors like healthcare, road transport or the allocation of foreign workers and domestic maids, significant market imperfections and non-economic considerations require market forces to be tempered by Government intervention. But although the markets in these cases are not perfect, the most efficient solutions are still found by harnessing market forces to the greatest possible extent. In healthcare, Singaporeans pay for services, although at subsidised rates. They enjoy high quality medical services that even public hospitals in the US cannot match. Under the National Health Service in the UK, where all services are free, service quality has deteriorated. Patients queue for years to get the treatment they need, often for simple procedures. In the case of road transport, where it is necessary to limit the number of cars on the road, the most efficient way of allocating car ownership is to make use of the market mechanism, and tender for the limited supply of COEs. There is no contradiction in using market forces and limiting the supply. The use of market forces ensures that COEs go to those who value them most, and provides revenue for Government to spend on worthwhile projects elsewhere for the public good. The market system, suitably tempered by Government intervention, has served Singapore well. We have combined one of the highest growth rates in the world with a good income distribution. The International Monetary Fund has cited Singapore as a model of the type of policies it has traditionally advocated. Its 1991 report on Singapore stated: `With no natural resources and a small domestic market, Singapore's success has been based on an open exchange and trade system, an outward-oriented, export-based growth strategy, prudent financial policies, high rates of domestic investment financed by high rates of domestic savings and foreign direct investment, and attention to infrastructure and human capital development.' [IMF Staff Report for 1991 Interim Article IV Consultation]

Let me now turn to fiscal matters. This year is the first when Government's budget has to be approved by the Elected President. Government has always run a conservative fiscal policy. We do not spend more than what we earn. We build up budget surpluses almost every year to add to reserves. We have imposed this conservative stance on ourselves even before we formalised it with the Elected Presidency. This prudent approach has not constrained growth nor held back any productive investments. We have built Changi Airport and the new Brani container terminal, completed the MRT, reclaimed land and built public flats, without touching the reserves. The reserves that we have built up have kept the Singapore dollar strong and inflation low. Not made flabby by fat Government subsidies, Singaporeans retain the incentive to work hard for themselves. The result has been a highly motivated workforce, strong economic growth and a sound financial system. If the economy performs as well as we expect, and we are careful with Government expenditures, we should run a budget surplus over the next few years. Out of next year's surplus, Government will put aside $1 billion to start off Edusave. Government will also allocate money for Medifund, when the proposal is firmed up. Thereafter, we will make annual contributions to Edusave and Medifund, depending on the size of the budget surpluses each year. If there is no budget surplus, no money will be put aside. That Government has been able to set up Medifund and Edusave shows how right its policy of fiscal prudence has been. Had we spent all the revenue collected or, worse, spent more than what we had collected, Singaporeans would be struggling to repay debt, not thinking up reasons how the reserves should be put to best use. We should not look at the size of our reserves alone and forget about our special circumstances. First, we have no natural or physical assets; every cent of our reserves is accumulated through the sweat and toil of Singaporeans. Our reserves appear large only because other countries do not include their physical endowments such as valuable minerals, oil or gas, or even abundant land and labour, or their foreign assets held by the private sector, all of which are much larger than Singapore's. Second, we import almost everything we need. Without reserves, we would be unable to satisfy even our most basic needs in an emergency or war. Third, just like a person in prime working life, Singapore now earns more than it spends. And, like a prudent person, Singapore saves to prepare for a secure future, and invests in assets which can be passed down to future generations. If we do not plan for the future, we will turn our children into debtors even before they are born. This has happened to the US, the richest nation on earth. It has been estimated that every American man, woman and child owes the rest of the world US$1,700, much more than the average Singaporean household earns in a month. This is a substantial burden, even for a country blessed with immense resources. In resource poor Singapore, it would be highly irresponsible for the present generation of Singaporeans to commit our children similarly.

