Mr Speaker, Sir, the Singapore economy has still not fully recovered from the slowdown in the first half of this year. The Iraq war and the SARS outbreak have taken a significant toll on the economy. MTI now expects it to grow by between 0% and 1% for the whole of 2003. The CPF changes are an important step to make ourselves more competitive. It makes a significant difference to employers, especially those in the labour-intensive industries. In the short term, the lower CPF rate, together with wage restructuring efforts, will help to save jobs. It buys time for businesses to restructure and for Singaporeans to upgrade their capabilities to retrain and reskill. In the long term, a lower CPF rate will mean a more flexible wage system. And the changes to the withdrawal rules at 55 will make sure that Singaporeans set aside enough for their old age. However, as many MPs have pointed out, while we make these strategic changes to the economy, we should not forget the more immediate worries of Singaporeans. Some are finding it hard to service their mortgages. Low-income families are worried about making ends meet. Workers are afraid of losing their jobs, and people who have been retrenched are anxious to find new jobs. These are real worries. The CPF changes come on top of them, and will affect nearly every Singaporean. The Government will therefore implement a package of measures to preserve jobs, help individual Singaporeans and businesses, and promote new business activities. The measures fall into six categories: (1) Help with mortgage payments; (2) HDB policy changes; (3) Help for Singaporeans; (4) Help for businesses; (5) Acceleration of infrastructure projects; and (6) Government cost cutting. These measures will benefit Singaporeans, especially lower income earners and the unemployed. Businesses will also gain, especially the SMEs. Let me elaborate on them, starting with mortgage payments. Help with mortgage payments I can understand that many homeowners are concerned about the impact of the CPF changes on their mortgage payments. Nobody welcomes lower CPF contributions, and some homeowners will have genuine difficulties making ends meet. Several MPs - Mr Zainul Abidin, Mr Nithiah Nandan, Mrs Lim Hwee Hua - have raised this concern. Let me assure the House that the great majority of homeowners can cope with the CPF changes, either on their own, or perhaps with a little bit of help from the Government. We have encountered and dealt with this same problem before. In 1999, when we cut the CPF by 10 percentage points, we accompanied the cut with measures to help people who would not have enough to service their mortgages. Very few people actually needed the extra help, but the schemes gave comfort and reassurance to many. This time, the problem should be smaller, as the cut is only three percentage points. Nevertheless, we will make sure that help is available to everyone who needs it. We have studied how many homeowners with mortgages will be affected. There are 577,000 CPF members who use their CPF to pay mortgages. Of these, currently 218,000 (38%) experience shortfalls, which means that their monthly CPF contributions are less than their monthly mortgage payments. So, they are paying their mortgages partly out of the CPF and partly out of cash or other sources. With the CPF changes, the number will go up to 294,000 (51%), ie, about 76,000 (13%) more. In other words, right now, about one-third of the people using CPF for mortgages from other sources. After the CPF changes, slightly more than half will need to top up from other sources. So, there are going to be 76,000 more homeowners who need to top up. Most of them will have quite small shortfalls - less than $200 per month. It is those in the higher income group who have the larger shortfalls, because their contributions to the Ordinary Account (OA) are limited by the CPF salary ceiling. So, the lower income groups will in fact have smaller shortfalls, because the 3% of CPF will add up to a smaller absolute amount. However, a shortfall does not necessarily mean a problem. Many members with shortfalls will be able to cope, because their monthly contribution to the OA is not their only source of funding. They may top up their mortgage payments using their personal savings, from their take-home pay or by dipping into their accumulated OA balances. And that is what 218,000 CPF members now do. After the CPF cut, this number will increase to 294,000, but most of these members have sizeable balances in their CPF OA, especially the older ones. In fact, about two-thirds of these people will have OA balances which can cover their shortfalls for two years or longer. So, the first source of fall back is the OA balances which people have built up, and the older members generally have built up bigger OA balances and so can last longer. But, unavoidably, a small proportion of homeowners will not have enough in their OA and may not have enough cash incomes to make up the shortfall. So, we are taking several steps to help this minority group. Firstly, in designing the CPF changes, we have made adjustments to lessen the impact on borrowers. As the Prime Minister explained yesterday, with the lower overall contribution rate, and the change in withdrawal rules at 55, we have lowered our targets for the Special Account (SA) and Medisave Account (MA) contribution rates, so that there is more left for the OA and, therefore, a smaller impact on their ability to service their mortgages. Secondly, three-quarters (76%) of CPF members who experience shortfalls borrow from HDB. All they need is for the loan to be restructured slightly, either by extending the loan period to lower their monthly mortgage payment, or by working out a ballooning scheme with HDB, if they need to. HDB will assist these mortgagors, and exercise flexibility on a case-by-case basis. In cases where homeowners are already in financial difficulties, HDB allows them to pay their arrears by instalments, or to defer payments temporarily. And the HDB has a long menu of other arrangements to help. MPs know that the HDB, if anything, is forbearing to a fault. The Minister for National Development will elaborate on these arrangements later on. Thirdly, the CPF has measures to help from its end. CPF members can use their SA to top-up the shortfall in their CPF mortgage payments, to the extent that these payments are affected by the CPF changes. In other words, if your OA is cut by 3% and therefore you do not have enough in your OA, then you can take out that 3% from your Special Account to pay your mortgage. Because you have already committed to the mortgage, I think it is unfair for us to change the rules on you midstream. The CPF will also extend bridging loans to those facing shortfalls in mortgage payments resulting from the CPF changes. If you need to tide over a certain period, we will give you a bridging loan. I do not expect many to need bridging loans. The last time we did this, when we cut the CPF in 1999, only 125 people signed up in the whole of Singapore, and they only needed to borrow a total of $227,000. And so far, 45 have already paid back fully. So while the scheme is available, it is really a final and last resort, in case all the other arrangements are not sufficient. I am also glad to read in the papers today that the commercial banks are also exercising flexibility to restructure their mortgage loans to help borrowers cope. All these measures will ensure that very few homeowners will experience difficulty servicing their mortgage payments as a result of the CPF changes. HDB Policy Changes Secondly, we are going to make significant HDB policy changes. A main objective of the CPF is to provide a steady and sufficient income for Singaporeans in old age. In the CPF scheme, savings for old age are intimately linked with savings for home ownership. On the one hand, an HDB flat is the most important investment and most important asset of most families. It is an investment which should help provide for the members' old age. On the other hand, the flat absorbs a large part of the members' savings, leaving