Mr Deputy Speaker, Sir, I thank all the MPs who have spoken and the many who have supported the Government's financial policy for this financial year. These tax changes are a vital part of our economic restructuring efforts to secure economic growth and to create new jobs for Singaporeans. I stated the rationale in the Budget speech. To create jobs, we need to attract investments and talent to Singapore. To attract investments and talent, we must bring down our taxes and, particularly, we have to bring down our direct taxes - the corporate income tax and the personal income tax. That is the only way we can be competitive in attracting companies and talent here. But if we bring down our direct taxes, we are going to have a shortfall in revenue and to make up the shortfall in revenue, we have to raise the GST. This is not a quick fix for this year, or for next year, but it is a strategic shift for the medium and long term for Singapore. I am happy that the growth this year is turning out well. But that is not the measure of our success. Our measure is that the economy continues to grow 4-6% per year for the next decade, and to deliver prosperity to Singaporeans. How much difference will this shift in taxes make? It is hard to quantify. But it is quite clear that if you look back over the last 17 years since 1985, had we not made a strategic shift from corporate and personal taxes at 40% in 1985, progressively down to 33% after the recession in 1985, then down to 28% when we introduced the GST, then gradually down to around 25% today, we would not have had the high growth which we enjoyed, nearly 10% per year after 1997, and even in the last five years, nearly 5% per year. If we had stayed where we were, 40% in 1985, you can say you are happy to pay tax, and maybe Mr Tan Soo Khoon will be happy to pay tax truly, but I do not know how many others would be, and we would not be sitting pretty today. So, in the same way as we go forward, we have to bring our direct tax rates further down, and we have to bring our GST up. Some MPs, Mr Ong Kian Min and also Mr Low Thia Khiang, have described this as a tax change which will only benefit the rich. One of them put it colourfully, although not very originally, by the rich, for the rich, of the rich. But, in fact, this is a tax change to benefit the whole economy. The way to help Singaporeans, and especially lower income Singaporeans, is not to tax the better off Singaporeans as heavily as possible. If that were the way to prosperity and nirvana, it would be quite simple. I just push the tax rates up, 40%, 50%, 60%, collect, redistribute. Happiness all round. But if you try to do that, the high income individuals and certainly the profitable companies would leave Singapore together. We would lose the jobs that they created as well as the taxes which they would have been paying. As Mr Matthias Yao put it picturesquely, you can rob the Sheriff of Nottingham, but the Sheriff has gone off to Hong Kong, and he is on his way to Shanghai. When that happens, all Singaporeans would be the worse off for it. Low income Singaporeans do not pay personal income tax. So they will not benefit directly from the cuts in the income tax, but they will benefit. They will benefit from the increased growth, they will benefit from the job opportunities that the tax cuts will foster. Mr Tan Soo Khoon says that GST is regressive. Yes, it is. But we have to look at the whole tax system which is very progressive, and the whole tax system includes personal income tax, corporate income tax, property tax, which is a wealth tax, and includes taxes on cars, which is a very heavy wealth tax even after these changes, and it includes the GST. After we have done these restructuring, after we have brought the corporate and personal taxes down to 20% and pushed the GST up to the horrendous figure of 5%, we will still only be collecting $4 billion in GST, compared to $12 billion of revenues from corporate and personal income taxes. In other words, direct taxes will still account for three times as much revenue as our GST, and two thirds of working Singaporeans do not pay personal income tax. So if we take the tax system as a whole even after this change, it will be a very progressive tax system, not just looking at it in itself, but looking at it compared to other tax systems in other countries. For example, in Britain, you pay tax almost from the first pound you earn, 20 cents per pound, or thereabouts. But in Singapore, we say the first $20,000 is yours. So, let us not get carried away by rhetoric added in the middle of the night. If we account not just for the tax system but also for the expenditure, the spending of the Government, then you will see that, in fact, we have an even more progressive system than that. Because the Government's social spending is very heavily focused on the lower income groups, our housing subsidies, our HDB flats, subsidised rents, free education, almost free or very cheap tertiary education, subsidised basic medical care. If you take this whole package together, in fact, for the vast majority of Singaporeans, the amount which you receive in benefits very far outweigh the amount which you pay in tax, and adjusting the GST is just a small correction to this overall balance. We did a calculation once that, for a household around the median, $50,000 annual income, 4-room HDB flat, tax burden overall, all things considered, would be $7,500 a year; benefits in kind, $18,600 a year, more than double. So I think we can stand up honourably and proudly and say we are doing the right thing for Singaporeans. Many MPs have asked me in this debate: will it work? Mr Yeo Guat Kwang raised this, Dr Chong Weng Chiew raised this, and Mr Low Thia Khiang asked this too. Will it work? If you cut CIT, PIT, if you raise the GST, will business come? We