The Singapore economy is likely to see slightly slower growth this year. Over the medium term, it will continue to make good growth but not at the rates that we are used to. Although restructuring and upgrading are difficult or even painful to do in some areas, we need to press on in order not to constrain our pace of growth. We must always remember the fundamentals which have brought us where we are today. The free market has served us well and enabled Singaporeans to earn a good living. We should continue to harness it to generate prosperity for Singaporeans. Fiscal prudence has enabled us as a people to build up valuable assets. We should not be tempted to take short sighted steps that would eventually undermine our economic dynamism.

Mr Speaker, Sir, allow me to move on to the Budget for the next financial year.

Government's policy is to continue to support the private sector as the engine of growth. The public sector will be kept lean and trim to free more manpower and financial resources for the private sector. Government's expenditure will focus on basic public services and in areas which yield lasting returns. These are education, basic healthcare, infrastructure, housing and environmental protection. More emphasis will also be given to the arts, sports, recreation and programmes to enhance the quality of life in Singapore. Government will contain operating and development expenditures at a level that can be financed by operating revenue. Surpluses would be accumulated in good years as a buffer against periods of economic downturn.

The FY92 Budget achieves Government's medium-term policy target to hold total operating and development expenditure within 20% of GDP. Development expenditure is expected to increase from 6.2% of GDP in FY91 to 6.8%. On the other hand, operating expenditure will decline to 12.2%. Together, operating and development expenditure will amount to 19% of GDP. Statutory expenditure on debt servicing and expenses on investment will take up another 3.2% of GDP. Total Government expenditure in FY92 will therefore stand at 22.2% of GDP, a small decline from the 22.5% in FY91. In absolute terms, total Government expenditure in FY92 is projected at $16.6 billion, an increase of 6.7% over the revised FY91 expenditure of $15.6 billion. The Social and Community Services sector will continue to have the largest share of total expenditure, taking up almost 35%. This sector covers mainly education, health, environment and public housing. The Security Sector, covering defence and home affairs, will take up the next largest share at 29%. The proposed allocations reflect the priorities of Government. These are to ensure national security; house our people in affordable housing in a clean and green environment; and invest in quality education and good healthcare. The importance of education is reflected in the transfer of $1 billion in FY92 to the Education Endowment Fund. This is an investment in our future. The transfer will be Government's first capital contribution to the Fund. It will be used to generate income for disbursement to schools and pupils' individual Edusave accounts. Further capital transfers will be made to the Education Endowment Fund in future years if healthy surpluses are realised. Allow me now to elaborate on the FY92 expenditure proposals. Recurrent Expenditure Recurrent expenditure consists of operating expenditure, debt servicing and expenses on investment. It accounts for almost 70% of total expenditure. Recurrent expenditure for FY92 is projected to be $11.6 billion. This is an increase of 2.2% over the revised FY91 expenditure. However, it represents only 15.5% of GDP compared to 16.3% in FY91. Expenditure on Manpower or EOM is projected to rise by 11.4% to $2.4 billion in FY92. This will constitute 3.2% of GDP, slightly higher than the 3.1% for FY91. The increase is to provide for normal salary increments, filling of essential vacancies and a small increase in total staff establishment. The number of posts in ministries, organs of state and Government-funded statutory boards will increase by 0.3% or 279 posts to around 100,000 posts. This is due mainly to a large increase in the number of teaching posts, which has been partly offset by a reduction in posts in the Ministry of Health arising from the restructuring of Tan Tock Seng Hospital. Despite the higher staff establishment, the Government-funded public sector will be able to keep its total establishment to 6.8% below the staff strength as at 31st December 1986. This was the ceiling imposed under the Zero-Growth in Manpower Policy announced in this House 3 years ago. In terms of staff strength, there were about 89,000 persons employed in the Civil Service and Government-funded statutory boards as at 31st December 1991. This is 18% lower than the staff strength of about 108,000 as at 31st December 1986. Put another way, only one out of 17 workers in the economy is currently employed in the Civil Service and Government-funded statutory boards, compared to one in every 11 workers in December 1986. I am therefore pleased to say that the Zero Growth in Manpower policy has so