Mr Speaker, Sir, I rise to support the motion standing in the name of the Minister for Finance. My GPC Members have discussed the Budget Statement. We also met the resource panel and the panel members have raised some pertinent points. In the budget debate today and tomorrow and in the Committee of Supply, my GPC Members and I will raise a number of economic issues. Let me start by giving an overall view and comment on some specific issues. First, allow me to participate in the debate on market forces and Government intervention. The Minister for Finance stated in his statement that the "free market is the best system known for allocation of resources efficiently." I agree with him. I support the free market system and I also believe in market forces. However, there are good reasons for Government to intervene in the event of market failures caused by public goods and externalities. Let me illustrate. Defence is a public good. It cannot be produced by the private sector and sold in the market at a price like any ordinary good or service. Hence, defence has to be provided by Government collectively and financed by tax. Pollution is a good example of externalities. Government needs to intervene by regulation or by imposing tax to force polluters to cut down their activities or to internalize the externalities. Government may also have to correct market imperfections due to monopolistic elements and incomplete information. Again, Government has to invest in physical infrastructure and provide social services where the rates of social returns are high or the initial capital outlays are large. There are two areas that Government intervention is crucial: (1) macro economic management; and (2) income redistribution. With regard to the first point, I believe most economists, including those from MIT like Paul Samuelson and Robert Solow, would advocate that government should adopt macro economic policies so as to stabilize the economy and to reduce the magnitude of fluctuations of business cycles. No elected government can afford not to intervene when the economy is suffering from a prolonged recession or inflation. The question is what macro economic tools should be used, their timing, their dosage and their side-effects. With regard to the second point, it is common for governments to implement progressive income tax and to provide social services for the redistribution of income. Market forces allocate scarce resources efficiently, but market forces do not guarantee equitable income distribution. An efficient economic solution is not necessarily socially desirable. Hence, government needs to intervene. In the context of Singapore, given the scarcity of land, if the Government did not intervene by subsidizing land costs and even part of the construction costs, most Singaporeans would not be able to afford HDB flats. The Government also intervenes in education and health care through subsidies so as to ensure that education and basic health care are affordable to the lower income group. 1.00 pm Subsidy need not be a dirty word, but Singaporeans must be aware of the dangers of using subsidy: subsidy hides true costs, subsidy distorts prices, subsidy generates excessive demand, and subsidy perpetuates itself. There are four basic questions about subsidy and they are: (a) what is the purpose of subsidy - for production or consumption? (b) to what extent should a service be subsidized when its costs escalate? (c) to what extent should a service be subsidized when its demand increases and becomes more diversified and personalized? and (d) could the Government resist demands and pressures for new subsidies? Some Singaporeans believe that the Government should use the reserves to subsidize social services and to lower the cost of living. The Minister for Foreign Affairs has made public the results of two straw polls on Singaporeans' opinions towards the use of the reserves. According to the Annual Economic Survey, our official foreign reserves have reached $55.8 billion at the end of 1991. This figure appears large. However, this is equivalent to only 5.9 months' worth of merchandise imports. Even if we confine it to retained imports, the ratio would be around 10 months. In other words, our foreign reserves cannot buy even one year of retained imports for Singaporeans. Another way of looking at it is that the accumulated reserves of $55.8 billion are less than one year's GDP which was $61.9 billion last year. Using the analogy of a family, the accumulated saving is less than one year of annual income. So I hope my fellow Singaporeans do not think of using the reserves for subsidies too readily. It is in the interest of our citizens and of our future generations that we guard and preserve the reserves jealously. This is our only resource that Singapore could rely on if Singapore faces a severe recession or other hardships in future. In fact, we should aim to live within our means, and in good years, we should save as much as possible to build up our reserves. Another benefit is that the larger our reserves, the greater will be the Government's investment income from this source. The investment income, which amounted to about $5.6 billion in 1991, would help Government to finance defence, development expenditures and the provision of social services without raising tax. Another issue is tax changes and tax burdens. I agree with the Minister that the GDP pie should be made bigger before we talk about distribution of the pie. Income redistribution should come after and not before economic growth. However, if income distribution is perceived by many as unfair, then social and political stability could be undermined. In recent years, we sense some resentment among some Singaporeans in the lower income group. These Singaporeans perhaps perceive that Government has not looked after their interest and that the middle and upper income groups have gained more from Government policies. Against this background the rebate on service and conservancy charges (S&CC) is important as Singaporeans living in one-room, two-room and three-room HDB flats who pay little or no income tax could also enjoy some form of tax benefit. The S&CC rebate shows Government's compassion for the lower income group and, at the same time, it does not set an unhealthy precedent for tax credit or negative tax. Ministers have shown in this House how much Singaporeans, including those in the lower income group, have benefitted from the economic growth in the last 30-odd years in the form of increasing savings and also in the form of increasing value of assets and household appliances they have. It may be equally important to show the other side of the coin, ie, the relative tax burdens of different income groups. In the Year of Assessment 1982, 54.8% of taxpayers with chargeable income of less than $5,000 paid a total of 3.9% of tax revenue. The average tax burden of this income group was $101 per capita. At the other extreme, 0.9% of taxpayers who had chargeable income of more than $100,000 per year paid 37.7% of the total tax collected in that year. On the average, the tax burden of the higher income group was $55,569 per capita. Taxpayers with chargeable income between $10,000 -100,000 constituted about 22.6% in terms of the number of taxpayers that year. They contributed a total of 53.2% of tax revenue. On the average, the middle income group, ie, those who have $10,000 - $100,000 chargeable income, paid $3,326 per capita in that year. The figures I have quoted are for