Hansard, 2005-03-02

Under the provisions of clause 2(d) of Article 46 of the Constitution of the Republic of Singapore, the following Members have been granted permission to be or to remain absent from sittings of Parliament (or any Committee of Parliament to which they have been appointed) for the periods stated: Name From (2005) To (2005) Mr K Shanmugam 02 Mar 02 Mar Mdm Ho Geok Choo 04 Mar 04 Mar Mr Lim Swee Say 09 Mar 16 Mar Dr Vivian Balakrishnan 13 Mar 17 Mar

ABDULLAH TARMUGI Speaker Parliament of Singapore

Resolved,

That, notwithstanding the Standing Orders, the debate on the Budget Statement and the

Estimates of Expenditure for FY2005/2006 (Paper Cmd. 2 of 2005) be taken today. - [Mr Mah Bow Tan].

Resolved,

That, notwithstanding the Standing Orders, the proceedings on the Estimates of Expenditure for FY 2005/2006 be taken till 6.45 pm on the days allotted to the Committee of Supply on the Estimates for FY2005/2006. - [Mr Mah Bow Tan].

Order read for Resumption of Debate on Question [18th February 2005].

"That, Parliament approves the financial policy of the Government for the financial year 1st April, 2005 to 31st March, 2006.". - [Prime Minister and Minister for Finance].

Question again proposed.

Mr Speaker, Sir, riding on the back of a strong 2004 full-year economic growth rate of 8.4%, the Prime Minister and Minister for Finance has delivered a stock of goodies and hope in his Budget announcements. However, the real test of a Budget is not in its popularity or short term feel-good factor. Neither is it just about dollars and cents. The litmus test of a Budget is whether it moves our economy and society towards its goal and towards Singapore's vision as a "land of opportunities for all".

This Budget, right down to the way it was delivered, sets the tone for a softer and people-oriented approach in governance. From a reduction in personal income tax to the various top-ups that aim to benefit many segments of the population,

But there is one issue which I feel deserves a more holistic approach. PM Lee, in his swearing-in ceremony, spoke about the need to deal with complex and sensitive issues, such as our ageing population. I am heartened by the Minister's effort to encourage savings for retirement in his Budget, but the ageing population issue deserves a much more holistic approach than a piece like savings alone. Sir, the ageing population issue is not just an elderly's problem. Neither is it about simple retirement savings. It is a complex social, economic and political challenge that may threaten to derail our nation-building efforts at economic growth and social integration, and it will, if not addressed, lead to an ultimate drop in the standard of living. Let me explain.

Sir, the Singapore economy is heavily dependent on its human resource pool. If the present demographic trend of low birth rate and fast ageing population continues, we may experience a lower labour force participation rate, as well as a drop in overall productivity of goods and services. The demand for goods and services, especially geriatric services, will certainly increase. The net effect is that we may move from a producer-based economy, to a consumer-based one. As in financial planning, when expenses exceed income year after year, the result is deficit financing and debts. Singapore can hardly afford that, because we are not natural resource rich. Debts today will have to be paid for by the next generation. Worse still, the quadruple whammy of delayed marriage and procreation, prolonged dependency of youths and prolonged life expectancy, will certainly suffocate the sandwich generation who will face more challenges

We will face severe labour shrinkage and dilemma in allocating the fruits of our labour amongst the various segments of our society when that time comes. There will be many daunting questions for political leaders, business and society to answer, while tensions mount between the working population and the non-working population. For example, should we tax more on the income earner? Should we allocate more to the Ministry of Community Development, Youth and Sports and less to the Ministry of Defence? Or should we keep taxes low but allow casinos - in fact, more casinos - so that goodies can be announced in the Budget, year after year? Indeed, workforce crises have forced many governments, eg, Australia, Italy and even Japan, to consider introducing drastic overhaul to their industrial relations and welfare legislation to try to build a bigger labour pool and ease tensions. A World Economic Forum - Watson Wyatt study in 2004 concluded that, if the current economic and demographic trend continues, by 2050, EU and Japan's total global output will actually drop from 18% to 10%, and from 8% to 4%, respectively. It makes me wonder: what about Singapore? How will our economic pie shrink? Has there been a thorough study and projection, so that we may know what lurks at the end of the tunnel?

Sir, the fire is not at our doorstep yet, but it is spreading fast. Years of tackling the procreation issue in a piecemeal fashion led us nowhere. Let us learn from that lesson, and urgently address the multi-faceted ageing population issue holistically, as we did with the procreation issue.

For today, let me focus on just two most critical challenges in the ageing

that of labour shrinkage and retirement funding.

Labour issue: Jobs, Jobs, Jobs

Labour shrinkage issue can be overcome by raising immigration quota, increasing human resource, increasing capital and technology investments to improve productivity, or we can also increase retirement age and work hours, as well as increase the overall workforce participation rate. Obviously, not all of those are desirable. But in terms of improving our infrastructural capital investments, MOM, as well as MTI has run a lot of programmes to that end. But the same cannot be said for improving overall labour participation rate. Over the last 11 years, from 1993 to 2004, our labour participation rate dropped slightly, from 64.5% to 64.2%. Over the same period, the median age rose from 34.7 to 38.8 years old. Female participation rate increased painfully slowly from 50.6% to 54.2% over an 11-year period. In short, there is tremendous scope to address the labour shrinkage issue via the expansion of jobs for the ageing population, females and, I would add, the mildly disabled or disadvantaged but not unable to contribute. This entire group of people is a tremendous labour pool for us to tap on.

What is needed, however, is a fundamental paradigm shift to see the ageing population not as an opportunity cost, but as an opportunity to reform the job market. For too long, the workplace has been designed to be rat race tracks, where the most competitive survive. Only people in the 9-to-5 jobs, those who work from an office building or work-only premises are deemed to have "proper" jobs. Singapore, in fact, ranks at the same level as China in having one of the smallest informal economies in Asia, whereas Thailand has the highest. Even until recently, entrepreneurship was not "cool". In fact, it was "cold". The concept of retirement, too, has to change. In the old days, retirement was a time to look

With the foreseeable shortage of young talents in the coming years, employers will have to begin addressing this demographic reality and be prepared to introduce flexible employment arrangements, such as flexi-time, part-time, contract work, telecommuting, virtual office, phased retirement, etc, to keep people on the payroll. Most people, especially city folks, do not really want to stop working totally. What they want is some time to pursue their goals and passions, or simply spend more time with their families. This is also why there seems to be an increase in the number of stay-home mums. This is also supported by the results of a survey conducted by the Consumers Association of Singapore (CASE) in 2002 on retirement issues. Almost 30% of the interviewees would like to continue working during retirement, not for monetary reasons, but to remain socially engaged and mentally agile.

