Mr Speaker, Sir, I would first like to thank all Members of the House who have spoken on the Budget in the past two days. As time will not permit me to address every Member's concern in detail, I will focus on the main issues raised, leaving matters of detail which come under the purview of individual Ministries to the Committee of Supply, beginning tomorrow. Let me begin first by touching on the broad fiscal policies concerning many of the issues raised by Members in the past two days. These policies are fundamental to the economic strategy which have brought Singapore to where we are today and they bear reiteration. I will review Government's taxation policy before dealing with the many areas of concern which have centred around the lack of fresh incentives to help the manufacturing and SME sectors which are going through a difficult period, the apparent bias towards the financial sector in the FY97 Budget and Government's policy on the accumulation of reserves. I will take these in turn. Government's Taxation Policy The Government's underlying philosophy has been to tax factors of production as lightly as possible in order to encourage enterprise. This is achieved by having a lower across-the-board tax rate and making available special tax incentives to encourage targetted activities. The private sector and some Members of this House were disappointed that the corporate tax rate was not reduced in this year's Budget. I would like to remind them, however, that the corporate tax rate had been reduced by five percentage points over the past five years, from 31% in Year of Assessment 1992 to 26% in Year of Assessment 1997. The most recent tax cut was only made last year and, in fact, will only take effect in the current Year of Assessment. There is therefore no need to make further tax adjustments so soon after last year's revision. As it is, our corporate tax rate is already amongst the lowest in the region. Our tax depreciation provisions are also very generous and have been ranked number one by the 1996 report of the Davos-based World Economic Forum. Coupled with an extensive network of double taxation agreements, unilateral tax credits and generous tax incentives, we have one of the most attractive corporate tax regimes in the world. Over the past five years, the tax changes made by the Government have reduced revenue collection by about $2.5 billion per year. The Government continually monitors its revenue policies to ensure that tax rates remain competitive and that the tax burden remains as light as possible. Manufacturing and SME Sectors Several Members have commented that there is not enough help given to the manufacturing sector and the local small and medium enterprises (SMEs) in the FY97 Budget. This is not true. The fact is that Government has already put in place a comprehensive set of more than 60 tax incentives and assistance programmes to help the manufacturing sector and the SMEs. For example, the tax incentives available to the manufacturing sector and the SMEs include the Pioneer Incentive, Development Expansion Incentive and Investment Allowance schemes. These tax incentives entail a substantial revenue loss for the Government every year. Based on Year of Assessment 1995 figures, these three schemes alone accounted for a total revenue loss of close to $200 million. This is approximately the revenue which the Government would have lost had we reduced the corporate tax rate by one percentage point. Financial assistance for the manufacturing and local SMEs is also available under the Economic Development Assistance Scheme and the Cluster Development Fund, for which a total grant of $310 million had been allocated in FY97, an increase of 19% over FY96 allocation of $260 million. In addition, for the SMEs, the Local Enterprise Finance Scheme provides low cost loans to help local companies upgrade and automate their operations and expand their production capacity. Last year, a total of $590 million worth of loans was extended under the scheme, an increase of 13% over 1995. Other financial assistance schemes which the SMEs can avail of include the Local Enterprise Technical Assistance Scheme which provides grants to help SMEs defray the cost of engaging external consultants to upgrade and modernise their business operations. In 1996, a total of $12 million in grants was approved. In addition, to assist local companies in business and capability development, the Local Industry Upgrading Programme helps local companies tap technical and managerial expertise of multi-national corporations. $3.2 million was spent under this scheme in 1996. In my Budget Statement I have also mentioned that development expenditure on economic and infrastructural development will double from $2 billion in FY96 to $4 billion in FY97. This increased expenditure will ultimately enhance the efficiency and hence the competitiveness of Singapore's businesses, including the manufacturing sector and the SMEs. The Government is also conscious of the need to contain business costs in the present climate of a slowdown in the manufacturing sector. In my Budget Statement I have also stated that Government is taking measures to ensure an adequate supply and realistic pricing of industrial land. Other measures already taken earlier this year include the reduction in foreign worker levy for workers in the manufacturing sector and the freeze or