ESTIMATES OF EXPENDITURE FOR - THE FINANCIAL YEAR 1ST APRIL, 1993 - TO 31ST MARCH, 1994
Mr Speaker, Sir, I will try and take the items in the order in which they were raised, except where they are very closely connected I will take them together. Dr Ow made the point that the schemes to assist local enterprises appear to be insufficient and that the average amount of loans and grants is rather low. Actually the loan scheme has a fairly high limit. For the smaller companies, the limit is $6 million. If the average is small, it just indicates that perhaps the applications were for small amounts or that the applicant was not able to justify a high amount. Although both the loan scheme and the grant scheme are meant to assist the local enterprises, certain normal financial criteria must be applied in considering loans and they must be related to the type of project, the cash flow expected, the security available and so on. And the last thing we want is to have a scheme that just throws money away and hope that results will come out. If Dr Ow can give me further details where there were deserving cases for large loans and were not given, I will take them up. There are no limits to the resources that we are prepared to put into encouraging local companies to invest overseas. All the schemes that we have in mind, although they may have annual budgetary limits, can be increased if the demand is there. So I do not think that it is shortage of resources that is the problem, but it is a question of finding sufficient viable, bankable projects. Dr Ow made the point that the problems that he has encountered in his feedback are that the programmes available for local companies are not clear. I think they can approach the Local Enterprise Promotion Centre. They publish a book. I will give each Member a copy of this book. It lists all the types of development assistance programmes that are available in Singapore and most of them are, in fact, aimed at the smaller local enterprises. If somebody does not know the type of assistance available, it is very easy for him. He can just call the EDB or the Enterprise Promotion Centre and they will be able to assist. I think ignorance here is really not much of an excuse. If people need help, they should know where to go for it. They can ask their MPs. They can go to EDB. And if they say they do not even know how to go to the MP or the EDB, then I think they are not very good businessmen. Whether the programmes are too conservative, of course, people will always like to have more than what they are given. Here again, if I can be given specific examples of good projects which were not sufficiently supported, I will be prepared to take them up. 2.00 pm Regarding the question of coordination between the Trade Development Board and the Economic Development Board, yes, perhaps there has been some confusion because both organisations are very involved, especially in this new subject of regionalisation and promoting investment overseas. I think the point was made that perhaps TDB is in a better position to help investment overseas. That really depends. We have not decided yet whether to set up a new organisation. Most probably not, because both the EDB and the TDB, as presently constituted, are more than able to support local enterprises going overseas. The EDB has also many strengths in trying to support local enterprises going overseas because they know the nature and the type of manufacturing operations in Singapore and how overseas investments can be tied up with the operation in Singapore. What we want to do, as far as possible, is that when Singapore companies invest overseas they do not entirely transfer their operations from Singapore to an overseas location but that there will still be a connection between the overseas investment and the Singapore investment, perhaps with the more labour intensive type of operations being done elsewhere and the more technical or knowledge and technology intensive operations being done here. EDB, in fact, is in a much better position to assess how to help local industries to go overseas and still maintain this contact with the Singapore operation. On the other hand, the Trade Development Board, which is responsible for the promotion of export of goods and services, also can help. Very often, when they take missions overseas to explore new markets for Singapore products and services, the businessmen who go in the TDB mission do identify investment opportunities. And if they do, TDB, together with EDB, will try and help these firms to bring their investment into fruition. In the overseas centres where we have perhaps EDB, TDB and the embassies operating, yes, I think they should work together. A suggestion was made that all these Government agencies and embassies should contribute to build up knowledge of the overseas markets not only in terms of the markets for the Singapore products, but also in terms of investment for Singapore investors. This is already being done and, in fact, the Trade Development Board does collate information from many, many sources, not only the embassies and other Singapore agencies, but also from other commercial agencies as well as sources of the Government of the other country. They collate this information into guides which are used by Singapore exporters and I am sure they will also be useful for potential investors from Singapore. We will let both the TDB and EDB continue to deal with this matter and in the light of experience see whether changes need to be made so that there is no overlapping or duplication of work. On the suggestion of the Singapore Government agencies jointly developing industrial estates and towns overseas which can be the place where Singapore and ASEAN investors can invest, I am not so sure whether this is a good idea. JTC has invested in Thailand and elsewhere, but not primarily for Singapore investors. I am not sure whether it is a good idea for all Singapore investors to go into one particular industrial estate developed by a Singapore agency. They should be all over the place to make use of the various advantages that different places offer. But all the same, I will give this idea further thought. A suggestion was made by Mr Leong Horn Kee that we should encourage local companies and GLCs to form groups to go overseas. I will ask them to take note. But one of the reasons why the GLCs in Singapore have been far more successful than Government-owned operations elsewhere is that we just leave the GLC management to get on with their work without too much interference from the Government. They must be able to assess for themselves what kind of partnerships to enter into and what will be to their advantage. So while we can make general statements, we must allow the management of each Government-linked