Hence, moving forward, there is a need to create a conducive environment to enable the retirees and retirees-to-be, non-working females and also the disadvantaged but not disabled, to return to the workforce. That will give them a chance at becoming financially independent and, at the same time, give Singapore a chance to create more wealth for its people. I hope that the relevant task force or agency would look into a fundamental revamp of the job landscape, as we move into the realities of the 21st century economy.

Let me next move on to another critical challenge in the ageing population, which is that of resource allocation. If our ageing population is not capable of taking care of ourselves, then, certainly, there must be more budget allocated to support these people in their old age. Fortunately, although the time bomb may be ticking, it can be prevented from exploding. There are generally five options to fund retirement.

First option: If they do not have the money, then perhaps they cannot retire. No choice; have to keep going. But is this a viable option? My assessment is that, unless health permits and jobs are available for the ageing population, this option will remain a tall order.

Second option: They can also rely on family support and children. But with the trend of a smaller family and weaker kinship, the tax and expense burden on the young and sandwich generation will be tremendous and perhaps not immediately available to most people. The report by the Inter-Ministerial Committee (IMC) on Ageing Population revealed that old-age dependency ratio will grow from 1:10 in 2003 to 1:3.4 in 2030. In other words, there will only be 3.4 young persons to support every elderly person aged 65 and above. How many of us are currently fully supporting our parents? How many of us would be looking to our children to take care of us fully when we retire?

Hence, my verdict for this option is that the traditional family helping-hand approach may not be immediately accessible to many people. Even with the Maintenance of Parents Act, very few will bring their children to court to embarrass them. And it may not pay as well.

The third option then is to rely on state support. This will obviously lead to more budget expense allocated for this purpose and create a higher tax burden on

The next choice is for the retiree to rely on his own nest-egg. The biggest nest-egg for most Singaporeans is the CPF. But, Sir, our CPF

from economic restructuring to payment systems to help the less fortunate obtain their utilities and services, Budget 2005 does inch us closer to this vision. And I applaud the Prime Minister and Minister for Finance's consistency. and frustrations in keeping pace with workplace demands and family financial needs. population issue, ie, forward to, because it means pensions or income without having to work. But in Singapore today, where traditional pensions are rare and CPF withdrawals are not tied to a person's employment status, perhaps we should also change the definition of retirement. It is not a time to retire from work or life, but a time to "refire" one's passion!the working population, and the result could be more social tensions and even disintegration. Therefore, the charity or welfare state helping-hand approach should be viewed as the least desired option and, perhaps, an option of last resort.

has been shrinking. First, the total contribution fell from 40% to 33% and the income contribution ceiling also fell from $6,000 to eventually $4,000. While I understand the economic sense of flexi-wage system and keeping business costs down, which is very important, it really does not make any financial sense for the CPF member who faces employment uncertainties and smaller retirement dollars. It is a known fact that the CPF alone is not enough! The globally accepted retirement income benchmark is 66% of last drawn pay. However, a study by Price Waterhouse Coopers revealed that after an adequate property purchase, CPF may provide only around 20% of last drawn income. The MCYS' website also listed that with regular contribution to CPF, a member may only yield enough for a 40% income replacement rate. Whatever the case may be, if the retirees today already fall short of the global benchmark, what more can the retirees of the future expect? Sir, we are staring at a serious drop even if there is a future drop in the standard of living in retirement.

Obviously, no one owes us a living. Every individual is responsible for his or her own financial well being. Financial concepts and issues can be complex but it remains a personal responsibility to become financially literate and make responsible decisions. Financial planning, my pet subject, is a life skill that everyone should start acquiring from young. But on the other hand, the financial service providers and their representatives also

All said, it is not possible to make everyone a financial expert. CPF money alone is not enough, and people generally lack the discipline to save, invest and accumulate wealth. There is a need to put in place a more robust and sustainable long term retirement programme which will supplement both the CPF and personal savings. I recommend a total framework in what I term as the ReCeSS time - comprising a capital R for Revamped, capital C for CPF, and double capital S for SRS and Section 5 plan.

I will not elaborate too much on all of these. I will say a few words on what I intend to raise in a motion that I will move at a more appropriate time. But, in short, the ReCeSS time would permit a more flexible employer-employee contribution regime and offer a variety of retirement plans to the individual. With the revamp, the CPF will remain a mandatory scheme while the SRS will still remain as a voluntary individual-based account with a whole spectrum of investment choices, and the Section 5 plan will be a voluntary company-based, portable scheme with limited fund types. Let me give a very sneak preview on what I would be looking at.

First, on CPF. The proposed changes to CPF would include the raising of CPF voluntary contribution ceiling to the original 40%, not anything to tax more on the employers, but as a voluntary contribution from the employees. Second,

On the SRS, like my GPC Chairman, Dr Ahmad Magad, I would like to champion the urgent set-up of a Special Task Force to revamp the SRS. The SRS has great potentials, but it is crippled by its own complex mechanism. The current mode of setting up the account only via banking accounts also builds in the vested interest of the banks, which leads to product pushing and partial advice, as bank officers are likely to push only their own products. The complexity of the scheme, insufficient tax benefits and the relatively high costs, rendered the SRS a non-starter. To say the least, the Budget proposal to increase the contribution cap to $12,750 is unexciting. A major revamp to make SRS a viable vehicle for retirement and wealth management can add a lot more not just to the individual account but also to our wealth management industry.

Finally, the Section 5 plans. The Section 5 plans are a superior way for employees to save for their retirement through a company-sponsored plan, where pre-tax dollars are allowed to accumulate tax-free. Section 5 of the Income Tax Act permits companies to establish retirement savings plans for their employees and enjoy tax deductions on the contributions. This is actually a better option compared to the current SRS because of its collective nature of the investment and regularity of contributions, thereby giving economies of scale and keeping costs down. Besides, the company is in a position to hire superior investment advisors and managers. Because of the lower costs involved and perhaps better investment management,

But despite its many advantages, the Section 5 plans are not widely implemented due to the currently complex approval procedures and high establishment and administrative costs. A check with an accounting firm, Price Waterhouse Coopers, which has some experience in undertaking such work, revealed that the establishment costs, in other words, the start-up cost, itself can range between $12,000 and $15,000. These charges, together with the ongoing administrative costs, may be peanuts to large companies, but are significant to SMEs. The current approval procedures and conditions need to be updated and simplified to reduce the associated costs in order to encourage more companies to set up Section 5 plans.

There could also be a case of collaboration between various employers, especially the SMEs, through a multi employer master trust policy to reduce the cost and also reap the economies of scale. Another disadvantage of the Section 5 scheme at the moment is the exit strategy where it advocates only lump sum withdrawal, which attracts taxes and defeats its original intent in retirement funding. This could be modified to allow gradual withdrawals at retirement, so that retiring employees can always reduce the tax payable by spreading the receipt of the benefit payments over a number of years, or even by transferring the money to a lifetime annuity.