reduction in JTC land rentals. The reduction in foreign worker levy is expected to cost $14 million per annum while the reduction in JTC land rentals will cost $42 million. Clearly, there are many incentives and assistance schemes for the manufacturing sector and SMEs, and we will continue to monitor and fine-tune these incentives and schemes, wherever necessary. The Committee on Singapore's Competitiveness will be studying the issue of Singapore's longer term competitiveness and will, among other things, address issues relating to business costs and the competitiveness of our manufacturing sector and SMEs. The Committee will be reporting its findings early next year and will no doubt recommend new measures to improve the competitiveness of Singapore for the various sectors. Incentives for the Financial Sector Members of this House have commented that the Government appears to have gone out of its way to provide a package of incentives for the financial sector in the FY97 Budget and that the incentives appear to benefit the larger financial institutions. Dr Tan Cheng Bock has called the Budget a "Shenton Way Budget". It is true that the financial sector has been singled out for special treatment in this year's Budget. Let me explain why. Strong economic growth in the region has led to a rapid increase in the demand for sophisticated financial services. The trend towards the opening up of international financial markets, coupled with the rapid developments in electronic data transmission and information technology, has also led to the integration of financial markets world-wide. Intense competition has forced companies to consolidate and combine to create ever larger institutions which can better afford expensive IT technologies and highly skilled staff. The race is on to create bigger and stronger financial institutions with global reach. Competition for financial centre status in the region will be fierce, especially from a rejuvenated Japan which has embarked on a "Big Bang" reform of its financial system. If Singapore is to retain its position as a major financial centre in the region, it is essential that we attract the larger players to locate in and operate from Singapore in order to build up a critical size of such institutions. When this happens, the industry as a whole will also benefit from the expertise brought in by the bigger players. The emphasis in attracting large players does not mean that there is no place for smaller companies, including local companies. In the fund management industry, for example, all approved fund managers have been enjoying a 10% concessionary tax rate for many years, regardless of the amount of funds they manage in Singapore. Our tax incentives are deliberately geared towards encouraging fund managers to continually expand their operations in Singapore. Besides the 10% concessionary tax rate, applicable to all fund managers, in 1995 we introduced an incentive to tax at 5% the incremental income of approved fund managers who manage at least $5 billion worth of non-resident funds. The new incentive this year will exempt from tax altogether for those who manage at least $10 billion in non-resident funds. Similarly, to encourage the ACUs to expand, the 5% tax on incremental income from all taxable ACU activities will be extended only to those whose taxable income from ACU activities exceeds $50 million. However, all ACUs already enjoy a 10% concessionary tax rate, irrespective of their size. Other tax incentives announced in the Budget, such as the tax exemption for income arising from managing IPO share offerings of foreign currency shares, trading of foreign shares and the extension of tax exemption to syndicated loans which are not underwritten will benefit banks, merchant banks, ACUs, Approved Security Companies and other financial institutions which undertake these activities. A Member has asked whether the award of tax incentives for financial firms could be tied to the training of local staff. However, doing so will impose an additional burden on the financial companies. Ultimately, the decision to employ expatriates or local staff will depend on the firm's bottomline. Government's Policy on the Accumulation of Reserves Several Members have expressed concern over the size of the Government's annual budget surpluses. Mr Lew Syn Pau has asked whether the continual withdrawals of liquidity may not have detrimental effects on Singapore's economy. Others have asked whether the surplus could be lowered by giving more incentives to businesses and to promote social cohesion. Let me now explain the rationale underlying Government's budgetary policy. Our basic policy is to run a balanced budget in which all recurrent and development expenditures are met from Government revenues. In years of strong economic growth when revenues are buoyant, we would expect to realise substantial budget surpluses if expenditures are kept under control. As I indicated in my Budget speech, our aim is to ensure that growth in Government expenditure does not exceed GDP growth. In recent years, recurrent expenditures have been capped at around 10% of GDP. As our development expenditures have generally been around 6% of GDP, and revenues have often exceeded 20% of GDP, we have been able to generate healthy budget surpluses, part of which has been returned to the economy in the form of tax cuts and asset enhancement