far successfully contained the growth of the public sector establishment. This has been achieved without compromising standards and the quality of public service. Government will press ahead with this policy in line with our philosophy of containing the public sector's share of national manpower resources. Revised manpower targets have been set, and requests for increases in manpower will continue to be scrutinised carefully by my Ministry. We will examine ways in which manpower for new functions and increases in workload can be made available through reorganisation, redeployment, retraining and increases in productivity. Other Operating Expenditure or OOE is projected to increase by 10.1% to $4.7 billion. Apart from inflation, the increase is due to higher allocations for international humanitarian relief and peacekeeping operations, and staff welfare, as well as the establishment of the Singapore Cooperation Programme under the Ministry of Foreign Affairs. A sum of $15 million is also provided for the balance of Government's contribution of $25 million to the Singapore International Foundation. The increase in OOE is also accounted for by higher capitation grants to special education schools, and increases in the provisions for teaching bursaries and maintenance of roads. There is also a new provision for the maintenance of lands returned to Government by HDB. Grants-in-Aid or GIA, including operating subsidy to public housing, will fall by 5.7% to $1.8 billion. The drop is due to the exceptionally high one-off contribution of $500 million to the Universities Endowment Fund in FY91. Government's dollar-for-dollar matching contribution to the Fund in FY92 is estimated to be $60 million. If we exclude these contributions, GIA will increase by $332 million or 24.2% to $1.7 billion. More than 50% of this increase is accounted for by the Ministry of Health to meet additional recurrent subventions for the restructured hospitals. This includes Tan Tock Seng Hospital, which will be restructured in FY92. The rest of the increase is largely to meet higher operating deficits of the tertiary institutions, including the Nanyang Polytechnic and the Singapore Open University, a higher operating grant to SBC and an operating grant for the National Arts Council. Pensions expenditure is expected to rise by 9.6% to $345 million. This is mainly to provide for an increase in the number of pensioners as well as the rising cost of medical subsidy to pensioners. Debt servicing costs are projected to fall by 12.6% to $2.3 billion. This is because debt servicing on new borrowings as well as Advance Deposits converted to loan stocks will be accounted for under the Government Securities Fund. Development Expenditure Development expenditure constitutes 30% of total expenditure. It will reach $5.1 billion in FY92, which is 18.5% more than that in FY91. The substantial increase is due partly to a contingency provision of $200 million for new development projects in FY92. If this provision is excluded, the increase in development expenditure is 15.2% over FY91. Direct Government development expenditure will rise by 50% to $2.7 billion. Major development projects include land reclamation at various sites; construction of new polyclinics and the new Institute of Health, and the redevelopment of major hospitals. Two new prisons at Changi and more civil defence shelters are being constructed. More schools will also be built and upgraded to enable secondary schools to go single session. Other projects include the Roads Building Programme; extension of the Bedok Sewage Treatment Works; construction of Revenue House; and the development of public parks and agrotechnology parks. Capital subsidy for public housing is projected to be $1.05 billion, an increase of 18.5% over FY91. This includes a higher capital grant to HDB for the building of more flats and a larger provision for the Upgrading Programme. Town Councils will also receive higher capital grants. In March 1988, I announced in this House that the provision for R&D would be increased gradually over the years to reach 1% of GDP. For FY92, a capital grant of $230 million or 0.3% of GDP is provided for the newly-established R&D Fund under the National Technology Plan. This R&D Fund is administered by the National Science & Technology Board. The R&D Fund will be the sole source of Government financing for industry-related R&D by both the public and private sectors. Capital grants to other statutory boards will amount to $1.1 billion, which is a 24% decline from FY91. The decline is the result of the completion of Changi Airport Terminal II and Phase I of the MRT system. Major projects in FY92 include the development of facilities and attractions on Sentosa Island and Singapore Zoological Gardens; the upgrading of facilities for SBC; the development of community centres, university campuses and staff quarters, independent and aided schools, and other educational institutions. Grants are also provided to EDB for the Economic Development Assistance Scheme, and to the restructured hospitals to meet depreciation expenses in respect of subsidised patients.