many members with only enough cash in their CPF for a modest monthly sum in retirement, barely adequate for their basic needs. Even with the new Minimum Sum of $120,000, half of which can be in a housing pledge and half of which is in cash, the cash portion of $60,000 will yield a monthly payment of only $378, if the money is to last until the member is 80 years old. So, the conclusion is, we need to find better ways for Singaporeans to benefit from the value of their HDB flats. The HDB flat is not a dead asset. A retiree should be able to use it to supplement the monthly amount from his CPF, either by downgrading to a smaller flat, or by renting it out and collecting rent, and moving in with his children or his children's in-laws or even his grandchildren. However, our rules on subletting of entire HDB flats are quite restrictive. For example, until quite recently, the owner had to be working overseas. And Members will know that many Singaporeans tried to get around this by the device of locking up one room - the body is gone, the spirit is still somewhere inside there! So, in January this year, HDB relaxed the rules to allow an owner to sublet his entire flat, provided he had not enjoyed any housing or mortgage subsidy on his flat, had lived in it for 10 years and did not have an outstanding loan from the HDB. So, it is quite a stringent rule: no housing subsidy, no mortgage subsidy, 10 years living in it, no outstanding loan. But only a handful have taken up this scheme. HDB will now relax the subletting rules further. From 1st October 2003, flat owners who have lived in their flat for at least 15 years can sublet their entire flat, regardless of whether the flat had been bought with a subsidy, and even if they still have an outstanding HDB loan. If the flat owner does not have an outstanding HDB loan, then he can sublet his entire flat after occupying it for only 10 years. With this relaxation, about 250,000 HDB flat owners will become eligible to sublet their flats. This will provide them with a source of income for old age. From the perspective of people looking for housing, this will enlarge the HDB's flat rental market and offer an additional option to young couples and budding entrepreneurs, and others who are not ready or not yet willing to commit to a house purchase. Maintaining home ownership policy Let me add that encouraging home ownership remains a fundamental objective of the Government's public housing policy and a key purpose of the CPF. Home ownership promotes rootedness and a sense of belonging among Singaporeans. The HDB will price its flats such that 90% of Singaporean households can still afford at least a 3-room flat, even at the lower CPF contribution rates. If we need to adjust the prices, we will do so. We have done our sums and we know that even at the lower CPF contribution rates, at least 90% of Singaporeans can afford to buy their own 3-room flats. HDB will continue to help low-income families to buy flats under its Special Housing Assistance Programme. Extending the Public Rental Scheme Dr Warren Lee and others yesterday asked if the Government could offer other housing alternatives for Singaporeans. Minister Mah Bow Tan repeatedly counselled them to be patient. But I am sure that Dr Lee would be happy to know that HDB will relax its rules on rental flats, but within the overall framework of promoting home ownership. Currently, the household income ceiling to rent 1- and 2-room flats under the HDB's Public Rental Scheme is $800 per month. In other words, a household with a maximum income of $800 can rent a flat from HDB. Many MPs have asked for this to be raised. We have been reluctant to do so because we prefer to give more help to low-income families to buy flats and become homeowners rather than to have them become permanent tenants in rental flats. However, as our economy restructures, some households earning more than $800 a month will have difficulty sustaining home ownership. No matter how easy we make it for households to buy flats, there will still be some at the margins who are either not ready to buy flats, and who need affordable rental housing on a temporary basis, perhaps for a year or two, until conditions have stabilised and they can commit to a flat. To help them, we will raise the household income ceiling for rental flats under the HDB's Public Rental Scheme from $800 to $1,500 per month. This will cover about one-quarter of the households. However, households earning more than $800 a month will receive a lower subsidy on their flat rentals than those earning less than $800. They will thus pay higher rents, though it will still be subsidised and very affordable. This will encourage them to purchase their own flats as soon as they are able to do so. Help for Singaporeans Next, the Government will implement measures to help Singaporeans cope with the slow economy and the CPF changes. We have done many such measures since 1998 - successive packages, successive schemes, variations, alternatives, enhancements, improvements, etc. Over six years since the Asian crisis, we have had quite a lot of experience helping people where it is most needed. Last year, we staggered the increase in the GST rate, from 3% to 5% over two years, instead of doing it in one step. But we still paid out the full amount of the first tranche of the Economic Restructuring Shares. So, we have more than offset the GST increase last January. This year's Budget also included further assistance to households to help pay utilities, service and conservancy charges and housing rentals. Many MPs have urged the Government to do more to lessen the cost burden on Singaporeans. The Government agreed and we will do so. Utilities-Save Scheme First, we will provide more help for low-income families. We will do so by expanding the Utilities-Save scheme. We have already given Utilities-Save rebates for households in this year's Budget. The Government will now give a further once-off rebate of $200 for those living in 1- and 2-room HDB flats, $100 for those in 3-room flats, $50 for those in 4-room flats and $30 for those in 5-room flats. So Utilities-Save is weighted towards those in the smallest flats and the poorer families. The rebates for the 1-, 2- and 3-room flats will be paid in December this year and also in February next year, while the rebates for the 4- and 5-room flats will be paid in December this year. These rebates cost $54 million. Setting up public transport funds Second, public transport. Mr Yeo Guat Kwang yesterday asked if the transport operators could give vouchers to needy families to help them buy their monthly tickets. This is a practical idea, although I am not sure that the transport companies want to set up welfare departments to administer the scheme. But there are ways that it can be done. The Land Transport Authority (LTA) has been discussing with the public transport operators. SBS Transit and SMRT are working with the NTUC to set up a fund, to help the families of needy union members to top up ez-link cards or purchase season cards. The CDCs have also got together to set up a similar fund with the transport operators, so that non-union members will also be covered. This will help to keep public transport cost affordable for Singaporeans. I believe that the NTUC, the CDCs and the transport companies will announce the details soon. I urge Members to be patient. Containing healthcare costs Third, the Ministry of Health is getting its hospitals to go all out to save money for their patients. The Cluster CEOs are personally championing this drive. There are many ways to treat the same illness. There is a range of drugs, implants, medical devices that we can use, at very different prices, often with similar clinical outcome. By standardising surgical supplies, such as gloves, we save money for hospitals and for our patients. By centralising purchases of drugs, we get bulk discounts and gain bargaining power. By coordinating better when transferring patients between hospitals and clinics, we cut out unnecessary X-rays, laboratory tests and even repeat prescriptions. If we take