company to decide for itself what is best in the interest of the operation. I will pass on the suggestion and leave it to them to decide. Mr Chay said that approval of various incentives to invest overseas or explore opportunities overseas should not be done on a case-by-case basis, but on a transparent across-the-board basis. Certainly, we can make the criteria transparent, and I think we should. But it does not follow, therefore, that it should apply automatically. I think it is very important that when we come to fiscal incentives we look at each case. We do not want to create a situation where we give so many incentives and so easily for investment overseas that it becomes more attractive to invest in other places than to invest in Singapore. That will be very counter-productive. So at least in the initial phases the Finance Ministry is quite right in insisting that they would approach this on a case-by-case basis. Whether the cases that are approved are less susceptible to hollowing out or round tripping, that would be assessed. There may be no guarantees, but certainly this is an aspect that will be looked into before a particular project or investment is approved. So I would say that for the present moment it would be wiser to stick to the case-by-case approach. Mr Robert Chua has circulated the findings of a survey by the SMA. I will look at them, but I can make comments on some of the points he has raised regarding, for example, training of local managers and local workers for projects overseas. We already have a programme to train foreign workers in the Singapore operation so that when the Singapore investor invests overseas he can use these trained workers in the overseas operation. We have given incentives such as grants to offset the foreign workers levy up to six months. This scheme has been in operation for Batam. It can be extended to others. To train managers, this has already been done. But, at present, each company will have to pay for the cost of training such managers. Again, I would like to sound a note of warning. We must not become so over-enthusiastic about investing overseas that we throw all our resources in such a way that those who go overseas get much more than those who invest in Singapore. We should never bring about such a situation. I would like to come to a more important subject, that of business cost and inflation as a whole. Dr Ow has quite rightly pointed out that our unit business cost has been going up and that our competitive position vis-a-vis the other NIEs is being reduced. He pointed out that the major component is the labour cost, and Mr Chua also pointed out the cost of land. As long as we are developing, and as long as the international economy is developing, we must expect that there will be some firms that are doing well now which will find difficulty and some may even have to close down. This is a changing situation. It is not static. Firms find new opportunities and firms find that areas in which they were strong at one time have ceased to be areas where they can continue to operate. I think this is something that we cannot stop. Secondly, we can never expect that our cost of labour and our cost of land will be the same as that in countries where they have more land and many more people. We have to be careful. As we track our competitive position it is not just merely the cost of labour or land per se but our overall competitive position, which is a function of many, many variables. Labour is one element. Of course, land and the other elements such as the efficiency, adequacy and quality of the infrastructure, the political climate, and the consistency of Government policies. All these are very important factors. In spite of our higher labour cost and higher land cost, Members will know that in the 1992 world competitiveness report, we were still ranked No. 1 among 14 NIEs. The fact that we are still competitive is also reflected in that the US manufacturing firms enjoyed an average return in Singapore much, much higher than what they enjoyed in other countries. In Singapore, the average return on their investments was 38% compared to 13% from the investment in all foreign countries. Last year, as Members know, we had a record commitment of $3.5 billion of investment in the manufacturing sector. All these will demonstrate that we are still competitive. Nevertheless, we cannot be complacent. We must pay close attention to cost and ensure that our total environment continues to be very competitive and attractive. We cannot afford to adopt a carefree attitude. But the answer to increasing cost is not to try and artificially keep down labour cost or land cost or the cost of resources. If you want to continue to enjoy increasing incomes and higher standards of living, people must earn more. The way that they can justify earning more is, of course, to be more productive. The answer then is to put our resources to the best use possible, whether it is labour or land, or any other resource. We must, in order to ensure that it is put to the best use possible, subject it to the market test. For example, land cost. I know that many Members have pointed out that JTC has increased its rent and, in some cases, it has increased maybe as much as 50%. I would urge Members to look at the actual absolute figures. Where the percentage increase is very large, you will invariably find that the old rents were very low. They were completely out of line with the market rents. Of course, the investor who has been used to very low rentals for many years is bound to be very unhappy when rentals are raised. That is quite natural. But I think they have to look at the total cost of doing business. In the case of manufacturing, for example, our survey two or three years ago to assess the input and output factors in manufacturing showed that, in fact, land cost was only about 2% of the total manufacturer's cost. Of course, land cost in the business increases to much higher levels in the service and other industries. But for manufacturing, it was relatively low. When JTC adjusts the land price, it adjusts it according to what, in fact, people are paying in the latest leases. This is a willing landlord and willing tenant kind of relationship, and they pay what they think they can afford. If we do not do that, we will not be putting land to the best use. But I concede that this process of adjustment is a painful process. But we have always had industries in Singapore that found it not viable to carry on any more and they had to close down. I think it was, in the longer term, for the good of Singapore. I can remember the time when we first started our textile industry. There were many investors producing just gray cloth, no bleaching or dyeing or anything like that, but they just weaved gray