Let me move on to inform the House of the various initiatives taken to better manage and control Government expenditures. I have already touched on the progress made in the Zero-Growth in Manpower Policy. Let me speak briefly now on the programmes to set up Management Accounting Systems and to conduct zero-base reviews in all ministries. Management Accounting Systems As I mentioned in the House last year, computer-based Management Accounting Systems, or MAS for short, are a powerful tool for identifying inefficient, wasteful or unproductive activities. With an MAS, ministries can redeploy manpower from low-value activities with confidence, knowing that there will be no deterioration in the quality of public service. With accurate costing information, ministries can also confidently farm out activities to the private sector, which are not cost-effective for the public sector to undertake. In short, ministries can be more pro-active in managing their manpower and funds allocated under the Block Vote Allocation System. I am pleased to say that work on the development of the MAS is progressing on schedule. By April this year, the Ministries of Finance, Education, Health, Environment and National Development will have working management accounting systems. Management accounting systems for all the other ministries are expected to be implemented by mid-1993. Zero-base Reviews Zero-base reviews by the Auditor-General are an important part of our efforts to keep Government programmes and practices up-to-date, relevant and cost-effective, and to eliminate waste and inefficiencies. Reviews of the Ministry of Home Affairs and the Inland Revenue Department were completed in FY91. Reviews of the Ministries of Education and Trade and Industry are underway and should be completed by the middle of this year. Over the next one and a half years, zero-base reviews for another 5 ministries and 2 organs of state will be carried out.

Mr Speaker, Sir, I shall now move on to describe Government's revenue position and the tax changes proposed for FY92. The amendments to the Constitution relating to the protection of reserves safeguard both the reserves accumulated by previous Governments as well as the income generated from investing them. The Government can use this derived income for debt servicing and other investment related costs, but not to finance other expenditure, unless the Elected President concurs. This will protect the real worth of the reserves. In order not to draw on past reserves, the Government must finance all its operating and development expenditure from its operating revenue. In addition, the Government can spend surpluses which it has itself accumulated earlier in its current term of office, without referring to the Elected President. Operating revenue is projected to increase by only 4.1% to $15.2 billion in FY92. This is in line with the slower growth expected this year. With operating and development expenditure budgeted at $14.2 billion, there will be a modest surplus of around $1 billion. The FY92 Budget is hence not expected to draw on the reserves accumulated by Government from its previous terms of office. Our economy is entering the mature phase of its development. We are unlikely to grow as rapidly as in the past. Slower growth and an ageing population will lead to higher expenditure and slower revenue increase. This is a reality that Government will have to take into account in formulating its fiscal plans. Notwithstanding this, we will continue to maintain an environment conducive for businesses to thrive. Government is committed to taxing factors of production as lightly as possible and will adjust corporate taxes downwards whenever the revenue position permits. In the last Budget, I indicated that a White Paper together with the legislation for a comprehensive goods and services tax will be introduced in Parliament when it is ready. I would like to inform the House that the White Paper is expected to be tabled in Parliament in the second half of this year. Finally, before I turn to the proposed tax changes for FY92, I would like to announce pending changes to the CPF contribution rates. Government is committed to achieving the target of 40% CPF contribution rate with equal contributions by employers and employees. This target should be achievable before 1996 at the latest. Government has decided that with effect from 1st July 1992, the employers' CPF contribution rate would be raised from 17% to 18%. The employees' CPF contribution rate will be reduced from 22 1/2% to 22%. As in previous years, I urge employees to recognise that the employers' CPF contributions are part of wage cost and to take this into account during the next round of wage negotiations.