cannot be sure. As many MPs have pointed out, there are other factors at work, there is a pull of China, there is a concern over the region, there is the smallness of our market and the image of Southeast Asia as being not an exciting place to be. In fact, there is no image because it is off the radar screen for many investors. But all the more, because of these negative factors, we must get our tax rates right and register that if you do come to Singapore and you do make money, then it is worth your while to be here. Direct taxes are the primary fiscal tool that the Government can use to attract investments and talent. It is not everything, but it makes a difference. Once we read the Budget speech, EDB, always fast off the mark, went and knocked on doors in America to try and get new business, and they have reported that American companies have fed back that they have taken note of our Budget package. They have noted that we have made the right fiscal moves. Recently, the Economist Intelligence Unit rankings have placed us first in Asia, ahead of Hong Kong, and mainly in recognition of our planned tax cuts and our avoidance of budget deficits. And, recently, over the weekend, I had a visitor from America who runs a think-tank. He spent a few weeks in the region, including Singapore, and he congratulated me on our Budget. He said, "You are doing absolutely the right thing, bringing down the direct taxes, shifting over to consumption tax, encouraging enterprise and investments." If he thinks that, and if his think-tank reflects those views, I think other Americans will also know and it will make a difference. If we do not do this, of course, then the chances of our maintaining 4%-6% growth in the medium term will be considerably dimmed. Granted that we have to do this, is the timing right? Mr Iswaran and Mr Inderjit Singh and others have questioned the necessity of raising GST in 2003. Why not put it off? After all, we have an offset package, so it is not going to raise much revenue next year, so why not do it later on, five years from now? I think we are at a turning point. Let us take all the measures we have to do and do them now, take our medicine and, if we can have a bit of sugar to go with it, let us have the sugar to go with it, but the medicine is in place. You say push it off - maybe I do not have a deficit, can push it off; maybe the deficit is not permanent, push it off; maybe it is not a big permanent deficit, push it off further; maybe I can afford a permanent deficit because I have reserves. Eventually, we will be in a chronic position, unable to salvage our situation. The reason we are sitting pretty today is because we have not allowed this procrastination to happen and allowed ourselves to drift into a weak fiscal position. And if we put it off until we are really in difficulty, and then implement a goods and services tax, will we be able to do it as now, with a comprehensive package to make sure that everybody can accept it and ease it in so that in five years' time, after the package is over, the tax is in place, the economy has grown and everybody is all right? If I do it five years from now, will Mr Low or even Mr Inderjit Singh stand up and tell me, "Well, now we are in straitened times, let us proceed, we will take it cold turkey, no need for offset package." I cannot see that. So I think we better take it now. We have an offset package that looks after nearly every Singaporean. Let us get over this hurdle and then a new vista will open, and we have new possibilities. Some MPs, of course, have asked whether we need to raise GST at all - Mr Low Thia Khiang, followed by Mr Tan Soo Khoon and a few others. I would say that raising GST to 5% is the anchor move in this tax restructuring strategy. We are bringing down our direct taxes, we are bringing up GST. The key parameter, the key shift, is to move the GST from 3% to 5%. We fix that, then we will adjust the other parameters, depending on what we can afford and how the economy turns out and what the external circumstances are. We have calculated that if we go from 3% to 5% with the GST, we can afford to bring down direct taxes to 20% by FY2004 and, at the same time, we can afford to fund all the programmes we need. It is going to cost us about $1 billion in revenue lost but, if we do our sums carefully and we are careful with our expenditures, I think we can afford that. If it turns out that things are better than we expected and we collect more revenue than we estimate, I would say that is a happy problem. But the solution to that problem is not to reduce the GST. I say keep it at 5%. If I have surpluses, I can share the surpluses. If the economy does well, I can have New Singapore Shares. Alternatively, if my revenues are strong but it is a competitive environment which has become even more competitive, I have the flexibility to bring my direct taxes down further, below 20%, to 19% or 18%, depending on what we need and how soon we need to move. But it gives us options, cards, which we can play in a game where we do not really know what the rules are and every card we have, we better keep in our pocket and save for a difficult moment. This is not yet a difficult moment. This increase in GST, we expect, will raise $1.3 billion extra of tax revenue per year. This is assuming growth is about 4%. If growth is more, then there will be more revenue. If we forgo this increase in GST, that means we are giving up $1.3 billion of revenue a year. In other words, we will have to reduce Government development expenditure by 15% in order to balance the Budget. And $1.3 billion is roughly equal to one year of HDB upgrading and public housing subsidies. It is not a small sum. We will save on buildings, we will save on renaming, we will make sure that all our little expenditures are well justified and, where