cloth and sold it. Land was cheap and labour was cheap. All of them are now out of business. If at that time they had come to us and said, "Look, do not increase the land price. Labour costs are going up. Try and do something about it", we will still be making gray cloth. It was a painful process for them to make the adjustment, but in the longer term it was for the good of the Singapore economy. This process is going on all the time. I think we must accept that. If we accept it and do all that is necessary to put our resources to best use, then our people will earn the kind of income that will bring us to the level that we desire. Labour cost will only be cheap if we have unemployment, and we do not want that. The shortage of labour means everybody is employed. Therefore, we should put the labour to better use. So while the process of adjustment is painful, I think we must look for other ways of adjusting rather than to try and artificially keep the price of our resources down. We will continue to monitor the prices of all the inputs that go into our various businesses and we will do everything possible to remove all the supply side constraints so that we do not artificially push up the prices of our resources. But we cannot, for example, remove the supply side constraint on labour by allowing a large number of foreign workers to come into Singapore. If we do that, we will depress the wages of our semi-skilled and lower-skilled people, or even our skilled workers. I do not think that is fair, apart from all the social and other problems that we will face, if we allow large numbers of foreign workers to come in. We will also continue to ensure that we have adequate and efficient infrastructure that meets the needs of our industries. We must also ensure that our taxes are low and we must make sure that investors are always given value for the money that they invest here. I do not think there is any danger of our manufacturing industry being hollowed out because of higher cost. If you look at Japan and Germany, their costs are much, much higher. Yet they are the leading manufacturers in the world, because they are highly productive in the way they use their resources. So all the other requests, like reduction of the second-tier on foreign workers levy must be seen in the light of what I have just said. 2.15 pm Inflation and GST, and cost of living have been mentioned by Dr Ow and also in yesterday's debate. Yes, our costs have been going up. But, as was pointed out yesterday by one of the speakers, all the evidence so far in most of the countries that have introduced GST is that GST itself does not contribute to an inflationary spiral, but it is how we react to the GST. If after all the offsets that we have announced, there is demand for increased wages to meet the GST, then I think we are on a dangerous track. And I hope we never enter into such a spiralling arrangement. But a lot of the complaints about increase in cost of living arise because people always only remember price increases. And people always have a rather romantic, idealistic idea of the past. They always talk about the times when you could have your hair cut for 70 cents, a bowl of kuay teow for 20 cents. Never, of course, focusing on the fact that they earn much more now than they used to earn. But the fact is, as the economy develops, as we progress, as we become more affluent and as the middle income group grows, costs of certain services will go up. The trouble is that everybody wants to have an increase in his own wages and have all his costs stagnant or static, which is not possible. In any growing economy, costs will increase. For example, I think there is an impression that food costs, ie, cooked food costs, have gone up tremendously over the years. But actually, according to our index - this index is not just something that some officers sit in the office and manufacture, we have thousands of points, literally thousands of points, where field officers go and check prices and collate prices in order to prepare these indices - over the last 12 years, the index for hawker food rose by an average of only about 1.9% per year, whereas in the same period the nominal wage growth was 8.9% per annum. If workers get more wages, surely you must concede that hawkers and others, hairdressers and other service providers, must also earn more, and part of that would be of course an increased cost of services. I think that there is a rather unrealistic expectation that people can have increased incomes with costs remaining stagnant. I remember being told by Herman Kahn once (he is dead, and he used to be in Hudson Institute), "there is no fun being rich in a rich country because everything is so expensive". I suppose we can paraphrase that by saying that there is no fun being employed in a country which has full employment. If you have a job in a country where most people are unemployed, you can get a lot of cheap services. But is that what we want? So we must be realistic, make sure that increases are backed by productivity, that the increases are not artificially fuelled by shortages, that whether we impose GST or do not impose GST, that markets remain open, that we import what we require from the cheapest source and keep the supply lines free. That way, we can keep costs down. And that is what we will do for GST. We will make sure that supplies are adequate, and, if necessary, increase the supplies. I do not think that there is any real danger of profiteering as a result of GST. Profiteering is only possible when there is a shortage. I think older Members here may remember the very high price increases in 1973 and 1974 as a result of the oil shock. But that was not due just to the oil price increases. It was due to a shortage of many primary commodities, many food products. Rice, for example, was in great shortage and, I think, older Members will remember the "Eat More Wheat" campaign to try and get people to switch from rice to wheat. But the situation today is quite different. Commodities are plentiful, they are cheap, and we can get them from many, many sources. Thailand is not the only source for rice. Vietnam now is the third largest exporter of rice in the world. So there are many new sources. And we will make sure that there are sufficient supplies and we will continue to monitor prices. We will perhaps ensure that people price-tag their products. We will encourage the formation of consumer interest groups. As the Minister for Finance has already said, if necessary, we are prepared to support CASE to track price movements and all these measures, I am sure, will be more than adequate to ensure that there is no profiteering as a result of GST. The items on productivity and skills development, I will ask my Senior Minister of State to answer them.