Corporate Income Tax Although our corporate tax rate of 31% remains competitive internationally, I propose to reduce the rate by one percentage point to 30%. This will help to maintain Singapore as an attractive location for investments and will offset some of the business cost increases of the past year. The tax change will take effect from Year of Assessment 1993. The revenue loss is estimated to be $105 million annually. Tax Incentive For Commodity Futures Market To develop Singapore into an international trading hub, it is necessary to provide traders with a vehicle to manage their risk in commodity trading. In this regard, the Trade Development Board has announced the setting up of a commodity futures exchange called the RAS Commodity Exchange. The Exchange is expected to come into operation this year. It will provide a centralised and regulated marketplace for the trading of commodity futures. To help the Exchange get off to a successful start, I intend to give it a 5-year tax exemption on its income from futures activities. Rubber futures will be the first to be traded on the Exchange. Three contracts will be traded when the Exchange opens. One of these is a new contract called RSS 3. The other two are existing contracts, namely RSS 1 and TSR 20. To promote the new RSS 3 contract, the income of corporate members of the Exchange arising from futures transactions in this contract will be taxed at a concessionary rate of 10%. These transactions must be with non-residents, Asian Currency Units and other members of the Exchange. However, income derived from transactions with residents will continue to be taxed at the prevailing corporate rate. This incentive will take effect from Year of Assessment 1993. The current tax treatment will continue to apply for income arising from transactions in the two existing contracts, namely, RSS 1 and TSR 20. Tax Incentive For Spot Transactions Undertaken by Corporate Members of SIMEX At present, corporate members of SIMEX are taxed at a concessionary rate of 10% on profits derived from trading in currency futures. However, profits derived from spot currency transactions are taxed at the prevailing corporate rate. This has affected the ability of SIMEX members to undertake an effective hedge in the spot market for their customers as well as for their own account. SIMEX members need to undertake such transactions in order to hedge the risks from their currency futures positions. To facilitate corporate members of SIMEX in doing this, I have decided to extend the 10% tax concession on currency futures to profits derived from spot transactions in designated currencies. The transaction must be with a non-resident, another member of SIMEX or an Asian Currency Unit. The tax concession will take effect from Year of Assessment 1993. Double Deduction for Skill and Knowledge-Intensive Financial Activities Singapore is now a regional centre for financial services. Over the years, we have broadened the range of such services. The global financial market has, however, seen rapid innovations. To stay ahead, Singapore cannot rely on providing the traditional financial services. Competition in these has increased with the emergence of other regional financial centres. We must move on to new and more sophisticated financial services. These would include knowledge-intensive services such as financial engineering and financial research and development. The cost associated with the development of these financial services can be very high. Besides having to invest in computerisation, it is also necessary to attract talented persons with specialised expertise and experience to work here. To encourage the development of such services in Singapore, I propose to grant a double tax deduction to financial institutions for expenses relating to the establishment and development of approved financial activities in Singapore. This incentive will be given on a highly selective basis. It will be for a period of 5 years, and may be extended thereafter. The scheme will take effect from Year of Assessment 1993. Further details of the scheme will be announced by the Monetary Authority of Singapore. Basis of Taxation For Life Insurance Companies At present, life insurance companies are taxed on the excess of investment income over management expenses and agency commissions. Investment income includes gains from sale of investments. For companies with overseas operations, their investment income is determined by apportioning their worldwide investment income in the ratio of Singapore premiums over worldwide premiums. This basis of taxation is not satisfactory. By confining the income to be assessed to just that from investments alone and excluding premiums, the tax base will not fully reflect the profitability of the insurance company. The present basis also makes no distinction between income of the company that accrues to its policyholders as against shareholders. This means that policyholders are effectively taxed at the prevailing corporate rate. To bring the basis of taxation for life insurance business in line with that of other businesses, I propose to tax life insurance companies on their total income derived out of the Singapore business. In other words, assessable income will include premiums in addition to investment income arising from the Singapore business. As this investment income can now be identified separately, it is no longer necessary to determine it by apportioning worldwide income. At the same time, the types of expenses which could be deducted will now include benefit payments and increases in actuarial liability to policyholders. Moreover, to make the basis more equitable, the resultant surplus will be taxed at 10% on that portion attributable to policyholders. That attributable to shareholders will continue to be taxed at the prevailing corporate rate. The new basis of taxation for life insurance companies will facilitate the development of annuity and investment linked insurance products by these companies. The development of annuity is relevant and important as the population ages over the next 20 to 30 years. The new basis of taxation for life insurance companies will take effect from Year of Assessment 1993. Stamp Duty on Financial Derivatives Singapore has been developing as a centre for trading in regional securities. To cater to the increased sophistication of regional investors and the growth in interest in financial derivatives, the Stock Exchange of Singapore will soon launch trading of stock options on securities traded on the exchange. To encourage such trading, I have decided not to levy stamp duty in respect of transactions in stock options. With effect from 1st April 1992, stamp duty will also not be imposed on contract notes and instruments of transfers relating to share warrants, rights in shares and units in unit trusts. Only contract notes and transfer instruments for transactions in stocks and shares will be subject to the existing stamp duty.