schemes and rebates, and the balance set aside to the reserves. From the foregoing, Members can see that the Government's budget surpluses are generated not by over-taxing the economy but are the outcome of economic growth and careful control of expenditures. There is therefore no need for concern that the surpluses will harm the economy in the long term. Members may also be interested to know that our revenue collection is much lower than the G7 countries and comparable to the regional economies, in terms of percentage of GDP. For example, our FY97 revenue collection is projected to be about 19.5% of GDP. This is much lower than the G7 countries' average of between 33% and 48% of GDP. We are also lower than economies like Taiwan, Malaysia and South Korea whose revenue collection is between 21% and 29% of GDP. As to the question whether the surplus could be lowered to give more incentives to businesses and to promote social cohesion, I would like to assure the House that Government has set aside sufficient funds to help local companies, both in business development and skills upgrading under the Economic Development Assistance Scheme. From the year 1996 to the year 2000, a block vote of $1.3 billion for grants and $3.3 billion for loans will be set aside for the Economic Development Assistance Scheme. Apart from substantial funding for economic promotion, the Government will spend more on transport improvements, such as the building of MRT, LRT and roads. The Government will also be spending 20% more on community development this year to further promote social cohesion and a caring and gracious society. Some Members have asked whether Government would state its policy on the accumulation of reserves. A simple answer is that there is no target, as we would like to accumulate as much reserves as possible, in other words, the more the better, always provided that the accumulation does not come from increased taxes causing a drag on the economy and stultifying growth. Except for the recession year of 1985, Singapore has enjoyed continued strong growth over the past decade accompanied by budget surpluses in every year. We believe the present economic slowdown is due to a cyclical downturn in the electronics sector, and the good June figures for non-oil exports would indicate the probability of an economic upturn in the later part of this year. We should also not forget that Singapore has little reserves of land and no natural resources. We have to rely entirely on our financial reserves to meet unforeseen circumstances. I will now move on to address specific concerns raised by individual Members. Mr Chiam See Tong, Mr Jeyaretnam and Mr Low Thia Khiang have all spoken about the increasing collection from fees and charges from $3.7 billion in FY96 to $4.1 billion in FY97, an increase of 10.8%. This increase is due mainly to the higher COE collections expected in FY97, largely because of the higher number of vehicle quotas to be issued in FY97 in view of the implementation of road pricing. Mr Chiam has also asked whether the introduction of the Autonomous Agency (AA) programme will lead to higher fees and charges. As I have mentioned in my previous speeches, the objective for implementing the AA framework is simply to make the civil service more efficient, effective and performance-oriented. The pricing of public services will continue to be a separate policy matter. Hence, the AA initiative per se will not lead to any increase in Government fees and charges. Mr Lew Syn Pau has suggested that we introduce a multi-tier corporate tax rate system in order to allow smaller companies to be taxed at lower tax rates. However, Singapore's corporate tax rate of 26% is already low in comparison with other countries. Moreover, a variety of lower tax incentives are already available for selective activities. A multi-tier tax rate system will open up substantial opportunities for tax planning. To guard against this would require more elaborate tax rules. This would, in turn, lead to higher tax compliance cost for small companies which would defeat in the end the purpose of such a tax change. Mr Inderjit Singh has asked how we can further assist local industries and businesses in their efforts to regionalise. I would like to inform the House that there are already several schemes in place to encourage local companies to regionalise. Local companies that are setting up operations overseas can obtain low-cost loans under the Regionalisation Finance Scheme (RFS) administered by the Economic Development Board. This programme is designed to assist local companies acquire fixed assets for their overseas projects. To-date, 60 companies have received about $78 million in loans under this scheme. Local companies can also tap the Business Development Scheme (BDS) which provides grants to defray the cost of organising overseas business missions for the purpose of exploring new technologies and markets, establishing new business contacts or to pursue joint venture arrangements. I would also like to clarify Mr Peh Chin Hua's comment of the difficulties of SMEs getting bank loans for investment overseas as a result of its restrictions imposed by the MAS. The MAS does not have any ruling, regulation or guideline which prohibits banks from extending loans for investment overseas. These are commercial decisions which banks have to bear. Banks, in determining