this economy drive seriously, at every level, there are countless ways to cut out costs without affecting clinical outcome. This is why MOH will be publishing hospital bill sizes of common illnesses so that hospitals can learn from one another on how to render good reliable medical services at the lowest possible cost. People-for-Jobs Traineeship Programme Fourth, older workers will need extra help, especially those who have lost their jobs. These workers are more likely to be retrenched, and have greater difficulty finding new jobs. We are lowering the CPF contribution rate for workers aged 50-55 to address this problem. However, despite this, older workers will leave their jobs from time to time, and will often need extra help to make the transition to another job. Older workers have found it difficult to persuade employers to hire them, especially in this current job market, and if they have no track record in a different industry. Mr Nithiah Nandan argued passionately that besides feeling for older workers, the Government should take concrete actions to address their problems. This is precisely what we have been doing. The People-for-Jobs Traineeship Programme (or PJTP) gives financial support and incentives to employers, to help local workers in their 40s or older to make career transitions. Employers are expected to set up traineeship or mentorship arrangements for their new workers, besides providing suitable job opportunities to them. Currently, 5,000 companies are registered on this PJTP programme. 12,000 older workers, mostly with only secondary education or below, have been placed in jobs. 44% of them, nearly half, have stayed on with their employers, even after the salary support ended. This shows that the scheme has been effective in helping the older workers to find new jobs. In view of the success of the PJTP programme, the Government will extend the programme for another year until 31st December 2004, and will commit another $36 million to finance it. Work Assistance Programme Fifth, we will do more to help the unemployed. Unemployment numbers may go up for the next six months, even though the economy is showing signs of recovery. Beyond that, unemployment should start to come down, but with restructuring continuing, we cannot expect to go back to the 1% unemployment rate that we used to enjoy before the 1997 Asian financial crisis, at a time when our economy was growing rapidly, and restructuring was not yet a problem and, if I may add, when our workers were all much younger. Mr Ang Mong Seng suggested a $2,000 unemployment benefit. I am sure unemployed workers will welcome this, but the danger of course is that even employed workers will welcome this because surely, it will encourage many more people to become unemployed to collect the $2,000! We have seen it happened repeatedly, most recently with our Economic Downturn Relief Scheme. If there is money being distributed, people will queue up for it. The Government has to take a different and more practical approach: we will go the extra mile to help you, but you have to be prepared to help yourself to get a job and improve your skills. We have been providing help through the Community Development Councils (CDCs). The CDCs provide short-term relief to individuals and families in temporary hardship, such as when their sole breadwinner is retrenched. They administer an interim financial assistance scheme which has been quite successful - it is flexible, it is targeted, it is sensitive. The CDCs can assess whether a case is deserving, whether he is helping himself, whether he bought a big screen TV to watch the World Cup, or whether he is struggling because he is out of a job and really needs to provide for his children. And the CDCs can adjust their assistance correspondingly. They have the sensitivity and flexibility to customise their assistance and personalise it and distinguish those who really need help from those who should be able to fend for themselves. In the last financial year, the CDCs together spent $3.3 million helping some 10,000 people under this scheme. Within six months, 97% of the people who were helped no longer needed assistance. To strengthen their efforts to help the unemployed, the CDCs will launch a new programme called the Work Assistance Programme (WAP). This will provide financial assistance to unemployed Singaporeans and at the same time help them to find jobs. So there are two connected limbs - financial assistance on the one hand and help to find job on the other. The Work Assistance Programme will integrate employment assistance with the current interim assistance scheme administered by the CDCs. It will focus on low income individuals who are fit to work. The amount of assistance will vary depending on each applicant's circumstance, but generally will not exceed $400 per month. Besides cash, the family may also receive targeted support, for example, schooling assistance for children or a utilities grant. Such targeted support will address the most pressing needs of the family, and ensure that the assistance is put to good use. This is a practical problem. If you take a purist approach, when I give you help, I should give you money because it is up to you what to do with the money, and you must know what you are doing. But MPs know that in real life, that does not always work because if we give money to him, he may have a party and tomorrow, he will queue up again. It happens. You can give it to his wife or to his children, but you really do not want to get involved in his family's life. So we will give, in effect, vouchers, either for transport, school textbooks, or medical treatment, to make sure that the most urgent family needs are seen to first. In return for the assistance, beneficiaries will have to fulfil specific conditions. They must actively seek work. They must attend all job interviews arranged for them, undergo training to acquire new skills and accept any reasonable job offer. If they fail to secure jobs within three months, then we will assign them a case manager, who will provide more intensive career counselling and help them overcome any impediments to securing a job. The financial help will last for three to six months, because within that time most recipients should be able to get back to work. Sometimes an individual may fulfil his obligations and cooperate with his case manager and try his best and yet not find a job. For such exceptional cases, the CDCs may consider extending the assistance beyond six months. We need to focus our help on those who are doing their best to help themselves, and not allow the scheme to become an automatic handout from the Government. There are some Singaporeans who are unfit to work because of illnesses or disability. The CDCs will also continue to give them assistance. If unemployment goes up over the next few months, which is possible, more unemployed workers will need help. Therefore the Government will help the CDCs to expand their Work Assistance Programme. We will allocate $40 million for this purpose. However, the most important thing is for those who find themselves out of a job not to lose heart, but to try to get back to work as quickly as possible. The longer a worker is out of work, the harder it will be to get restarted again. Training for Employment Scheme Sixth, to provide further help for unemployed Singaporeans, the Government will pilot a new Training for Employment Scheme to facilitate the employment and training of local workers. Under this scheme, the Singapore Workforce Development Agency - the new statutory board which MOM is setting up - will help companies which have 20 or more job vacancies recruit and train local workers. This way, companies will be able to deploy workers to the job more quickly and the workers will be better-trained for the job. The Government will set aside $2 million for the scheme, which will run for one year from 1st October 2003. This will be used to absorb 80% of the training cost of the workers. As a partner in this scheme, the Singapore National Employers Federation will absorb a further 10% of the