Personal Income Tax Our personal income tax rates are lower than those in many other countries. They ensure that all carry their fair share of the tax burden. They also adequately reward effort and enterprise. I do not therefore propose to make any changes to the tax schedule. Although our economy slowed down in 1991, we achieved a satisfactory growth rate of 6.7%. This rate is above our long term target of 4 - 6%. We reached it despite the difficult economic conditions throughout the world last year. I have no doubt that the hard work and initiative on the part of our people contributed significantly to our success. I have therefore decided to encourage continued individual efforts by giving an across-the-board and one-off rebate of 5% for personal income tax for Year of Assessment 1992. The estimated revenue loss is $70 million. Rebate of Service and Conservancy Charges For citizen householders staying in rented and owner-occupied one, two and three-room HDB flats who pay little or no income tax, the Government has decided to pay to Town Councils, on their behalf, the Service and Conservancy charges payable in the month of December 1992. This is a one-off payment applicable to Singapore citizens only. It is the equivalent of the 5% income tax rebate. Tax Relief for Reservists Reservists play a crucial role in preserving the prosperity we enjoy. Their contributions therefore deserve special recognition. Last year, the Ministry of Defence (MINDEF) set up the Committee for the Recognition of the Contribution of Reservists to Total Defence (RECORD) to make recommendations. Among many recommendations made and implemented by MINDEF, RECORD also proposed that reservists be granted symbolic financial incentives. MINDEF has therefore recommended that this recognition be given at the national level in the form of personal tax reliefs. MINDEF further recommended that it be given this year, as we commemorate 25 years of national service. Government has accepted MINDEF's recommendations and I am pleased to announce that the following tax reliefs would be granted: a) $1,000 for all active reservists, that is, those who are called up annually for in-camp training and other activities to maintain their operational proficiency; b) $500 for all who have done national service but are not in active reserve service. The tax reliefs will apply also to those who have done national service in the other services, like the Police Force and the Singapore Joint Civil Defence Force. These reliefs will take effect from Year of Assessment 1993. The estimated revenue loss is $20 million.