If successfully implemented, the ReCeSS package will give us a much more comprehensive framework not only to fund our ageing population, but also deepen our retirement investment tools market. We can even become a global or

In conclusion, I believe that we need to take a holistic approach to meet the needs of our maturing society. We need to tackle the challenges of an impending shrinking labour force via a paradigm shift towards more job innovation and diversity to include all those who can contribute. Imagine if we can convert the stay-at-home mums to work-from-home-mums, convert the young retirees to re-enter the workforce and enable the disadvantaged to become contributors, then the aging population problem will already be halved.

We need to step up on financial literacy and responsibility programmes, and establish a long-term sustainable retirement financial model via the ReCeSS time that I spoke about. Just like the focus on healthcare, long term care and MediShield, the Government has decided to fund these programmes to varying degrees but for the same reason. So why not 'Wealth Care'? The costs of granting all the proposed tax shelters and holidays may lead to a drop in revenue collection, but will certainly encourage more retirement funding and cultivate responsibility in individuals. It will also lower overall budget expenses. Overall, this will help to balance the budget of both the individuals and the state in the long term.

But ultimately, the success of our ageing population policy rests on the actions taken today by our 3Ps - the private sector has to facilitate it, the Government, which is the public sector, has to provide some incentives as well as facilitation through lower legislation. But the magic wand is with the people who must act on these opportunities. This indeed is the many-helping-hands approach, which will help us to surf from peak to peak.

Mr Speaker, Sir, I support the motion.

owe professional responsibility to the general public in providing adequate disclosures and accurate information. The recent calls for transparency and disclosures in the sale of financial products are important steps in building our wealth management industry. The MoneySense programme can certainly do much more in cultivating good financial planning habits, and guide consumers in the purchase of financial products and services.spread the withdrawals at age 55 instead of allowing lump sum withdrawals. The CPF Board could also play a more active role in providing good CPF fund investment advice and allow more generous top-ups for loved ones. the investment returns can be expected to be higher. Investment choice can be given to employees, eg, a list of 5-6 portfolios with varying risk levels for the employees to choose from.a regional leader in this fast growing segment of the wealth management industry.

Mr Speaker, Sir, thank you for allowing me to join in this debate. I support the motion.

The measures in this new Budget touches almost every citizen, from the school-going children to the elderly, from the salaried worker to the entrepreneur. For people to hail it as an election year budget just about sums up the sentiments of the masses. It is a compliment of the new Budget measures.

By and large, the economy and the job markets are doing well, offering job opportunities to one and all. Thanks to continued sound governance and solid infrastructure, the majority of our Singaporean families enjoy a good standard of living and can look forward to a bright and exciting future.

Hence, today, I will focus instead on a comparatively small group of Singaporeans - the disadvantaged. And I will also speak on helping our small local enterprises.

In a recent debate on the President's Address, I had referred to Singaporeans "over by the window" - the disadvantaged ones amongst us who, for one reason or another, have fallen behind and who need our help.

The Prime Minister's call to make Singapore a more caring and inclusive society could not have come at a better time. It has a strong resonance in the hearts of Singaporeans. He signals a paradigm shift. It used to be a singular focus on economic development, productivity and efficiency. So while writing this speech, I was reminded of a song by the British band, Queen, "We are the champions", the one that goes by "We are the champions and no time for losers".

So in Singapore, there is actually a difference. There is now a difference. There are champions but no one will get left behind. The task of helping the disadvantaged members of our extended Singapore family is now firmly on the national agenda.

The newly announced $500 million ComCare Fund will certainly be a boost to our needy families and the elderly. I support the Government's decision to focus on getting these families to be self-reliant and to minimise the adverse impact on their children's education and health. It is imperative that we break the vicious cycle of poverty which can have such far-reaching consequences. While we await the proposals from MOS, Mrs Yu-Foo Yee Shoon's Committee, I echo the hope expressed by Mr Iswaran that much flexibility must be given to the local CDCs and grassroots so that at the local levels, they can tailor their assistance and apply the resources where they are identified to be required.

Recent reports on abused children pointed to a correlation between low-income and child abuse. Of course, there are other contributing factors, but it is widely acknowledged that financial stress is a common trigger. It was heart-wrenching to read about how 500 children tried to call the Police or intervene in their parents' fight only to get themselves hurt in the process. There is a sharp increase in their numbers over the last few years. Here again, the grassroots, given the right resources, in conjunction with social workers, could assist.

A holistic approach to helping needy families with children is necessary. I urge the Government to allocate more resources to our supporting counselling services. Poverty is, in many ways, a mindset issue. Often, when the adults in the needy families modify their attitudes

Next, Mr Speaker, Sir, I would like to move deep into our HDB heartlands - our neighbourhood shops. Can you imagine what our HDB estates would be without our HDB shops and eateries? They are an inseparable part of life in the heartlands. Yet, in recent years, many of them have folded up and closed.

and mindsets, they would be able to overcome their own limitations and become independent and self-reliant. However, these changes require time and would greatly benefit from expert professional counselling. These families need someone, a guardian angel or cheer leader, if you like, to walk with them through a successful transition. We need more of these social workers. My discussions with some of them indicate that much as they have a passion for their work, they too seek adequate compensation and recognition. We must have the ability to attract the right talented and passionate people into this vocation. Attention must be paid to their career development and conditions of service.

Over the last eight years, 5,000 of them had terminated prematurely.

In an answer to a recent question, MOS Cedric Foo had commented that the top three causes for the turnover of HDB retailers and eateries are (1) merchants getting old and desiring to exit; (2) relocation; and (3) they have gone bust. Hence, one cannot imagine the hope generated amongst the 15,000 retailers in HDB estates when the Prime Minister announced in his Budget Statement that there would be a package of measures to help the retailers relocate, restructure, upgrade or exit. This itself, I believe, is another good example that the Government listens to feedback. The Feedback Group had asked for the retailers to be allowed to opt out of the HDB leases early, freeing up space for new tenants to come in with new ideas. To quote, "Opting out is beneficial not only to those who want to cut back on their losses, but

Member Arthur Fong spoke on Monday. I too hope that the package does come with also a measure of flexibility, for this may be a case in which a one-size-fits-all approach may not be the best approach. Shops in old towns and new towns face different challenges. The residents in new towns clamour for different shops and express different needs from those of the mature estates. Merchants in new and mature estates also face different problems.

I also speak of flexibility from another perspective - to find a way to break free from the rigidity of the tender system. From what I have seen in my area, one of the reasons that these heartland businesses have become untenable is that they had tendered with high rentals and now struggling with the high overheads. I have a case of a woman who dumped all her CPF withdrawals into a salon and now bemoans that she cuts and washes just a couple of heads a day. She is no longer in business. Then there is a case of a coffee shop that has seen three owners in three years.