training cost for its members, so that the employer only pays 10%. We must have that small employer contribution because if the employer is not prepared to pay to train their workers, it will feel no obligation to employ the workers. And in three months the workers would have forgotten what they learnt and the training would go down the drain. So we must have that commitment from the worker and also from the employer. More for older workers Seventh, we will look after the older workers. Mr Nithiah Nandan does not like the phrase. Perhaps I should say we will look after those aged around 50-55 and thereabouts, but it will include him. The restructuring of the economy, and especially the CPF changes, will affect older workers the most. Wage restructuring often means lowering wages for older workers, who are at the top of their salary scales. They will experience the steepest CPF cuts to help them hold on to their jobs. We are cushioning the impact on them by phasing in the reduction in their CPF rates for them over two years. Nevertheless, it is still going to be difficult for these workers. And I think these are the workers who are the most concerned, because they so often have the heaviest family obligations. We have to proceed with the changes, but we will not forget the older workers who are hardest hit by economic restructuring and who have made a very big contribution to bringing us where we are today. So, the next time the Government implements surplus sharing schemes, we will especially remember this group of older workers, and will give them something extra. Help for businesses Next, besides helping individuals, we will also do more to help businesses. Two sectors especially need assistance: first, the small and medium local enterprises, and, secondly, the tourism and transport sectors. Assistance to local enterprises Small and medium local enterprises form a significant part of the economy. They employ more than half the workforce and make up more than 90% of the total number of enterprises. We will help them to upgrade their capabilities and cope with the current slowdown. International Enterprise Incentive Scheme Mr Heng Chee How rightly pointed out that besides cutting costs, companies must pursue the right strategies to grow their businesses and so create more jobs. If you are just a cost cutter, you are not going to grow an empire. You need to watch your costs, but you also need to grow your business and seize new opportunities. You need to move ahead and then your business will grow. So we have to see the rise of the regional economies not only as a major challenge, but also as an enormous opportunity. Our companies should respond to this opportunity by venturing abroad to ride on the growth of our neighbours, such as China and India. The Government will step up its efforts to help companies to do so. The Trade Development Incentive Scheme has therefore been relaunched and we will make it as the International Enterprise Incentive Scheme with a budget of $90 million over three years, from FY2003 to FY2005. The new International Enterprise Incentive Scheme will help companies develop new markets, build internationalisation capabilities, and encourage Singapore companies to venture abroad as a cluster. Domestic Sector Productivity (DSP) Fund Next, we have set up a $45 million Domestic Sector Productivity Fund to help industries like retail and construction upgrade their productivity and competitiveness. These sectors lag significantly behind the developed countries in productivity. And it is one reason why they cannot pay as well and therefore are unable to attract Singaporean workers. So we will set up a Domestic Sector Productivity Fund, administered by SPRING Singapore, to co-fund industry-wide projects to catalyse improvements in business strategies, operations and practices. The aim is to encourage domestic industries to exploit economies of scale, adopt new technologies, and improve inter-organisational efficiency through standardisation. Second Tranche of Loan Insurance Scheme One of the problems that SMEs face is access to financing. Last year, we piloted the Loan Insurance Scheme (LIS) with six participating financial institutions. Under the scheme, the Government shares the cost of the insurance premium against loan default. The scheme has been well received and has helped many SMEs. To date, the scheme has helped to insure $16 million worth of loans. We will launch a second tranche of the Loan Insurance Scheme. This will involve more financial institutions and should be able to facilitate about $500 million in loans to SMEs over five years. It will cost the Government $8 million. Local Enterprise Finance Scheme In recent years, we have progressively enhanced the Local Enterprise Finance Scheme (LEFS) to help SMEs cope with the challenging economic conditions. The changes include increasing the default risk borne by the Government from 50% to 80% and reducing the LEFS fixed interest rates. In view of the continued economic weakness, we will extend the LEFS enhancements for another year till 30th June 2004. This will cost the Government $25 million. Bridging Loan Programme for all SMEs During the SARS outbreak, we introduced a Bridging Loan Programme under LEFS for tourism-related SMEs. Under this scheme, each SME in the tourism-related sectors can borrow up to S$100,000 of working capital. As other SMEs may also find this programme useful, we will now open up the Bridging Loan Programme to all SMEs, and this will cost the Government $5 million. Helping the tourism and transport sectors A second group of businesses that need help are those in the tourism and transport sectors. Tourist arrivals have rebounded strongly since the low in the second quarter of this year. By the end of August, tourist volumes should be about 85% of pre-SARS levels. But this is partly because the affected industries have cut hotel room rates and airfares significantly. Additional help from the Government will help to speed up the full recovery of the tourism and transport sectors. Tourism Recovery Fund The Government will set aside $100 million for a Tourism Recovery Fund. This includes the $50 million for the Global Recovery Programme that Singapore Tourism Board announced in June 2003 to bring tourists back to Singapore through confidence building programmes, overseas travel promotions and global advertising campaign. Another $50 million will be used to develop four key tourism segments: leisure travel, business travel and MICE (meetings, incentives, conventions and exhibitions), healthcare and education services. Rebates for non-gazetted hotels As part of the SARS relief package, we provided a higher additional property tax rebate of $2,000 plus 30% of the balance of property tax payable in 2003 for gazetted tourist hotels. We did not extend it to non-gazetted hotels because they do not take so many tourists, and we thought they will be okay since it is Singaporeans who visit the non-gazetted hotels. But Singaporeans also did not visit the non-gazetted hotels. So, we will extend the rebate on television licence fees and property tax rebates to the non-gazetted hotels as well. These two extensions will be back-dated and will save the non-gazetted hotels $1 million. Statutory life spans of omnibuses and taxis Bus and taxi companies were also badly hit by the SARS crisis. One practical way to help them is to extend the life of their fleets and to ease their depreciation costs. The current statutory life span for omnibuses is 15 years, and 7 years for taxis. With advances in vehicle engineering, stricter inspections and better maintenance, these vehicles can stay roadworthy longer. We will therefore extend the statutory life spans of omnibuses from 15 to 17 years, and for taxis from 7 to 8 years, with effect from 1st September 2003. This will apply to both existing and new omnibuses and taxis. Bus and taxi companies are expected to save about $7 million and $10 million a year respectively in depreciation expense, at no cost to the Government. Diesel tax rebate for taxis Diesel tax is imposed on taxis to close