MPs have questions, whether it is A*STAR, SPRING Singapore or the furnishings in some buildings, raise them in the Committee of Supply and argue about them. The Ministers will defend and justify what they have done. And I fully sympathise with the sentiment that we should be very careful when we spend public funds. Whether it is $1, $100 or $100 million, that is Government money. Do not spend it unless you absolutely have to. In fact, when we built this Parliament House, we had a special committee to make sure that it did not end up too plush, and Mr Tan Soo Khoon will know. He was Chairman of the committee. If you go around and you find the furnishings somewhat spartan, you will know it is the good work of the former Speaker. And that is what we should do with all our buildings. But even if I turn all our buildings back to Central Supplies Office furniture and put MPs on Government issued benches, it will not come to $1.3 billion. So we have to do this. Mr Tan Soo Khoon raised several basic points about the package. First, he questioned whether the 1994 package of GST, plus direct tax reductions, was in fact revenue-neutral. He showed us a table, he raised some questions but, if I may refer Members to the table, I think it does not show that the package was not revenue-neutral. What we said, when we introduced GST in 1994, was that for the first five years we will be revenue-negative, because there are offsets, there are expenditures to ease it in. After five years, we hope to be revenue-neutral. If we look at his Table 2, column 3, Actual Surplus, we started off with an actual surplus of $8.5 billion in 1994, it went down in 1995 to $6 billion, thereafter it fluctuated: $2 billion, $5 billion, $1 billion, $5 billion and $4 billion. So it shows that the surplus has gone down. Our expenditure has varied some too. But, overall, it does not show that our surplus has gone up. So, on this basis, there is no reason to believe it was not revenue-neutral. Table 1 shows that the revenue from GST was more than we expected. Yes, that is true. It is true because the economy grew more than we expected. We did not plan for 10% growth per year. We were lucky we enjoyed it. We did not plan for 5% in the middle of the crisis, but we enjoyed it. So, revenue from GST was higher than we expected. But so, too, the discounts on the personal and the corporate income taxes were higher than expected. Because revenues were buoyant, so the percentage discount was correspondingly bigger. There is no column for the discount there because it was not in the IRAS annual report. But if you had computed them, you would have seen that they too would have grown and, overall, they would, more or less, have broken even. So, the figures sounded good, the table looked interesting, but I think the conclusion was mistaken. The question is: going forward, will we be lucky to have a table looking like this again? Since 1994, we have enjoyed high growth. Therefore, revenue was buoyant. Furthermore, expenditures could be capped - the population was young, social spending was not high, we did not worry about structural unemployment, many pressing demands on our exchequer. The question is: do we believe that we are at a turning point, that the world has changed, that going forward, what was will not again be? If we believe that the world has changed, then can we really not increase the GST and raise the extra $1.3 billion? On the other hand, if we believe, as Mr Tan says, the economic pie will expand, then we have no problem. If he is right and I am wrong, then the Government will be in a happy position of sharing out the surpluses. If he is wrong and, unfortunately, we are right, this is a turning point and we did not take the bend and we went off the road, then our problems will be very, very serious. So, if we want to ponder the alternatives, even if we are not sure, I think we make this fundamental move now. Mr Chiam See Tong wants the Government to promise not to increase the GST for five years. In 1994, we promised this. When we introduced the GST, we said 3%, five years, no change. This time, I can honestly say that a GST increase within the next five years is not in my plans, and not in the Government's plans. But I cannot promise this because, this time, it is a different situation from 1994. In 1994, we were going swimmingly, the region looked good, we did not expect 10% but we expected steady growth, we calculated our sums, we felt safe for five years. Now you can have the most massive super computer, you cannot predict what is going to happen in the next five years. Will there be a war in Iraq? What will happen on the West Bank between the Israelis and the Palestinians? What will happen with Laskar Jihad in Indonesia? If you could tell me that all those would be no problem, I could give you a promise. You cannot, and we cannot promise, but it is not our plan. We have calculated our offset package based on 5% GST and a certain amount of ERS and other items, and we think that it will offset more than five years. So, that is the basis on which we are calculating. But, if the kaleidoscope turns, that is a new ball game, and it is only fair that we warn everybody. Raising the GST to 5% will be sufficient for us to cut our corporate and personal income taxes to 20% and we will not need to raise the GST again just to move the corporate and personal income taxes down to 20%. We have calculated that it is enough. We are prepared to take the loss, and we will be able just to keep our noses above water. Will the GST increase raise prices and cut consumption? Several MPs, such as Mr Heng Chee How and Mr Iswaran, have raised this question. I would say that if we did not offset the GST increase, we would have a problem. It happened in Japan. They went from 3% to 5% at an inopportune moment, people held back on