I believe that all these are the result of "the winner's curse" - a term which economists use to describe successful bidders who had over estimated the potential of a site or a project. Much as we can admonish them that they bid with their eyes open, I can put myself in their shoes. If they bid low, they never get started. I hope that the Government could assist those who are trapped in this unfortunate situation, for I believe that it is not only the winner's curse but also the seller's curse. In this case, it is the Government agency, as its purpose is to provide amenities and services to the residents. Nobody gains if the turnover of tenants is high and the shops go empty time and again.

Minister Lim had suggested that the Government be allowed to get an upside when the going is good if it even contemplates dropping rents when the business takes a downturn - a two-way traffic. This could be the gem of an idea. It returns us to the beginning. HDB shops that were set up in the early days have both economic and social perspectives. Let us move back the pendulum that had over swung to the economic end and re-emphasise more of the social objective. Why not the Government heed the call to be a partner, which could be one interpretation of what Mr Lim had suggested on Monday? Why not experiment with approaches like taking a percentage of revenue, for example? In such instances, when the immediate environment changes on a HDB retailer, whether it is positive or negative, both the retailer and HDB are affected, positively or negatively.

Take the actual case of a coffee shop owner, that in the span of a three-year tenancy, he faces a drop of customers as the factories around it closed down. Or that with the recent adjustment of rentals by JTC by up to one-third downwards, he is suddenly less competitive, as in this particular case in my estate, HDB land abuts on JTC land. Could the retailer have foreseen this? I do not think so. Hence, my call for flexibility. And sitting out the three-year term for these retailers is extremely painful.

This approach is not novel. I believe private landlords practise this as well - renegotiating and readjusting as conditions change - contract or no contract. I hear that even in food courts today, taking a percentage of the takings by the main operator from the individual stallholders as a means of risk sharing is no longer an exception.

In addition, may I suggest that the Government consider reviewing the tender process for HDB retail shops? The tender

So what are the alternatives? There may be other solutions but I just suggest two, hopefully, to start a discussion. It is for the winner to pay the second highest bid upon success, or the second highest bid be awarded. The latter alternative results in the successful bidder having a higher chance of succeeding with a more realistic rental. It has the effect of removing the irrational high bidder. It may motivate people to bid more realistically. More caution would be at play as one runs the risk that a wild, high bid would be thrown out.

Studies have shown that when the winner's curse is allowed to perpetuate, everyone - in our case the HDB, the residents and other potential shopowners - all stand to lose when the winning bid fails. In the HDB heartlands, these are the people who can least afford to fail time and again. There are high opportunity costs and inconvenience to all parties. Let us attempt to make a change.

With these comments, Sir, I support the motion.

it will also generate new entrepreneurs", according to Mr Abraham from the Feedback Group.system presumes rationality on the part of the bidders. My little research into the winner's curse phenomenon suggests that this assumption is not exactly tenable. A 1988 research paper on oil field bidding over 15 years in the Gulf of Mexico by Prof. Taylor of Cornell University suggests that over the long run, there is an aggregate loss.

Mr Speaker, Sir, in the wake of the consolidation of the banking industry, many people with skills, previously in great demand, suddenly found themselves without suitable employment. While we needed to consolidate the local banking industry to make our banks globally competitive, I am heartened to see that the incentives to develop Singapore as a

I am also happy to see that we are trying to improve Singapore's attractiveness as a logistics, transhipment and shipping hub. Singapore faces great competition from ports in the region that can take away our transhipment business. Every little bit helps. Having a superior total business environment and an efficient and non-obstructionist bureaucracy will be crucial to maintaining our port's attractiveness.

I would also like to address the issue of saving costs in an effort to be more efficient and also the principle of transparency and value in Government procurement contracts. Perhaps we need to make a distinction between the lowest price versus the lowest cost measured over the expected life cycle of the building or product that we are buying, and the economic cost of the end user having to arrange for rectifications and replacements should the original products go wrong.

I think Members know what I am talking about. We have many instances. Recently, people talk about suicide bids, especially in the building industry. Our system is open, transparent and based on lowest tender, unless a good reason can be found for not going with the lowest tender. This is good. But, unfortunately, this system may not always give the intended results. What could happen is that the contractor could then go bust or survive by giving a sub-standard job or sub-standard fixtures. So it is actually very costly if the product was obtained cheaply but is defective and needs rectification. In such cases, the true cost is high, as the problem then needs to be corrected. People need to take leave to

Yes, implementing this will be difficult, but it would be false economy to carry on with what we are currently doing. As Mr Alex Chan said yesterday, we must not confuse efficiency for effectiveness.

Sir, some grassroots leaders have fed back that they felt that the middle class was squeezed in this Budget, and that the poor have many concessions to keep them afloat, the rich have tax breaks to keep them contributing to Singapore. But for the middle income earners in 5-room and Executive flats, it seems that they are the ones whose tax rates will rise since the CPF contribution ceiling has been lowered, and they do not get the generous rebates nor the larger portion of ERS shares.

Sir, their sense of pain is understandable. However, I support the notion that this Budget is meant to leave no one behind by ensuring that all have the opportunity to progress. We have to ensure that we are a nation that looks to the welfare of its citizens even as we should be a nation that does not seek to be hobbled by an entitlement mentality. I feel, in some ways, that those who are asking for more breaks even when they have enough are actually demonstrating the very entitlement mentality that they say they do not like to see in poorer people. In particular, I would applaud the move to promote civil society by making contributions to a wider group of societies tax exempt. Private giving is a mark of many developed societies. As a means of

Like many other Members, Sir, I think we need to examine the question of whether we are providing sufficient safety nets in an efficient and effective way and to ensure that in our pursuit of efficiency, we do not unwittingly cause those who are most needy to lose out, such as those low income families who already have more than two or three children. We should not punish the children for the sins of the parents by denying them timely help.

Sir, in the old days, we had schemes to give needy children food and milk rations. Maybe we should consider bringing back some of these schemes. Children who lack proper nutrition during their early years in school will not reach the full physical and education potential. This would be a poor use of our most precious resource. The cost will not be high but the impact would be greatly felt. We need to see how we can help those children who live in homes where the power supply has been cut off. How can we ensure that they are still able to do their homework and get the help they need? We had many children who had to stop school prematurely during the 60s and the 70s due to family poverty. We must ensure that the children of today are able to take full advantage of our improved educational systems.