the gap between the fuel cost of diesel-powered taxis and petrol-powered private cars. As part of the off-budget package in 2001, I reduced the diesel tax for taxis from $5,100 to $4,700. In the Budget Statement this year, I extended the reduction by six months, till the end of 2003. I will now extend this reduction by another six months, till 30th June 2004. This will cost the Government about $4 million. There is also a $2,000 diesel tax rebate which was granted as part of the SARS relief package, but this will not be extended beyond 31st December 2003, because the earnings of taxi drivers are now practically back to pre-SARS levels. Taxi operator licence fee As part of the SARS relief package, the taxi operator licence fee of $25 per taxi per month was waived till 31st December 2003. LTA has since reviewed the regulatory requirements. To reduce the burden on taxi companies to the lowest possible level, LTA will absorb most of its regulatory costs rather than pass them on to taxi companies. Nevertheless, it still needs to charge taxi companies a small licence fee. The revised fee will be 0.1% of the taxi company's annual revenue from taxi operations. This works out to only about $2.80 per taxi per month, a small fraction of the original $25 fee. The revised licence fee will take effect from January 2004. This is just a small example of how we are keeping Government rates and fees as low as possible. It is also as an example of how we are sensitive to feedback. Before we announced the SARS package and suspended this fee, we held a dialogue with the taxi drivers. I think it was Khaw Boon Wan who did it and the taxi drivers gave him a real earful on this issue. They said, "You are taking $25 per month from me in order to measure me and punish me." We thought that they did have a point and so reviewed the fee. So we will change the rate and we also changed the basis of charging. We will charge based on turnover, rather than size of the taxi fleet. Acceleration of infrastructure projects The next programme that we will be proceeding with is acceleration of our infrastructure projects. The last few years have been especially wrenching for the construction industry. It has experienced nine consecutive quarters of decline. In 1997, total contracts awarded were worth $24 billion. By 2002, it had dropped to $14 billion, nearly half. This adjustment was inevitable because the construction industry had to resize and consolidate after the excesses of the property boom in the 1990s. The Government has not tried to boost the construction sector with massive public works programmes. It is not realistic to try to sustain the old levels of activity. Also pump-priming will not work in our small and open economy. However, it is worthwhile to bring forward infrastructure projects that we intend to undertake anyway within the few years, provided we can afford it. This will not only help to create some jobs, but will also let us take advantage of the current low prices to get better value for our money. Government agencies have identified more than 60 public sector infrastructure projects that can be advanced. In total, contracts amounting to more than $600 million will be brought forward and awarded in this financial year and the next financial year. These are projects worthy in themselves, such as development and improvement works for roads, schools, community clubs, parks, and drainage and sewerage systems. Most of the projects are small, and so are likely to benefit local contractors and create spin-offs for their suppliers. Mr Mah Bow Tan will elaborate on the measures for the construction industry later. Government's cost-cutting initiatives Many MPs have asked the Government to do its part to cut fees and charges, and not to rely solely on wage and CPF cuts to reduce the cost of business. This is a legitimate request. The public sector is always looking for ways to cut costs, espe- cially the Ministry of Finance. My Ministry has launched a civil service-wide Economy Drive, to review all our discretionary expenditure. Everything from development projects to expenditure on manpower to day-to-day expenses is placed under scrutiny. We are not yet wielding the axe but, we have already taken out the microscope. The idea is not so much to cut overall Government expenditure, but to effect savings which can be redirected to new initiatives and higher priority areas. One measure which we should be finalising in the next two months is the review of civil service salaries for new recruits and in-service officers to bring them more in line with the private sector. Miss Indranee Rajah and Mrs Fang Ai Lian have called for a pro-business civil service, one that operates with more `common sense'. May I assure all Members, and the two ladies in particular, that common sense is not so uncommon in the civil service. There is a reason why many civil servants enforce rules so strictly. It is because, at the operational level, flexibility to exercise discretion can tempt officers to offer favours. So strict and transparent rules are by design a trademark of our honest and clean Government. You say what you are going to do, you publish it, and you do according to that. Members want civil servants to exercise discretion in their constituents' favour, but they also want the rules to be transparent. It is hard to have both. I have had constituents come to me, and I am sure many Members have too, and asked for special favours. I said, "It cannot be done. This is against the rule." They said, "gao tai qui shou" - All you have to do is to raise your hand. I said, "If I do it for you, I will have to do it for everybody else." They said, "Just do it for me. Do not tell anybody." So that is why we have transparency. I am not suggesting that it is good for our civil servants to be rigid bureaucrats. We have to make a bigger effort to operate more flexibly and cut red tape. We need to increase convenience and reduce costs to businesses and to the general public. We have had some successes, eg, 57 (33%) of all the 173 statutory declaration requirements by the Government will be removed by the end of this financial year. We have 173 different types of statutory declarations and we are going to chop off one-third of them, and I am sure there will be more to go the next time we look at the list. There is a Pro-Enterprise Panel (PEP) whose task is to follow up on suggestions and complaints from businesses to change or remove rules. Out of a total of 1,011 suggestions received thus far, nearly half (46%) have been accepted. So we are quietly making progress, even though perhaps not quickly enough for MPs. But I encourage MPs to write in with their cases and to take good cases up with the Ministers, with me, or the Prime Minister. There are many cases which are routine. MPs can handle 30-40 cases in one long evening. You may have seen all these problems before. But out of 20-30, one has a unique problem and is a case which you really ought to fight, and you should do something about it. Every time I do an MPS, I encounter such cases. Maybe the more difficult ones come to look for me, but you have to be alert to spot it and stick a red spot on that case and raise the matter in a non-routine way, and we can get it fixed and get the costs reduced. It is not possible to change the mindset of a big organisation like the civil service overnight. But by driving this effort right from the top, we send a signal across the service and, over time, this approach will percolate down the ranks and we will slowly, but steadily, clear the red tape away. Many MPs have called for greater economy and less waste in the civil service. Given that the Pro-Enterprise Panel has been quite successful, I have decided to set up another group, which I will call the Cut Waste Panel. We have decided to call a spade a spade, because otherwise it will lead to misunderstandings. It will include members from the private and people sectors. The Panel will be chaired by the Head of Civil Service, who also chairs the PEP. Anyone who has any suggestion of where the Government can cut waste or