spending, the economy went into a tailspin. But we have an offset package which more than offsets the GST for five years and, in fact, it is front-loaded. So, we are giving the ERS over three years to offset spending for five years. The offset package will restore the households' purchasing power and may even cause some of the households to bring forward their spending because, on 1st January 2003, if you have the offset package, you can withdraw $300 and spend it. I would not recommend it because then you would not get the bonus shares but, if you want to, you can. Will the GST raise prices? Some, but I do not think it will be a big impact. As Mr Low Thia Khiang pointed out, hawkers are not doing that well and will not be able to increase prices that much. I think he understands what the real market balance is. When we introduced the GST in 1994, there was a little bit of a blip in inflation but it was hardly noticeable. Inflation was about 2%, it went up to 3% for one year, came back down to around 2% and stayed there for a long time. This time, we are expecting zero or negative inflation in 2002, and the GST increase is only 2%, compared to 3% in 1994. So, the impact should be less and it should not trigger inflation. But, if it does, or if there are some shops, hawkers or unscrupulous profiteers who want to take advantage of this, we have a committee on profiteering who should name them, shame them and highlight alternatives where people can go to. Mr Chan Soo Sen is chairing this committee. I am happy to learn that he has invited Mr Chiam See Tong who has agreed to sit on the committee. Mr Steve Chia has also agreed to serve on the committee. So, it is all entirely aboveboard. We will show you the statistics. We sample, we go and measure prices across the board, and you will see the statistics. If it is up, it is up. If it is not up, I hope you will be able to vouch for it that this is what the real situation was. Finally, on GST, there are many misperceptions. Mr Leong Horn Kee pointed out some of them and Mr Hawazi too, and encourage us to do more to dispel misconceptions about the GST, and especially the misconception that GST involves tax on tax, and because it is on many stages of production, although you say it is 5%, at the end of the day, the GST adds up to more than 5%. I have prepared a chart (Cols. 1089-92) which tries to explain this. I would like to ask the Clerk to distribute this to Members and I would take you through it briefly. [Chart distributed to hon. Members.] Chart - How the GST works: an illustration of how 5% GST is collected from sale of a TV set (Cols. 1089-1090) Table - How the GST works: an illustration of how 5% GST is collected from sale of a TV set (Cols. 1091-1092) Let us just look at the left side of the chart. There are two examples. On the left, there are two scenarios: one, where the retailer is GST-registered; one where the retailer is not registered. Let us, just for simplicity, look at scenario A. You are buying a television set, it costs $300, without GST. You pay the retailer $300, GST of $15, so it is $315. The retailer paid the manufacturer $200 for the set. His mark-up was $100. The manufacturer paid the parts supplier $100 for the set. The manufacturer's mark-up was $100. Now, how much GST was paid? The parts supplier paid $5 of GST to IRAS, because his price was $100, he paid $5. The manufacturer paid $10 of GST to IRAS because his price was $200, 5% of $200 is $10. But because the manufacturer paid the supplier $100 plus $5, so he claimed from IRAS a refund of $5, so the manufacturer paid $5. The retailer pays $15 of GST, which he collected from a consumer, to IRAS. But the retailer had already paid $10 of the GST to the manufacturer, so he gets a refund of $10 from IRAS. So the total amount of GST collected by IRAS on the television set, from the start of the process, when it was components all the way to the end when it was delivered to the consumer is $5 plus $5 plus $5, it is $15. In other words, there is no tax on tax. And if the retailer was not GST-registered, he has a small shop, then we look at the right-hand side of the page. In that case, he does not collect GST, but he has to pay $10 of GST to the manufacturer. And having paid $10 to the manufacturer, he marks up his product, and sells it for $310. He did not have to deal with IRAS. The consumer got the television for $310, instead of $315, and the SME still gets the same mark-up as before. In other words, whether the SME is registered or not, you only pay GST once on the product. Furthermore, if the SME is not registered, he is at an advantage, compared to the registered company. And when the tax went up from 3% to 5%, his advantage grew bigger, because now he can sell for $5 less. Previously, it was a $3 difference. This explains why it is not a tax on tax. It is fair, it is efficient, it taxes just once. Let me address another basic issue which Mr Chiam raised: why is this Government obsessed with surpluses and reserves? I am not sure that I would say we are obsessed but I think we are highly preoccupied with it. We have a reason to be highly preoccupied because, unlike other countries they can always fall back on timber, oil, gas. Somebody said oil wells but, alas, it was only a slip of the tongue. The only resources we have are our people and our financial reserves. That is all. The stability of our Singapore dollar and of your savings and your CPF money depends on our maintaining healthy financial reserves and fiscal surpluses. A strong financial position instills investor confidence, it instills confidence in the Government, it instills confidence in the Singapore economy, it gives Singaporeans confidence in their country. That is why we must maintain the reserves, gradually build them up, and not lightly draw upon them. But we never say