whether they would extend loans to any potential borrower, whether for use in or outside Singapore, and whether collateral is needed, would assess the credit-worthiness of the potential borrower and the risk and viability of their project. Mr Sin Boon Ann has suggested that Government can use some of its reserves to acquire foreign companies and to capitalise on their expertise and experience. What Mr Sin has suggested, that we adopt an acquisition strategy of buying into or even buying over companies to acquire expertise, technology and market access, is in fact one of the strategies of Temasek Holdings and the GLCs. For example, NOL has recently proposed to acquire a large American shipping line called American President Lines. Mr Ahmad Magad has spoken on the need for Government to track the progress of our small and medium enterprises in restructuring themselves towards more high value-added activities. Mr Magad may wish to note that the Productivity and Standards Board has set up a first stop centre for SMEs called the Local Enterprise Upgrading Centre to provide an integrated package of services to help SMEs upgrade and grow. As I have mentioned earlier, the Government has also implemented several schemes offering grants and loans to enable SMEs to upgrade themselves by the transfer of technology and managerial skills from MNCs and large local companies. Mr Lew Syn Pau has also suggested group relief for companies which are venturing abroad. In general, we do not favour the idea of allowing group relief as this will have serious implications for tax revenue. It would also open up opportunities for tax planning which would require complex tax rules to be drawn up to prevent abuse. Singapore also has a full imputation system in which the tax paid on corporate profits is passed on to shareholders through the distribution of dividends. Allowing group relief under a full imputation system, like ours, may mean that the tax authority may have to refund the taxes paid earlier when the company distributes dividends to their shareholders. This could result in serious tax erosion. However, as a concession, the Overseas Investment Incentive allows capital losses from the sale of shares in, or the liquidation of, approved overseas investment to be set off against the company's domestic income. Companies which wish to insure overseas investments against risks and uncertainty can apply to the EDB for this incentive. Dr Yaacob Ibrahim has asked whether there will be new tax incentives for SMEs to undertake research and development activities. There are already currently a number of tax incentives and grant schemes to encourage SMEs to undertake R&D. These include double tax deduction for approved R&D expenses incurred in-house or paid to approved R&D organisations, industrial building allowances for buildings used by an R&D organisation, and various grant schemes under NSTB, such as the R&D Assistance Scheme and Research Incentive Scheme. There is also the Innovation Development Scheme administered by EDB. Besides the above schemes, there are also grants to assist companies to employ foreign researchers to supplement and complement local R&D manpower resources, such as the Foreigner Researchers Recruitment Programme and the Research Exchange Overseas Programme. Mr Lim Swee Say has asked for more incentives to encourage water recycling. There are currently three schemes administered by EDB which provide tax incentives and grants to encourage companies to conserve water. In particular, the investment allowance is an attractive scheme which offers companies additional tax deduction of up to 50% of fixed capital expenditure incurred towards water recycling, in addition to the usual capital allowances. In last year's Budget, the scheme has been enhanced by allowing the investment allowance to be offset against the company's income taxed at the normal rate, even though the company is enjoying a tax concession on the project for which the investment allowance is given. The Government fully recognises that water is a key strategic resource and will monitor the response to the various schemes to conserve water. Changes will be made to these schemes, if necessary. A number of Members have spoken on the need for Singapore to develop our human resources. Mr Lim Swee Say has emphasised the need for more resources to be spent on retraining older workers. Mr Chay Wai Chuen has commented that there is a need for Government to do more to encourage training and retraining of workers in view of the recent low productivity growth. I would like to assure the House that the Government accords very high priority to the training of workers, including the training of older workers. The Government has therefore introduced various schemes to encourage older workers to upgrade their skills continually. Examples include the Skills Development Fund. In FY96, grants committed under the SDF totalled nearly $68 million. SDF funds were also used to train more than 90,000 workers aged 40 and above. This was 27% higher than in the previous year. Another new initiative is the Total Company Training Plan (TCTP) introduced in September 1996 which aims to encourage companies to adopt a systematic approach to staff training by helping them draw up comprehensive training plans. Under the scheme, companies with approved training plans will be allowed high levels of SDF support.