remove frills is welcome to put the idea to the Cut Waste Panel. By cutting waste, the civil service will reduce its cost of operations, and the lower the cost of operations, the lower the fees can be. The Cut Waste Panel cannot cut everything to bare bones, least of all cut off limbs. There was recently one newspaper columnist who outdid himself by suggesting that we should just reduce the size of the civil service by 30%, and therefore no longer need to reduce the CPF rate. This was a particularly absurd proposal, even by quite high standards. But the Panel can demand that unnecessary costs be cut, unnecessary rules be removed, unnecessary programmes be stopped, and unnecessary fees and charges be reviewed. I encourage MPs and members of the public to contribute actively to both the PEP and the Cut Waste Panel, and the more proposals we get, the more effective we can be. Goods and Services Tax The PM announced yesterday that the one percent point increase in GST scheduled to take place on 1st January 2004 will proceed as planned. Let me explain why we cannot delay this increase. The GST increase is to raise revenue to compensate for the cuts in the company and personal income tax rates. The Ministry of Finance planned the income tax cuts on the basis that GST would be raised to 5% on 1st January 2003, that means last January. The phasing in of the GST increase has already created a significant revenue shortfall. A 4% GST rate will not be enough to offset the lower income tax collections, and we need to remedy this as soon as possible. Our budget this year is very tight. We are likely to run a much bigger deficit this year than we had planned. Revenues have come down in the first half of this year because of income tax cuts, slower economic growth and SARS. Because with SARS, people stayed home, they did not spend, and revenues dropped. In the Straits Times yesterday, one letter writer asked how the Government is going to spend its savings arising from the CPF changes - already looking for hong baos. To put the numbers in perspective, the Government is saving about $175 million a year from the CPF changes. This year, in the Budget Statement, I had already projected a deficit of $1.2 billion. Now, with lower tax revenues, higher expenditures because of SARS, and this new help package, even if we take into account the CPF savings, we are still going to run a deficit of $2.3 billion this year. Next year, we are projecting an even larger deficit. Deferring the GST will make the deficits even worse. I understand the visceral reaction of Singaporeans to any tax increase, and especially to any GST increase. At this time, any additional burden must be unwelcome. However, we should try to understand the problem rationally. Deferring the GST increase is, in fact, the least effective way to help low income Singaporeans. If your objective is to help low income Singaporeans, then the last thing you want to do is to cut the GST or defer the increase. Why do I say that? Because, by design, the GST covers almost all types of goods and services consumed by all income groups - whether it is an airline ticket, a car, food, a haircut, or lawyer's fees - every service, every good is taxed the same rate. And most of the tax is paid by the higher income group. So, if I have a lower GST, I am giving most of my money back to the higher income group who do not need it, and only a very small proportion is going to go to the lower income group, the unemployed, or the older workers. So if you look at it rationally, it is far better to proceed with the GST increase so that the Government will have the money and the resources, and can use these resources to target the deserving groups and render the help where it is most needed. Therefore, we will proceed with the GST increase and we will give out the second tranche of ERS shares on 1st January 2004 as planned, to help the low-income families with the transition. The ERS shares this time will be $900 million compared to the extra $650 million that we will collect in GST in 2004. So pressing on will make nearly all households better off in 2004. The measures I have set out will help ease the pain for Singaporeans to make the transition, lower the costs for businesses, help companies build capabilities and stimulate demand for the domestic sector. The Ministries will be providing further details of the measures under their charge over the next few weeks. The help package to Singaporeans and businesses amounts to about $1 billion. May I ask the Clerk now to distribute a list (Cols. 2847-50) summarising the measures. [Copies of list distributed to hon. Members.] This package will help Singaporeans and businesses tide over the downturn and ride the path to recovery. List - summary of measures & additional utilities save rebates Mr Speaker, Sir, if you will allow me, having laid out what we are doing formally, I would like to explain how I see the CPF issue which this House has been dealing with for many years. The latest package of CPF changes is a very difficult decision to make, but it is the right step forward. When I entered politics in 1985, my first political fight was about the CPF. It was a year of recession and the CPF rate then was 50%. We were in the old Chambers. And Dr Toh Chin Chye used to sit where Mr Seng Han Thong now is, roughly, and he made a very fierce speech, opening fire on all aspects of the Government's policies. He was far better than any Opposition MPs. The next day, I stood up and fired back. It was one of my first speeches. I was young, and I took issue with him on the CPF, amongst other things. I will read to you what I said: "What is an overhead? CPF - is that an overhead? Is that something which the Government takes away from the workers? Or is it something which is part of the salary, which belongs to the workers, something which the workers use to spend for Medisave, for a house and for old age? CPF is part of the worker's earnings, and we are proud that we are able to have such a large amount of savings put aside for a house to live in and for old age. Very few countries can do this." I thought I won the argument and we proceeded on that basis, cutting all other rates and charges, but not disturbing the CPF because it is workers' wages. But, over the course of the year, as the recession deepened and as we discussed the issues in depth at the Economic Committee, I got educated. People persuaded me that we had to do something about the CPF. It was an overhead, and a cost to businesses. Yes, it is wages, but it cannot be helped. So we changed. The Economic Committee recommended that we cut the CPF to 35%, from 50%. That is a 15 percentage point cut. Today, we are talking about a 3 percentage point adjustment. The Government accepted the proposal. We sold it to the workers and the unions, with a lot of help from Mr Ong Teng Cheong, who was then the Secretary-General of the NTUC and also from Mr Lim Boon Heng, who was then the Deputy Secretary-General of the NTUC. We had some quite fierce meetings, some closed-doors, some not. I am sure some of the union members will remember. But eventually we sold it to them, they were persuaded and the medicine worked. After 1985, we gradually built the CPF back to 40%. We said that this is the long-term target rate and we got there after 6-7 years. We maintained it at 40% for quite a long time. Then came 1998, the Asian financial crisis, and we cut the rate from 40% overnight to 30%. It was not a hard decision either to make or to sell even though it was a big cut, because the urgency was obvious. Everybody could see it. From July, when I was not convinced about a CPF cut, to November when I had to make the statement to announce a CPF cut, everybody saw the contagion spreading and Indonesia running into serious trouble. We had to move. We thought then that because the crisis was sharp and we reacted promptly, once the storm had passed we could go back to 40% quickly. We did not want to take six or seven years, so we made the public commitment to go back to 40% quickly. But we could not do it. We went up to 36% when we had