never. There will be occasions when we need to tap on the reserves in extremis. It could be an emergency. It could be a dire economic situation. It could be a security emergency, and you have to expand Government's spending and you cannot raise taxes, and you have to draw on the reserves. You never know how long the bad times will last and you should be slow to squeeze the trigger because once you spend them, it will take you very long to build them back up again. With the reserves, we have the flexibility and the capability to respond to the needs of Singaporeans in difficult times. We had an off-Budget package last year. We said $11.3 billion. Nobody blinked an eyelid in Singapore. No other government can make an offset package of 7% of GDP, $11.3 billion, and you do not need to worry where the money has come from. We could do it last year because we had reserves, and even then, only because we had been lucky. Since 1997, despite the economic difficulties, we were able to build up surpluses and we had something put aside which we could use when we needed to. If we did not have that, we would not be able to have that flexibility to help Singaporeans. In any case, I really ought to point out that Mr Chiam got his sums wrong on the FY2002 Budget surplus, because we are not expecting a small surplus, as he has said. After we have made the tax changes and made the offset package, we are expecting a small deficit. Now, let me deal with the offset package. Mr Iswaran and Mdm Ho Geok Choo said that one's housing type was not a good criterion for distributing the ERS. I agree. It is not ideal. We had considered the alternative, which is to use income. But income also is not ideal and raises other problems. Let me just go through them briefly. First of all, if you had no earned income, it does not mean you are poor. Your husband may be looking after you, your wife may be looking after you, you might be living in a big house, you may have wealth. So, to go on a person's income is not quite a reliable measure. Also, we have to use the household income. You cannot look at the income of the person, but you have to look on a household basis, which means that I have to check who are all the members of the household, how much do they individually earn, tally it all up, add it together, all of which means using IRAS numbers, and then informing the household that, "I have added up all your incomes and it adds up to this amount of money, and this is what you are entitled to". I think it would be very complex and rather intrusive and many households would prefer us not to add their incomes together and tell us how much it adds up to. Having considered that, we decided it is easier for us to go back to housing, but we will not make fine distinctions between 5-room, 4-room and 3-room in our main component of our offset package, which is the ERS. Let us give nearly everybody $1,200. But at the top, if you are living in a fairly large private property, which is what the $10,000 annual value means, then we will give you $600 worth of shares, instead of $1,200 worth of shares. It is a rough and ready measure, but it is approximate. Why did we even give $600, some people asked, maybe they do not deserve. Well, because I cannot be sure that if you are living in a condominium that you have a high income. As many MPs have pointed out, you may be living in a condominium and you may be a retiree and you may need the money. So, as a rough and ready measure, we said, "$1,200, and at the top, $600 worth", not perfect but reasonable and practical. Our fall-back solution, in case anybody says, "It is not fair to me" is that if any household is not fairly treated because of your circumstances - for example, you are a retiree living in a terrace house - then you should approach your CCC. Your CCC will study your case and help you through the CCC assistance scheme. Of course, if you are a low-income Government civil servant, retired, then we are going to revise the Singapore Allowance. We have not decided how much yet, but if you just do some rough sum, even if it is $10-$20 worth of a revision, that is worth a lot, in terms of extra GST payable, because that is $10-$20 per month. Therefore, we can promise that if you are the lower-income, lower half of the population, the offset package will look after you for at least five years. If you feel that it has not, see your CCC and they will sort it out. I can say this with some confidence because, actually, the people who are the lowest income should have no problem. Once we have ERS, it should be sorted out. I will just do one more sum. Let us say you are earning $2,000 a month. 2% extra of GST means $40 extra of GST per month. For a year, it is $480 extra of GST per year; five years, $2,400 of extra GST. Husband and wife, ERS is $2,400. Even not counting any service and conservancy rebates, even not counting any rental rebates or any Singapore Allowance, the ERS alone will cover the entire GST increase for you for five years, if your household income is less than $2,000, and there are two adults in the household. So the low-income Singaporeans will already be all right, just based on the ERS. The people who might not be all right are the ones who are not quite such low-income, but earning between $2,000 and $3,600 and they may fall between if they are living in private property, in which case, come to the CCC, we will help you. If you are earning more than $3,600 - just now, Dr Wang Kai Yuen said who is the group who suffer - he will look in vain, because even if you are earning more than $3,600, even if you are in the middle-income group, the package has been constructed such that for nearly everybody, you also have at least five years' worth of offsets. If you add in the savings on your road tax, in fact, it will be more than five years' worth of