Tourism Cess Last year, the tourism cess rate was temporarily reduced from 4% to 3% for a period of one year. This was to help hotels and restaurants tide over the poor business conditions shortly following the Gulf War. The tourism sector has recovered from the sharp decline in tourist arrivals in the first half of 1991. For the whole year, tourist arrivals increased by 1.7% over 1990. Growth in the second half of 1991 is likely to continue into 1992. With this recovery, the tourism cess rate will be restored from 3% to 4% with effect from 1st April 1992. Duties on Liquors Duties on liquors are imposed to constrain the growth in liquor consumption. They need to be revised periodically to adjust for the effects of inflation. As liquor duties were last revised in 1987, I have decided to raise duties on liquors. The import and excise duties on hard liquors will be increased from $27.00 per litre to $30.00 per litre. The import and excise duties on sake will be raised from $15.50 per proof litre to $20.50 per proof litre. On still wine and vermouth, the duties will be increased from $8.50 per litre to $9.50 per litre while that on cider and perry from $3.00 per litre to $3.30 per litre. Duties on arrack and pineapple spirit will be increased from $13.00 per proof litre to $14.50 per proof litre. The excise duty on beer will also be raised from $2.50 per litre to $2.80 per litre while that on stout will be raised from $2.50 per litre to $3.10 per litre. On samsoo, the excise duty will also be increased from $10.00 per proof litre to $11.00 per proof litre. Details of the duty increases are set out in the Appendix (Cols. 505 - 512). Appendix - DUTIES ON LIQUORS (Cols. 505 - 512) The increases in duties will take effect from today. The revenue yield is estimated at $23 million. Restriction of Duty Free Privilege on Liquors At present, travellers arriving in Singapore other than from Malaysia can bring in duty-free, limited quantities of liquors for their personal consumption. This is a privilege intended for international travellers. With travelling becoming more popular, the duty foregone arising from the duty-free concession has reached some $40 million a year. This loss will increase further as passenger arrivals to Singapore continue to grow. To contain the revenue loss, I have decided with effect from 1st June 1992 to restrict the eligibility of duty-free privilege for liquors only to travellers who spend not less than 48 hours away from Singapore before their arrival. This will ensure that only bona-fide travellers benefit from the concession. The restriction is not unique to Singapore. Hong Kong and Malaysia have imposed similar restrictions on the granting of duty-free privileges. The existing practice to disallow duty-free concession in respect of travel between Singapore and Malaysia will continue. Water Conservation Tax Water consumption follows economic growth closely. As the economy continues to expand and our standard of living rises further, the demand for water will continue to grow. We import a large part of the water we consume. Water will hence always be a scarce resource, far more valuable than its production costs alone. We need to continually encourage water conservation. The demand for water has increased by an average of 3.8% each year since 1986. The growth in domestic demand has been particularly strong, increasing by 5.8% last year. To restrain the growth in water consumption, I intend to increase the Water Conservation Tax on domestic customers who consume more than 20 cubic metres of water per month from 5% to 10%. The Tax for non-domestic and shipping customers will also be increased from 10% to 15%. The tax change will take effect from 1st April 1992.

The prospect for the world economy in 1992 remains uncertain. The US remains in recession. Economic growth in Japan and Germany is expected to be sluggish. The latest round of GATT talks has yet to produce a final, definitive and positive result. We also do not know if the Single European Community and the North American Free Trade Area will eventually affect world trade. Singapore will be affected by these uncertainties. Our trade growth will decline if global demand falls; investment flow into Singapore will also slacken. 1992 may therefore be a more difficult year for all of us but I am certain that we will continue on the path of economic growth. Over the years we have built up a strong economic base and installed a sound fiscal system. We have eschewed wasteful consumption but invested heavily in human resources and physical infrastructure. With these foundations in place, we can face the future with confidence. Mr Speaker, Sir, I beg to move. [Applause].

The Question is, "That Parliament approves the financial policy of the Government for the financial year 1st April, 1992 to 31st March, 1993." In accordance with paragraph (1) of Standing Order No. 86, the debate now stands adjourned. Debate to be resumed on what day, Dr Hu?

On Monday, 9th March, 1992.

So be it.

Resolved, "That Parliament do now adjourn to Monday, 9th March, 1992." -- [Mr Wong Kan Seng]. Adjourned accordingly at Seventeen minutes to Five o'clock pm to Monday, 9th March, 1992. PROFIT SHARE, SINGAPORE'S RELATIVE UNIT LABOUR COST IN MANUFACTURING AGAINST THE OTHER NIEs (Cols. 503 - 504) Appendix - DUTIES ON LIQUORS (Cols. 505 - 512)