a good year in 2000, then came 9/11, SARS and so many other things. We now find ourselves in a different situation. Last year, the Economic Review Committee met. One of the items on our agenda was the CPF. We started off discussing this. I told Dr Lee Boon Yang we had to review the CPF. Dr Lee said, "Well, we just take a look. If we have to change, we have to change." Neither he nor I was persuaded that it was necessary for us to turn the system upside down. We thought we could look at it and there could be some improvements, and that was it. But as we discussed it at length, and as the situation unfolded, we began to understand that we actually needed to make quite significant changes to the rules on using CPF for housing, to the salary ceiling, to the older workers' contribution rate, and we had some difficult decisions on our hands. And one of the issues we considered was the 40% contribution rate, could we sustain it? The Government had made a commitment. Should the ERC recommend turning back on that commitment? We had two choices, either we abandon the commitment or we go up slowly but carefully. And we know that even if we reached 40%, one day we may have to come back down again. We did not want to give up so lightly what we had promised. We had a long discussion with the ERC members, with the union Members of Parliament, and with Mr Lim Boon Heng. Finally, we agreed to maintain the 40% target but to delay the restoration. Sustaining 40% was at that time not an immediate problem, but as a long-term problem which we could do something about later. Further, we already had major changes needing to be done, such as the salary ceiling, the rules on using CPF for housing, contribution rate for older workers. So we thought that the changes we were making were already very drastic, and we should do what we could, and take another step later. By the time we were preparing the ERC's final report, which was February 2003, we were getting more concerned. The Sub-Committees, including the CPF one, have all released their reports. We were putting the pieces together to get the shape of the whole package of recommendation. We asked ourselves: Have we gone far enough? Do we need to make further adjustments? The CPF question popped up again. Should we change the 40% target? Again, we thought, let us wait. The situation was still changing, but let's not make precipitately a U-turn. Changing the 40% target would take time, we needed to study all the implications and prepare the ground. So we decided to freeze 36% for two years, and decide what to do next. Even that took a lot of discussions before all ERC members accepted it. That was February this year. Now post-SARS, we have to re-evaluate our position again. If you look back over the last 12 months, circumstances have changed significantly. First, the Singapore economy is recovering much more slowly. We expected it to pick up end of last year. But it did not. Now we are hoping for recovery in the second half of this year. We hope it does. Secondly, SARS was a further setback. No question about it. Thirdly, the landscape has changed. If you look at America, they have not been growing so well. They are neither in a recession nor booming. They have growth, but no jobs are created. It is a jobless growth. It impacts us directly because we are not exporting as much to America. But also indirectly, are we going to have jobless growth too? And, finally, you see the trend of migration of white collar jobs from America and Europe, to China and India - not bottle washers, but doctors, computer programmers, designers, accountants. That is a different phenomenon and it is beginning to happen to us, and much faster than we expect. Therefore, after SARS, we re-evaluated our position and decided that although we had been reluctant to change, let us change now. We have to respond. We have to send the right signals, then investors will know that we are moving. And I think we have successfully done so. We made the statement yesterday, and in the Wall Street Journal today, there is a long report on page 3 on our CPF changes. It is a factual report, but with one significant paragraph. It says, "While the widely expected changes are painful and could hurt consumer spending in the housing sector, they signal the Government's intention to help companies better compete against rivals in China and India." That is exactly what we are trying to do, and what we must convince people that we are trying to do. So we are moving now to reposition the CPF to be sustainable over the long term. What rate, we cannot be sure. Is it 30%? Is it 36%? I do not want to lock in a rate because the conditions are too unpredictable, too uncertain, too changeable. But somewhere in there will be an appropriate rate and we may have to change it from time to time, not every year, but when conditions change and we have to respond. But we cannot promise people anything fixed. Mr Low Thia Khiang said, " Why are you not promising a rice bowl?" I was disappointed he did not ask why we are not promising an iron rice bowl. But he knows even in China there are no iron rice bowls. And if he has one in Singapore, we will buy it from him. This is the right path forward. From 40% to 33% is a big move and so we studied it very carefully. We started studying this in March, immediately after the ERC Report, because I was worried that we would not be able to hold the position for very long. We were not certain if we were going to do anything, but I was convinced that we had better study it. If we had to do something, then at least we would know what would be the implications. How low could the contribution go? How much would be needed for housing, for retirement, for medical expenses? So by the time we decided we needed to do something, some ground work had already been done. Therefore, when we announced a target range of 30%-36%, we are confident that, at 30%, the majority can still get by, provided we change the withdrawal rules at 55. If you take money out at 55, whether it is for a good cause, like for your children's overseas education, or for fun like starting a new home in Batam, we cannot afford it anymore. If Singaporeans take out that amount at 55, they will not have enough to see them through from 62 to 80, or as PM says, to maybe even 100. Going from a 40% target to 33% actual contribution rate is not such a small move. Of course, some employers prefer to cut to 30%. Some workers prefer to stay at 36%. There are a few who suggested going back to 40%, but not that many. But we have to make a judgement. You cannot calculate this. It is not a matter of right or wrong. It is a feel - how far do you need to go, how far can you go, where do the benefits tail off, and the negatives and the problems, such as the impact on housing affordability and on confidence, come on. And we decided on 33%. It is a collective judgement. It is not a unanimous view. But it is where we have decided to move. Even after we do this, our wages are still going to be many multiples of the Chinese and Indian wages. You have heard the figures PM cited - we are 15 times China, 18 times India, and so on. But this is not an exercise to match Chinese or Indian wages. They are trying their best to come up and we are trying our best to stay up. And if we are too far out of line, we have to adjust. We always work on the basis that our workers need to be paid more, ought to be paid more and can be paid more, provided our value-added, our efficiency and productivity are there, and our Government is there to generate extra value in Singapore. By putting all the pieces together, we can justify our higher wages. So although we are making these CPF adjustments it is the overall competitiveness that we have to watch closely. We will cut the statutory burden, but we will take it one step at a time. We will not become a boiled frog. For those who have not heard of the boiled frog, let me explain the story. This is a scientific fact. If you take a pot of boiling water and you drop a live frog into it, it will say "Ouch!", it jumps out, and lives. If you take a pot