offsets if you own a car. Of course, if you smoke and drink, that is a different arithmetic, but I advise you not to smoke and to drink less. The net effect is that we have looked after nearly everybody. We have not done utilities rebates deliberately because, instead of giving household utilities rebates, which means they have to spend it on utilities, we have given them Economic Restructuring Shares. It is cash. It is better than cash because it earns good interest. If you want to use this to pay your utilities bill, that is fine. If you want to save this, that is fine. If you want to use this for some other urgent requirement, your children's school needs, uniforms, your parents' hospitalisation expenses, that is fine too. So what we have given actually is something better than an utilities rebate. And the total amount we have given you, I think, is eminently reasonable for a long transition period. Miss Irene Ng asked why we did not give a higher weighting for the poor. Our answer is that this package is meant to offset the net increases in the taxes, particularly the GST. It is not meant as a wealth-sharing exercise. It is not meant to address income inequality. We have other schemes to do that. At the right moment, under the right circumstances, we will do - whether it is New Singapore Shares, whether it is HDB upgrading programmes, whether it is lift upgrading. We have other schemes to help lower income groups, specifically. But this one is specifically designed to offset the GST package and to make sure that everybody is covered during the transition period. Even then, because of the rental and service and conservancy rebates, the lower income groups, in terms of the number of years of additional tax offset, are somewhat better off than the middle and upper income groups. If you look at the table which I distributed with the Budget Statement, for the rental flats you have 8-10 years' worth of offset, whereas for the lower middle income, you are talking about 6-8 years depending on family circumstances. So I think that we have been fair, given the objective of the exercise. A very popular subject for many MPs has been small and medium enterprises. The complaint has been that this Budget has done nothing for the SMEs and they have not benefited at all. In fact, they do benefit, because the decrease in the corporate income tax also benefits SMEs. Furthermore, we had a big package last year with a significant component which was focused on SMEs, the offset package in October, which was really a mini-Budget. Members may have forgotten because it was six months ago, and some were not here. So I ought to remind you that there were rental rebates, which went up to 30% of rentals. There was lower foreign worker levy, which will be reviewed at the end of the year. There was property tax rebate, $8,000 worth of property tax, the result of which is that many HDB shop-owners pay no property tax at all. And there was a 2-tier corporate tax system, which was introduced in the last Budget, the effect of which is to reduce the corporate tax payable by small and medium enterprises by half or even three-quarters. So while this Budget does not have additional specific items, significant steps have been taken, which are still in effect, helping the SMEs. I think we should distinguish between two categories of SMEs, which may get confused together. One, the existing SMEs in the retail sector, which are hurting for various reasons. And, two, the newer SMEs in the technology line who are looking for venture capital, angels, risk money, who want enterprise, a suitable environment and so on. Their problems are different. The existing SME retail sector faces a structural problem, because there is an excess supply of shops and not enough business. It is a legacy of history. In older housing estates, MPs know we have often one shop per 70 flats, because we built the shops in order to resettle the shopkeepers. Now, the population has thinned, aged or moved out and there is no business. Whereas in the newer estates, you are talking about one shop for 120 flats. So it is more flats per shop and easier to do business. So some rationalisation is unavoidable and HDB has schemes to help shop tenants who want to exit their business to exit and they get some ex gratia payment, and then we can restructure and redevelop the neighbourhood centres and do something better of it. We have done a few and if they are successful we will do some more. We cannot solve this problem overnight, but I hope, over time, we will be able to improve business conditions for the SMEs. The new SMEs, the start-ups, they are different. They are facing difficulties securing funding, especially the tech start-ups, and they want the Government to step forward and produce the money. Well, the Government is not good at being venture capitalist. We are not good businessmen, as we are regularly reminded in Parliament, and therefore we should really stay out of it. There is truth in the criticism. We are not good businessmen. We have to let companies run commercially and where we have to put our money in, I think we should be very careful not to be left with lemons. We can, at best, kick start the process on a small scale. EDB has a venture capital outfit. Temasek also has a small venture capital outfit. They want to expand, I say, "Be careful. You do not have the skills." Seed the process, yes. Kick start it. But as soon as possible, let the private sector take over. Let them do it. They know, they can judge. It is not just a matter of thumping up the money. It is also a matter of knowing whom to back, which are good risks, who will be promising, how to guide the project as it grows along the way so that it does not go wrong and you go bust. These are all very specialised skills. You need the touch, you need the experience. The