Sir, I have seen residents coming to me saying that they have turned down jobs paying $600-$700 because they feel that after deducting transport and CPF, they have almost nothing left. Perhaps we

place to locate charitable trusts, wealth management services, capital markets and Islamic banking have been put in place to help bring back jobs to this sector along with an increased demand for supporting services.chase contractors, chase the Town Council and so on and so forth. And not all defects might be detected during the warranty period. Some might become apparent just after the warranty period is over. Others even more slowly. Perhaps we may need to disqualify unrealistic tenders. What Member Wee Siew Kim has talked about awarding the second highest tender for purchases might also be applicable. redistributing wealth within society, it allows the individual greater say in where his or her charity dollar should go, unlike in many welfare states where the tax burden is higher but one does not think so hard about where to put the charity dollar. It also presumes that the individual accepts the need and responsibility to contribute back to society. I hope we move more in this direction. should encourage them by making it easier for the families of those who are actually in employment to receive financial aid, in order to signal the value that we place on individual responsibility as opposed to just looking at pure earning capacity.

Sir, HDB makes many rules to make it hard for people who sold their flats to quickly rent or buy another one from them. That was in the days when people were making profits. But now we are seeing people selling their flats out of sheer desperation. We may need to bring back rental flats for those who have no way to go and ease the rules for those who are genuinely trying to rebuild their lives, instead of giving them long debarment periods.

I remember a now successful doctor friend of mine telling me how during her childhood, there was a period when her family had no money even to pay the rent. They got through that period, and her father later recovered to head a financial institution. So, I think it is very possible that the people we helped are not down and out but people who would be the success stories of tomorrow.

We must instil financial discipline in all our borrowers, but we must also have a heart. If we have asked commercial banks to take on HDB mortgages and the banks have no choice but to take back the flats of those with non-performing loans, we need to ask ourselves what alternatives we need to provide for those who have lost the roofs over their heads. I think that if we need to bring back the 1- and 2-room flats of old, perhaps we should face up to it and do it. While many of us can remember the days when 12 to 13 people lived in one flat out of sheer necessity, we need to ask ourselves if this is still a viable option for modern Singapore. There is, after all, one important difference

The march of globalisation and structural unemployment will mean that some families who have escaped poverty for one or two generations will once again feel poor in relation to their neighbours. Some children may once again know the disappointment of having had to put their plans for higher education aside to provide for the family. As a nation, we know we are much better off now than we once were. Many have and still will continue to benefit from bursaries and scholarships, but others will still need to choose to work to support the family. We need to allow these young people who have put their own dreams aside for now to rejoin the race at some future date. Present poverty should not be a bar to a brighter future through further education, if one is allowed some detours taken for good reason. I hope that the Government will announce initiatives to give hope to these affected children.

I would like to applaud the Prime Minister's baby-friendly initiatives, including the decision to reduce the maid levy. This, Sir, would reduce the burden of many families now struggling with stark choices. In the end, it is not so much of how much the wife currently earns vis-a-vis the cost of employing a domestic helper but, really, the question of what the future will bring if this lady was helped to remain in the workforce.

In an age of uncertain jobs and globalisation, it is perhaps unwise to have only one wage earner in a family, especially when they are well qualified. And one must also consider that the working mother might bring a wider view of the world to her children. Whatever the reasons, these initiatives seem to be working. I count now, over 14 colleagues, male and female, among my department

Next, Sir, I would like to touch on the problems our citizens face when retrenchment or other job losses strike and the family quickly gets into arrears of school fees and utilities bills. I eagerly look forward to the details of the ComCare Fund, as what we seek to do is to try to help those that need help most. Often, people have genuine needs that deserve help, but they may not fall nicely into permissible categories. There should be a distinction between trying to help people and trying to achieve a population policy objective. For example, currently, some of the funds will only benefit nuclear families with two children. But as MPs and grassroots leaders know only too well, the ones in trouble are often precisely the ones in de facto single parent or single wage earner households with more children than they can afford to look after. These children have already been born - they need help - and they cannot go back into the womb. I hope that when the details of the ComCare Fund come out, MPs and grassroots leaders will have some discretion to meet urgent needs on the ground within the context of available resources.

Sir, one of the issues that really concerns me right now is the slowness of Singapore Power to implement a system of cashcard or coin-operated power and utilities supplies, rather than just to take the option of cutting off power and water completely. While I know that much has been done in this area and they have tried very hard and have been very, very understanding to-date, I fear that, if we are simply prepared to leave households without power, gas or water, we will eventually reap the harvest of disease, loss of educational potential and hopelessness that will far outweigh the cost of efforts to solve the problem for

Talking about the economic recovery to these Singaporeans seems like a cruel joke. Why are we driving fellow Singaporeans to the wall when we can send aid elsewhere? Why are we spending money on IUPs to ensure that neighbourhoods do not deteriorate if we are at the same time prepared to countenance the whole family living in filth and darkness in our newly-built blocks of flats? Are we really trying to force people who can actually pay up to pay up? Or are we merely blinding ourselves to a problem that will not go away in some of these families?

If Singapore Power feels that they are not able to help residents with inexplicably high utilities bills, to check their meters and their premises without payment of a fee, perhaps Singapore Power can empower consumers and grassroots leaders by publicising simple reproducible test methods and statistics

I appreciate Singapore Power for having thought of the vouchers scheme to tide some residents over. Yet, this cannot be the only solution. In fact, this solution has stopped. Yes, some residents have temporary cashflow problems and, yes, some will rather smoke cigarettes than pay their bills. But as many have said, this is not a one-size-fits-all problem, and you cannot have a one-size-fits-all solution. Some of my residents earn only $600 and they need to pay arrears of power supply bills amounting to $200-$300, town council bills amounting to $60-$100 each month, just for repayment. When they have to pay for their own transport, food and children's needs, what is left? If they pay PUB, they cannot pay someone else. They cannot pay school fees or they cannot buy food. So, what do they do? They pay each debtor in turn, on a round robin basis. But the people we meet at various places, like Singapore Power, seem to be, in their description, the personification of somebody out of a Charles Dickens' novel, "pay up, or else", never mind what your MP's letter says, never mind that you seem to have been trying to pay something every month. This fact seems to be the most cruel cut, especially for those who have genuinely been trying to pay something every month out of what little meagre salary they have.

No, I am not advocating for forgiveness, but I think that we should at least offer a moratorium or suspension of credit and convert some of these people from a post-pay power supply or utilities supply in favour of a pay-as-you-go system. In this way, we would be better able to direct the money currently spent on utilities rebates towards those who are in greatest need - those who are literally living in the dark and the dirt.

Is this method expensive? Perhaps. Does it make commercial sense to spend money on serving customers who already owe you money? Not if you are a purely commercial company, with not a shred of social conscience. But if you are a company with a local board of directors and local roots, then, perhaps, we should look harder to try and find the solution that fulfils a triple bottomline - financial, environmental and social. Please, Power Supply, as a Government-linked company, with a duty not only to its shareholders, as has been said, but its stakeholders - the people of Singapore - do not undermine PM's efforts to create a more caring Singapore with the current method of doing things.