the Assessment Year 1982. These figures are outdated. May I request the Minister to update these figures to show that the tax burden is basically shouldered by a relatively few number of taxpayers in the upper and middle income brackets. The reduction of corporate income tax from 31% to 30% is welcomed by the business sector. However, businessmen are not particularly excited about this reduction, partly because the reduction is expected but mainly because businessmen and investors are worried about the rising cost of doing business. Because of the tight labour market, nominal wages continued to increase by more than 9% in the last three consecutive years - 9.8% in 1989, 9.3% in 1990 and 9.2% in 1991. I must clarify that the nominal wage here measured by payroll per worker includes bonuses but excludes employer's CPF contributions. The nominal wage of the manufacturing sector increased by 11.2% between 1990 and 1991 though that sector experienced the slowest growth of 5.3% among the major sectors. As a result, the unit labour cost index in manufacturing increased to 117.4 as compared to 100 in the base year of 1983. Business unit cost index in manufacturing also increased to 108.3 last year as compared to 100 in the base year of 1983. Some pessimistic business people see the replay of the 1983-84 pre-recession situation. I do not share this pessimistic view. However, we need to assess the accumulative impact of rising labour costs, increases in statutory charges and a strong Singapore dollar on business confidence and our export competitiveness. While the Minister for Finance has maintained that our corporate tax is competitive with many countries, many investors and businessmen choose to compare our corporate tax with that of Hong Kong. The Hong Kong Government has just announced an increase of corporate profit tax rate from 16.5% to 17.5%. I submit, Sir, a mere comparison of tax rates does not show the true tax burden. We need to look at how dividends and interest incomes are taxed, and what tax allowances and reliefs are given. The Minister may wish to give some comparative figures of total tax burdens of corporate and personal income taxes between Singapore and Hong Kong investors, taking into consideration the various tax allowances and reliefs for companies and individuals. Further, the Minister may wish to compare the Government expenditures between the two places. The obvious difference is that our Government has to shoulder the defence budget while the Hong Kong Government has no such obligation. Even though the average tax burden of Singaporean investors is higher than that of Hong Kong investors, the tax differences can be argued as a contribution to defence, which helps to reduce the investment risk in Singapore. Finally, Sir, let me speak on the prospects of medium term economic growth. Most people are interested in tax changes, but we need to focus more on the prospects of economic growth in the next few years. Last year, our GDP growth rate was 6.7%, the lowest in the last five years. It was the fourth consecutive year that our economic growth rate had declined. When our economy enters into a more mature stage and starts with a higher base of US$10,000 per capita income, it is much more difficult to achieve rapid economic growth, as in the past. Apart from this so-called law of diminishing returns, the performance of our open economy depends much on external forces. This is not by choice, but a reality we have to live with. Two-thirds of our demand come from external sources. Free flow of goods and services, free flow of capital and free transfer of technology are crucial to our open economy. The formation of the North America Free Trade Area and the Single European Market will affect Singapore adversely in terms of market access and investment diversion. While we need to strengthen and diversify our international linkages, we need to ensure that our competitiveness is not eroded by domestic factors. Productivity growth, quality of workforce, technological change and the capacity to adapt and adjust in response to internal and external changes are crucial factors in determining our medium economic growth prospects. I shall confine myself to the first two factors: productivity growth and quality of our workforce. The productivity growth rate declined continuously from 4.8% in 1989 to 1.5% in 1991, based on value-added per worker. It is lower if it is based on value-added per man-hour. It is the third consecutive year that productivity growth rate fell below the increase in real wage. Productivity growth rates of all major sectors declined in 1991 as compared to 1990. Wage increase is mainly a consequence of labour shortage; it does not necessarily reflect workers' productivity performance. Our panel members informed us that even though businesses and sales have slowed down, many employers continue to employ less productive local workers because it is difficult and costly to recruit their replacements. Another reason is that some employers need to maintain the local-foreign worker ratio. These so-called labour stockpiling practices depress productivity. Productivity growth does not necessarily reflect the quality of our workforce. The Business Environment Risk Intelligence (BERI) ranked Singapore workers as No. 1 in the world in the last few years. We are proud of such achievement, but we have to ask ourselves whether our workers are really better than the Japanese, Korean and Swiss workers. It is difficult to convince employers who face job-hopping problems to agree that our workforce is of such a high quality. BERI's Labour Force Evaluation Measure Index for 47 countries is based on four factors, namely, "legal framework", "relative productivity", "work attitude" and "availability of technical skills". Our workforce has been ranked not very high in terms of the last two factors, namely, "work attitude" and "availability of technical skills". Another BERI's index, "Quality of Workforce Index" for 10 countries is based on such criteria as "quality of equipment and physical facilities", "management quality" and "Government support for education and training". These criteria are not direct indications of the quality of our workers. One thing, however, is certain: we need to invest more on education and training. One problem we face is that 19.4% of our workforce have no qualification and another 29.3% have only primary or post-primary education. Of course, the younger workers and the new entrants into the labour market have higher education. For older workers, we have to be more flexible to provide them with some training and find ways and means to upgrade their skills. In this context, the National Productivity Board should be commended for conducting some training courses in Mandarin. Older workers and some young Chinese-educated workers are more at home with Mandarin. If a worker can upgrade his skill, does it really matter whether he learns to acquire such a skill in English or in the mother tongue? Sir, productivity is not just about skills and better ways of doing things, productivity is also a mental state. It is crucial for NTUC, NPB and employer organisations to cooperate to improve work attitude, reduce job-hopping and enhance productivity consciousness among our workers. Unless we have a quality workforce to work with quality capital investments and level up to a higher level of technology, it would be very difficult for us to achieve 4-6% annual growth rate in the next stage of development.