Government is not in it. But even if you had venture capital in Singapore, not everybody will get funding. In Silicon Valley, only one project out of 20 gets funding. That is why the projects which do get funding are promising, because there is ruthless competition, survival of the fittest. Only the best get funding, and even then after being funded, many of them fail. So if we try to short-circuit this Darwinian process and say I will give more generously, let us hope a hundred flowers will bloom. Are you sure? You may have thrown your money away and planted weeds. So you have to be very careful talking about venture capital. We also have to be very careful in favouring small and medium enterprises for Government contracts. It sounds good, it is very popular, but it can result in inefficiency. If you want to cut back on Government spending, this is not the way to do it. Tender, best bidder, best qualified to provide the service, most efficient, best quality, wins contract, he supplies the Government. Countries which have tried to favour SMEs have found that it leads to great inefficiencies. The Japanese have tried, the Germans have tried, other countries have tried. It is better to have schemes to help the SMEs get started, help them improve their productivity and capability, and then they have to compete and hold their own. And if they cannot hold their own, if they cannot compete, then the market has to sort it out. We hope that many will succeed, but we cannot expect none of them to fail. But the future of our economy does not just depend on the SMEs. We will rationalise the traditional SMEs. We will promote new SMEs to start, but we also need new growth areas. We also need MNCs. We also need major companies, to create new jobs to replace jobs which are being lost. The GLCs are part of the solution, not part of the problem. Many MPs have asked whether the GLCs have been stifling entrepreneurship, crowding out local players. Dr Amy Khor asked this. Mr Inderjit Singh says, why not the Government simply divest GLCs. I would if it were so simple. It is not the mission of Temasek or of the GLCs to crowd out small and medium enterprises. We gain nothing. Our job, as I explained, is to have companies which are strategic to our economy, or which have regional potential to grow and become international players. Other companies not relevant, Temasek will progressively divest when the conditions are right. At the borders, some overlap is inevitable, and it is especially troublesome with statutory board companies in the process of being completely privatised but not quite there yet. Members mentioned PWD Consultants. There are a couple of others which are in the process of being privatised, where moratoriums were given, and there is some feeling that this is not quite at an arm's length relationship yet. But our policy is that we should maintain a strictly arm's length relationship between such companies and their statutory boards. In fact, we should cut the umbilical cord as soon as possible and separate them, either divest them off completely or they should go and be put under Temasek or under some other Government agency. So it is not directly held by the statutory board and there is no incentive for transfer pricing or some non-transparent arrangements, which will cause problems and inefficiencies and difficulties to the private sector. We do not post senior civil servants to the GLCs. Dr Wang Kai Yuen says we do it for talent development. I think he was being polite. We do not do it. Mr Inderjit Singh also said we have senior civil servants posted there for career rotations. We do not do that. The GLCs have their own staff. They recruit their own. They recruit on the market. They find the best they can get and if the people are not good enough, they have to go. They are run commercially by their managements. They are not run by the civil servants. The civil servants have enough to do without going into other business. Mr Inderjit Singh cited vigorously problems of GLCs stifling entrepreneurship, crowding out local companies through unfair practices, or dominating and predatory practices, compelling foreign companies to work with GLCs. It sounded awful but, unfortunately, he did not give any particulars. So I would encourage him, if he has any specific information of actual cases, to let me have the evidence. I will expunge his name and pass the evidence along, investigate it personally and put it right. Let us be quite honest and adult about this. Competition is a fact of life. Even if we privatised the GLCs and the Government washed its hands altogether and found a good private owner to own and manage it, they would still be formidable competitors to the SMEs. They are well organised. They are bigger. They have the depth of management expertise and they are able to deliver a service or a good and get the job done. So whoever owns the GLCs, the SMEs are still going to face severe competition. The broader question for us, as a Government, is not whether the GLCs win or the SMEs win. The question is: are the GLCs competing fairly? Is the result that the most efficient company succeeds and delivers the best service for the economy and the best value-added and the highest productivity? Or is the GLC winning because there is some inside track, some unfair advantage, some improper information which they are taking advantage of and therefore clobbering the SMEs and the private companies? If there is, they are harming the economy and we must put a stop to it. If there is not, and they are competing fairly, I say a certain amount of robust competition is unavoidable. But it is not their job to go and look for small business. Their mission is what we have defined for Temasek and Temasek will have a charter which will be published soon. Next, CPF. Mr Inderjit Singh argued