Sir, as a country, we took on the challenge of SARS and came up with solutions very quickly. Perhaps we can also address some of these problems equally quickly. We did not present the people of Meulaboh with a price list before we extended our help. Those people were clearly not in the position to pay up. I think there are some Singaporeans who are in the same boat.

Finally, Sir, many MPs have been approached regarding the stand on the casino proposal. Much has already been said. I just feel that we cannot have our cake and eat it. The Government derives much money from taxes on horse-racing, alcohol and tobacco. Well, many of our citizens will patronise the numerous casinos in neighbouring lands that offer

If we are to have a low direct taxation regime and yet keep up spending on welfare, education, defence and infrastructure, that money has to come from somewhere, either in GST or in the sin taxes. Given the propensity for Singaporeans so inclined to seek out opportunities to gamble, I feel that we need to give the proponents of an integrated resort a fair hearing, at least, before dismissing the idea out of hand. I would, in fact, ask if an upward integrated resort will be able to pull in those who may still feel more comfort in the anonymity and local flavour of existing casinos in neighbouring lands, whether legal or otherwise. In fact, many seem to have the opinion that the Government has already decided on the outcome of the discussions regarding the casino proposals. In fact, I think this consultative exercise allows Singaporeans of all stripes a chance to stand up for their views and allows the Government to engage its citizens in a major policy decision and gauge public opinion.

At the end of the day, however, the Government must make a decision based on what is best for the majority. If opinion is divided, 90:10 or 80:20, I believe few governments will not take heed of the clear majority. But what if public opinion is really divided, 20:60:20 or 30:40:30? Should the vocal minority have precedence over the undecided or non-vocal majority? In such an instance, the Government must balance the risk, estimate the true level of popular dissent or support and make the call. What is important is that the Government has raised the issue for public debate. The public has made its viewpoints heard and the democratic process has been preserved.

Sir, I support the motion.

between the Singapore of old and the Singapore of today. We can no longer go and farm a small piece of land or put up a shed somewhere. and clinic staff, are expecting babies this year. I hope that many more will be doing so before the year is out, and certainly more than last year. our poor. Yes, I realise that those whose power supply has been cut off have been caught in a trap of their own making. Some of my residents with large unpaid bills still persist in using their home air-conditioners. Some do need to be taught a lesson. Yet, others simply do not know where to turn to. Since they are poor, they cannot afford energy-saving light bulbs as these are more expensive. They use old power-hungry refrigerators because these are what were donated by well-meaning friends. They may have no money to pay a plumber to replace a leaked tap or water closet and sometimes, what they truly have may be a malfunctioning meter, and they can find no one who will believe them. If they have no power, they find it hard to rent out a room to earn more money. They cannot cook cheaply but must use the meagre money to eat out. If they have a young child, they cannot sterilise the milk bottles effectively; so the child falls sick and incurs more expense. It just does not make sense in modern Singapore. which residents and grassroots leaders can use to test expected consumption rates for themselves. For example, if I switch everything off, except the refrigerator, the lights and fans, at what rate is the meter expected to turn, how many digits will they change in four hours? And if I turn all the taps off, just how slowly will the meter run? With this kind of information, at least grassroots leaders can do a little bit of checking themselves and maybe vouch for the residents whose bills are unreasonably high to say, "Please, SP, can you send somebody over to check the leak?"free food and drinks, transport and accommodation in return for their custom. In fact, some of these are where it was leaked, if gaming revolution comes back to Singapore.

Sir, I thank you for allowing me to join in the debate. For the past two days, my parliamentary colleagues have dissected and discussed the Budget Statement in-depth. It has been a long session and I will confine my remarks to the efficacy of the Government.

A good and capable civil service is crucial to the well-being of a nation, and Singapore is indeed fortunate in this aspect. However, besides being lean and productive, our civil servants must be able to empathise with the feelings, needs and hopes of our people. In this area, the civil service can do better by improving its communication with the public and by being more people-centric in implementation.

The people, through experience, have built a great deal of confidence in our civil service. Civil servants were seen as being very thorough in the formulation and implementation of Government policies. Unfortunately, many people also say that they are not well informed of these policies. They say that they would like more information on them.

Some even claimed they have learned of policy details under difficult, often unpleasant circumstances. Let me give an example. Two years ago, the HDB opened up the housing loans of its flats to banks and financial institutions. Since then, several people have approached me to appeal to the Board to grant them its housing loans. One such group of people comprises those who have omitted an existing co-owner, included a new co-owner or both to the same flat. When they now apply to buy another flat, the HDB insisted that they get the housing loan from a bank or financial institution as they are deemed to have already taken two subsidised housing loans from the

Another instance where the efficacy of a policy could be improved by the availability of information is the Baby Bonus Scheme. Many grassroots leaders told me that their residents do not know much about the scheme, how to apply or where to apply for it. Although mothers-to-be are likely to be given the details when they visit the clinics for their medical checkups, the availability of such information among the public is also important as it can encourage more people to hasten their decisions to have babies. This wide availability of information will most certainly improve the efficacy of our procreation policy.

It is also necessary and important to note that there is still a large number of people who are more conversant in their dialects than in English or the other official languages. This was clearly evident during the SARS crisis when information about the virus was more effectively disseminated using dialects. Many of my residents were very happy and grateful to be informed through dialects. They could understand the messages directly without help from others. They said that they felt a sense of inclusion. Hence, where there is a need to reach out to the older and dialect-speaking public, the Government should not shy away from using dialects. I would urge the Government to make greater efforts to share and disseminate more useful information to the public. If the

The public has also expressed the hope that the civil servants could be more people-centric in the implementation of its policies. They would like civil servants to understand how the policies affect them from their perspective, not just from the planners' perspective. One area where the public finds civil servants unhelpful is the very rigid adherence to rules, not willing to exercise flexibility. One example is the provision of interim financial assistance. The apparent rule is that if anyone in a family is working and the family thus has an income, interim financial help would not be granted. However, the only working member in a family could just be earning a few hundred dollars a month, certainly not enough to maintain the family. The applicants remarked that the Government does not understand their plight.

The business sector would also like the civil servants to understand their needs when they apply for various financial incentives and support schemes. Surely, the intent of these incentives and schemes must be to help companies to achieve some desired goals, such as to venture overseas, or to overcome some problems such as the need for finance, but these schemes and incentives come with conditions. Often times, if these companies can strictly meet all these conditions, then they would most probably not need these incentives and schemes. Businesses thus see civil servants as unhelpful. It thus appears to the businessmen that the incentives and schemes exist for themselves, rather than to help them. Hence, businesses hope that, in the implementation, civil servants remember the true intent of the incentive schemes and policies and the needs of recipients. If they can do this, then the policies, schemes and incentives will be more effective.