of cold water and you put a live frog into it, it swims around. You turn up the fire, the water warms up, it adapts, it continues to swim around. You turn up the fire a bit higher, it adapts, it swims around some more, until it is cooked alive. So that is what it means to be a boiled frog. What happened to us in 1998 was the first scenario. Boiling water, sudden crisis, we were in it and we jumped out. We cut CPF contribution rate from 40% to 30%. What is happening now is that we are in warm water and we have to decide what we are going to do. I can tell you we are not going to be boiled, but we have to judge the moment to jump out. In the meantime, we have made one adjustment to 33%. And if we have to, we will do it again. Because we have to watch the situation closely as it changes, month to month, year to year, and calibrate ourselves so that we neither over react, nor become inured and insensitive to the changes in the environment, and then end up boiled alive. I wanted to contribute to the Fabric of a Nation a piece with a green frog on it, but I was told it was too late. Therefore, we may well change further. There is no going back to 40%. We are also making other important changes - the withdrawal rule at 55 is a very major change. All the CPF changes are going to lead to savings of $1.3 billion per year for employers, or about 1% of GDP. Each employer may not save that much, but for the economy as a whole, it is a lot of money and it will make a significant difference. Dr Wang Kai Yuen yesterday made a good speech, asking about the Government's money. He said that our electoral cycle does not coincide with the property cycle and does not coincide with the business cycle. So when the market is up, we sell our land. When we have an election, we lock up the money. After the election, we have a problem. This is a real issue but a very complicated one which we are taking some time to study. We will see what, if anything, needs to be done. But it does not affect our immediate policy decisions. As Finance Minister, my approach is to set the appropriate fiscal policy - tax levels, spending levels, budget surplus or deficit - such that it is appropriate to the state of the economy. If it needs to be stimulated, we will stimulate it. If it needs to be cooled down, we will cool it down. And if we have to draw on reserves, so be it. If I have to ask the President for approval, I will have to make the case and the President will have to decide. We are prepared to run deficits in a downturn. Our public expenditure has been counter-cyclical. Last year was a slow year and we ran a small deficit. This year, we are going to run a much bigger deficit. As I told you, it is going to be more than $2 billion. We will probably run an even bigger deficit next year in FY 2004. And if we have to go to the President, I think we can make a good case. I think he will listen to it rationally and, hopefully, sympathetically. But we cannot draw on reserves to put off essential structural changes. If our economy is out of kilter, if our wage structure is wrong, if our CPF system is wrong, we cannot leave things be and just live on our past savings. We have to take a long view, look beyond the present and set our policies so that it will work in the long term. I do not mind if we run a big deficit this year or next year. My concern is: can we balance our books after the economy has recovered? It is very easy to say this is a transient problem, which is part and parcel of the automatic stabiliser at work. But when the economic conditions improve and our fiscal situation is stuck in the wrong position, then we will have a structural deficit and a big problem. Hong Kong has a deficit that is 7% of their GDP, which is a serious matter. If that happens to us, investors will lose confidence, the Singapore dollar will depreciate, and our savings will lose value. Mr Low Thia Khiang said just now that we dare not depreciate the Singapore dollar, and are therefore cutting the CPF. I think he is quite right. Would he dare to depreciate the Singapore dollar if he can do so? To depreciate the Singapore dollar means inflation will go up, workers' savings will be worth less, confidence will go down, interest rates will go up, and many consequences which I think any responsible government will have to think very carefully before doing. Therefore, if we need to spend now, we will spend. But we will make sure that when we get back on track and the economy is growing, our budget is back in balance. And that is one of the reasons why we cannot put off the GST increase further. Finally, let me talk about the CPF changes. Some people are asking if these will make Singapore competitive. Will they work? The CPF changes are only part of our strategy. We have tackled many other components of our business costs. Our income tax rates are now one of the lowest in the world. Our utilities charges, despite people's complaints, are low compared to other countries. In other countries, where the electricity industry is protected, once a plant is built, it is guaranteed a rate of return. If the plant cannot fetch the target rate of return, the tariffs are raised. On the other hand, we have opened up our market, which used to comprise steam plants. Then gas became available. A gas plant produces electricity much cheaper than a steam plant. But we did not keep out the gas plants in order to guarantee the steam plants a rate of return. We proceeded to build the gas plants, bought the gas, and now the steam plants are "stranded". In other words, their value has gone down. The price of electricity can no longer cover the full cost to operate a steam plant. It is the wrong thing to do for the Government as a shareholder of the steam plants, but we did it because that is a sensible thing for the economy. We write-off the value of the steam plants, move to gas, and everybody benefits from cheaper electricity prices, and the Government's loss as shareholder is the people's gain. Not all Members knew or understood what we did. From time to time, we get requests - why not just reduce the utility charges? It is not so simple. But what we have done has been significant. Our land cost and rentals have also come down. I have a table (Cols. 2851-2). May I ask the Clerk to distribute it? [Copies of Table distributed to hon. Members.] Table - Changes in property and land prices (1994-2003) I had this argument twice with Mr Inderjit Singh. He is not here today, so Mr Low Thia Khiang took it up for him. But let me show you what the real numbers look like. Land prices have come down in Singapore significantly. If we look back 10 years, to just the beginning of the property upturn in 1994, and index the property prices then as 100. Today, 10 years down the road, JTC flatted factories have gone down to 67, ie, one-third down. JTC industrial land has gone down to 75, ie, one-quarter down. Private industrial factories have gone down to 78 or one-fifth down. Office, to 59 - about 40% down. Shops have gone down to 68, ie, one-third down. Residential has gone down to 76, ie, a quarter down. And if you look at the chart below, you will see that the trend has been down. And if you compare the decline not from 1994 but from the peak at around 1996/1997, the decline has been even sharper. So to say, "Let us bring land prices down", is to make statements without looking at the facts. We have to judge Singapore on our overall competitiveness. Wages are important, but they are part of our overall competitiveness. The newspapers reported Dr Tony Tan's statement. Over the weekend, he made a speech, I think at a Sembawang National Day observance ceremony, and pointed out that a PERC report said that Singapore wages appeared to be higher than that in the US, which is a serious matter. But that is only one part of the picture. We also have to look at the rest of the picture to complete the perspective. If we look at the PERC report which was published on 2nd July 2003, for Singapore, it says: "Still competitive compared to Asia's more developed economies, but expensive compared to most developing ones."