for lower contribution rates in the longer term. It was one of his wish-list items. Mr Othman Haron voiced concern that workers might face difficulties with their housing commitments if CPF contribution rates were lowered. I agree with Mr Othman Haron. I also agree with Mr Matthias Yao that the fundamental objectives of the CPF should not be diluted. He put it in a very neat and succinct form yesterday and I would like to quote him in toto because this is something which bears repeating and which I think Singaporeans need to be reassured of. We are not going to muck around with the CPF. CPF, as Matthias said, is for retirement, housing and healthcare. Everything else should be secondary and we should not use CPF as a macro-economic tool to alter the money supply or disposable income. Workers should be receptive to changes that might be necessary if they are not to be priced out of a job. So it may be necessary for us to adjust the CPF scheme but any changes made will be phased in carefully and we will give as much time as possible for Singaporeans to adjust. And I may add what I have said before, that we promise to restore it to 40%, and that stands. It may take us some time, but we will do it. Now, I would like to address a few points briefly. On medical benefits, Members made their sentiments unambiguously known, many lady MPs and a few men too. I should explain that under the new Medisave-cum-Subsidised Outpatient (MSO) scheme, in fact, we have essentially equalised, because whether you are a male or a female officer, what you get is one extra percent on your CPF in Medisave. You have $350 worth of outpatient allowance, which you can use for yourself. At the end of the year, if you do not use it, it goes into your Medisave. The men can use it for their children, the women, cannot. But at the end of the year it goes to the women anyway. So essentially, it is the same. For the older schemes, we have not changed it yet. There is still a distinction. I am sure we will discuss that in the Committee of Supply. On HDB parking charges, this point will be dealt with amply, I am quite confident, when the Committee of Supply discusses Mr Mah Bow Tan's budget for MND. On older workers, this is a separate problem, not addressed by our tax restructuring package. The problem is not funding. It is not availability of training programmes. It is a matching of workers with vacancies. We have the People-for-Jobs Traineeship Programme. It has trained about 2,000 unemployed workers and executives. Some workers are still not taking advantage of it. But let us pursue these programmes. Let us try and get them to work before introducing or thinking about more permanent measures, like subsidies and rebates. Finally, Dr Amy Khor and Mr Yeo Guat Kwang asked the Government to take care of Singaporeans who are struggling to cope with economic restructuring. Yes, I fully agree that this is indeed the basis for the generous offset package for the GST, and we have given special attention to make sure that the lower-income group will not be worse off. Sir, I think I have addressed all the major points raised. I have not fulfilled all the wish lists, but perhaps it is just as well. Because, for example, Mr Inderjit Singh asked for a 30% reduction in the price of all properties. I would suggest to him to consider this very carefully because it means that all his residents, who are also my residents, will suffer a 30% reduction in their property values, and that is not likely to be considered. And if we halve the petrol tax and ERP charges, foreign workers' levy and property tax, what he has not told you is that Santa Claus comes and the bill arrives the next day, and the Government's bill to do all this may be a much higher GST than 5%, maybe 6%, maybe 7%, maybe 10%. So before you sign on, better find out what the deal is. This is not a complete response to the challenges which face us, as Dr Amy Khor and others have pointed out. Dr Amy Khor said it is just one piece of a jigsaw puzzle. She is right. The ERC's recommendations are yet to come. We are working on it. There are sectoral policies to deal with financial services, manufacturing, other services to deal with SMEs, to deal with helping the older workers cope. We have a human resources package working on it. We have to deal with the CPF and wage issues. It will take time to work these out and implement them. But the first step is fiscal reform, and this we have done. Our competitive pressures are increasing, but we can rise up to the challenge, and I think we have strong reasons to believe that we will succeed. Our political and social stability, our market access to major economies, our pro-market Government policies, our ability to adapt to changes quickly - these are traditional strengths - we have repeatedly cited them, but they remain valid and they will help to see us through the next period. We are still competitive. We are acting now, not because we already have a problem, but because we see the problem ahead. World-class companies still find Singapore a good place for investments. We have had a big project between AMD and UMC to build a 15th wafer fab plant - $7 billion. We are attracting regional HQs from Dupont, IBM, Toyota. We are building capabilities in emerging growth areas, supporting R&D, investing in higher education, trying to anticipate the next wave, but not just on one front. We are doing the right things - getting growth and investments and making the tax changes to put our economy on a sound footing, to enjoy economic growth beyond the short term. I fully agree with Mrs Yu-Foo that we must take heart, and we must not be discouraged. There is reason to be confident. With the economic restructuring package, we have made the first step, and we can look forward to facing the future with hope and confidence. [Applause.]