In conclusion, Sir, let me reiterate my appeal to the Government. First, to improve communication with the people by making available more information and widely to the public and, second, to be more people-centric in implementing its policies, schemes and incentives.

Sir, I support the Budget Statement.

HDB. The appellants said that they thought that it was the same loan but varied to take into account the name changes. They have thus thought they had taken only one loan. They all claimed that they were not told of this otherwise. It may well be that the HDB officer did tell the applicant but this did not register. However, the point I want to make here is that this lack of information has resulted in a subsequent problem. public understands what the Government is doing, what it intends to achieve, we can help get the desired results.

Mr Speaker, Sir, I stand in support of the Budget Statement.

Being the last speaker in this Budget debate and after 49 of the hon. Members of the House have spoken excellently before me and with interesting anecdotes, I thought it would be useful to wrap up by commenting on the budgeting philosophy of the Government.

Sir, let me begin by saying that those who were expecting a windfall tax-free year from the Budget Statement, from a change to a current year basis of tax as an opportunity to build up their wealth, were disappointed. The philosophy that wealth has to be created from hard work and opportunities arising from economic activities that command competitive advantages has remained so. As the Prime Minister has said, "every dollar spent must be earned". To do so, wealth creation and job opportunities are important ingredients for the economy to thrive upon. This year's Budget emphasis then has been correctly entitled "creating opportunity, building community".

This year's Budget is basically tidying up some loose ends, such as consolidating Singapore's position as an international financial centre with an array of measures. These include further tax exemptions and incentives to foreign funds managed from Singapore, such as enjoying a tax rate of 10%, instead of 20%, on fund management fees earned.

And in keeping with the promise to maintain Singapore as one of the most

It is not surprising that the Prime Minister and Finance Minister took a cautious view in cutting personal taxes. It will be difficult to expect much more changes to such taxes since Singapore has already the lowest taxes among the countries in the Asia-Pacific region.

We have accumulated budget surpluses for many years with the over 8% growth on the average over the 1965-1996 years. Now, growth has moderated to about 4-5% (as was pointed out by the hon. Member Mr Iswaran) and is likely to be volatile from year to year. This would mean that unemployment will be on the increase from the low of 2% over the last decade to what seems to be 4% over the next foreseeable future. In the meanwhile, Government's operating revenue seems to be declining since the middle of 1990s to about 23% of GDP to 15% in 2004. This drop in income may have been partly due to the Government's shift in position in revenue collection, forming structural changes, such as a reliance from direct taxes to one that is indirect. Government expenditure at the same time has been about the same level at about 15% to 20% of GDP.

If this trend continues, then the pressure of meeting a budget surplus in future years may be unrealistic. If long-term unemployment rises and economic growth moderates, a possible structural shift to a trend of budget deficits may be seen in future.

With such a scenario it is heartening to see that the Government is making a tactical shift by using this year's Budget

The caring side of the Government is evident in the importance that this year's Budget places on redistributing Government surpluses. And this is done in a well-intended and targeted approach towards helping the less well-off and senior citizens through top-ups in the Lifelong Learning Fund, ComCare Fund, Edusave, Medisave and Medifund, rather than across-the-board cash handouts as in the past, which may not have served its well-intended purposes. It is also important to note that such redistribution of surpluses may not be possible in the future if expenditures tend to move higher while income is moderating as Singapore moves towards a highly competitive economic climate.

Not surprising then that the budget also aims to cultivate a more charitable society through private sector giving to supplement the Government's efforts in reaching out to the less fortunate and senior citizens.

Tax concessions have been implemented to promote the spirit of philanthropy, for example, incentives, such as double tax deductions for qualifying donations as well as charities that promote the advancement of sports.

While Singapore is recovering from poor growth over the last three years and having learnt to overcome it, opportunities arise for a structural change in the budgeting philosophy which takes into

So to avoid the temptation of moving on to a dependence on non-traditional sources of revenue, such as revenue from sale of land and dividends, the challenge will then be for the Government to balance its budget within its means. This will mean that the economy must continue to grow to create more opportunities for more people to continue to earn a good income and for there to be lower percentages of less well-offs to be reliant on Government handouts.

Although Government policies are targeted to promote creativity and flexibility among the people so that the country can meet ever changing economic conditions, this may at times be constrained by the stiff and inflexible attitude of the bureaucracy. Examples of such behaviours were well demonstrated by the hon. Member Ang Mong Seng yesterday and, today, by Dr Tan Boon Wan, when he cited examples of rules that are contrary to small business practices.

VWOs can play a big part in helping the Government look after the less well-off as they supplement the various Government public assistance programmes. Less Government agencies will need to be created for this task and hence less cost for the Government. Here, I join the hon. Member Dr Chong Weng Chiew's call for the Government to reduce certain regulatory requirements on the VWOs so that their running cost will not be unduly increased as a result of tight compliance.

competitive tax regimes globally, the top marginal tax rates for individuals have been reduced in two phases to 21% for the Year of Assessment (YA) 2006 and further to 20% for YA 2007. All other income brackets have their marginal tax rates reduced as well. to create opportunities for the services sector and financial sector as well as logistics and tourism to spread the dependence on manufacturing and exports in order to create jobs and revenue. Such a move will also help to mitigate the structural unemployment scene for the short-term by providing the opportunity for job retraining from manufacturing to other sectors.account shorter economic cycles and conservative accounting, such as relying only on a portion of Net Investment Income to balance the budget. But with an ageing population and increasing expenditure, the pressure will be on the Government to utilise additional sources of income other than its yearly operating revenue to finance the ever increasing public assistance programmes.

Then more self-help groups can be

Finally, I believe that this Budget is well crafted, and it is now up to us all SMEs and the public at large to take advantage of the various pro-business initiatives and social support measures to strive for a better tomorrow. The way for us to move then is summed up by the Prime Minister in the Budget Statement, ie, for there to be "Singaporeans' support for a social compact that looks after the vulnerable in society that will make us a caring and inclusive community".

Sir, I support the motion.

encouraged to mushroom, and charitable giving will take place naturally.

Order. I propose to take the break now. I suspend the Sitting and will take the Chair again at 1.30 pm.

Sitting accordingly suspended

at 1.16 pm until 1.30 pm.

Sitting resumed at 1.30 pm

With the consent of Mr Speaker and the general assent of Members present, Question put and agreed to.

Resolved,

That the proceedings on the item under discussion be exempted from the provisions of Standing Order No. 48(8) in respect of the reply to be made by the Prime Minister and Minister for Finance. - [Mr Mah Bow Tan].

Debate resumed.

Mr Speaker, Sir, may I thank all Members for their views and suggestions.

I am grateful that nearly all the Members who spoke supported the Budget. Of course, many have also raised specific issues, which I will leave to the respective Ministers to deal with in the Committee of Supply.

In this speech, I will focus on the main thrust of the Budget, namely, how we can create more opportunities for Singaporeans through economic growth and restructuring while building a sense of community that will bind us together as a nation.

Budget 2005 should not be viewed in isolation. It is part of the Government's ongoing efforts to restructure our economy - to make it more dynamic, diversified and entrepreneurial. In recent years, we have made major tax changes.

For companies, we have reduced the corporate tax rates, exempted from tax most types of foreign-sourced income, and introduced group relief to make our tax regime more competitive and business-friendly.

For individuals, we have lowered personal income taxes and, in this Budget, we will reach the 20% target which was set by the Economic Review Committee two years ago. We have also exempted from tax all foreign-sourced income and domestic investment income.

In economic policy, we have made strategic shifts. We have injected greater competition into the economy to foster efficiency and innovation, for instance, in telecommunications, power generation and financial services. We have re-focused the CPF system to better meet the retirement needs of Singaporeans while enhancing the competitiveness of our businesses. And we have worked with

This Budget builds on these changes and supports our strategies to enhance our competitiveness, diversify our economic base, and restructure our economy into one that is open to talent, enterprise and ideas. Only then can we sustain growth and keep abreast of other countries in the region and meet the aspirations of Singaporeans.

But even as we press on with restructuring and expanding our economic opportunities, we recognise that not all Singaporeans can keep up with the changes which are happening fast, and we must help those who cannot keep up to get back on their feet. Hence, this Budget also focuses on helping Singaporeans who need help. The measures seek to cover all the important groups affected - people concerned about healthcare, older people, lower income groups. But the measures are not meant to meet all their needs. That is not possible, nor even desirable. Not possible because no government has enough money to do that, and not desirable because that would undermine our spirit of self-reliance and personal responsibility. Our aim is to help people in a way that will enable them to help themselves.

This Budget is all about creating Opportunity with Community - growing the economy while ensuring that no one is left behind. And it aims to do this while maintaining fiscal discipline and budget balance.

Restoring fiscal balance

After running deficits in three of the last four years, we are on track to restore fiscal balance this year. We expect a small

Dr Ahmad Magad and Dr John Chen both lamented that this Budget is contractionary. Mr Inderjit Singh felt that the Budget must continue to be expansionary until all sectors of the economy are doing well and, as he says, "firing on all cylinders".

Let me set our fiscal stance in perspective.

Firstly, fiscal policy is a macro-economic tool. Whether to make it expansionary or contractionary has to depend on the state of the economy as a whole, ie, what is appropriate for the whole economy. It is not possible for fiscal policy to try to accommodate every single sector or industry, because there will almost never be a time when all sectors of the economy are "firing on all cylinders". So, if we went by Mr Inderjit Singh's suggestion, we would have to have fiscal policy which is expansionary almost all the time, which is not possible.

This year, we are projecting GDP growth at 3-5%. Last year, it was much higher, at 8.4%. But we cannot therefore conclude that we need more fiscal stimulus this year. It was 8.4% last year mainly because of a very low base, and in 2003 we had SARS. And if we take 2003 and 2004 together, the growth averages out to about 3.4%. So, 3-5% growth projected for this year is not low. It is, in fact, the economy's sustainable medium-term growth rate. Our unemployment has

Secondly, even though this Budget may be less expansionary than last year's, overall, the Government is still injecting demand into the economy, i.e. more demand is being injected than is being withdrawn. Why do I say that? Because our operating revenues are lower than our total expenditure, even before taking into account Special Transfers. So, as far as the domestic economy is concerned, we are putting in more than we are taking out in terms of taxes and fees. How do I balance the Budget? Through contribution from Net Investment Income. But if I look at the economy alone, net injection is still positive, even though it is smaller than last year's.

Thirdly, we have to stay on track to restore fiscal sustainability over the medium term and the long term. I have distributed some charts. [Copies of Charts distributed to hon. Members.] I refer Members to the first page, Charts 1 and 2*. As Prof. Koo Tsai Kee highlighted two days ago, operating revenue from taxes, fees and charges, as a percentage of GDP, has fallen over the past decade from about 22% to about 17%, while total expenditure has risen from about 14% to 17% of GDP today. So, as you can see in the top chart, operating revenue has come down, total expenditure has tended to go up, and operating revenue is now less than total expenditure. We are now able to balance the overall Budget only because of the contribution from Net Investment Income (NII) and, even then, we expect to have only a thin buffer - a surplus of 0.5% to 1% of GDP in the medium-term. And you can see from the bottom chart on the page how we had big surpluses in the 1990s but, since 2000, we have had deficits and, in the years when it has been positive, minimal surpluses.

* Col.

unions and management to make our labour market and wage system more flexible, so that we can respond more nimbly to changing economic conditions. surplus of $210 million in FY 2005, after distributing more than $600 million in special transfers to Singaporeans. The economy has had a very good year, and this year it is expected to grow at its medium-term potential of 3-5%. Yet, some MPs have complained that fiscal policy has been overly conservative, that this Budget does not provide sufficient stimulus for the economy, and that the Government is withdrawing its help too quickly, particularly for businesses. come down and it is below 4%. There is not much slack or excess capacity in the economy. So, as Mr Iswaran points out, "there is no need for new fiscal stimulus".

Our fiscal objective is to achieve an overall Budget balance, or a modest surplus, on average over the business cycle. That means taking the up years and down years, from the boom to the recession, on average to balance our Budget, or maybe have a little bit of surplus. I think it is a prudent approach. You could make an argument to be even more conservative. In fact, Mr Chew Heng Ching argued and went so far as to say that we should try to balance the Budget without relying on Net Investment Income at all, which we used to be able to do. But, now, we find NII quite useful.

Therefore, it is important that we restore fiscal balance in FY 2005. As Mr Ong Kian Min pointed out, "The Government does not possess bottomless pockets that can dish out endless amounts of money and there is a need to balance the budget." In fact, if we cannot balance our budget in a year when the economy is growing steadily at potential, how can we hope to balance the Budget over any business cycle?

Sir, I urge Members to bear in mind this larger fiscal reality even as they call for more Government help to meet all kinds of needs. It is critical that we do not compromise fiscal prudence and discipline. There was an opinion piece in the Business Times last week, written by Assoc. Prof. Tan Khee Giap from NTU. He had a very cogent analysis of the Budget and he warned: "the potential danger of a structural budget deficit is real for future Singapore governments" and, therefore, "unrealistically high expectations on future budgetary spending ought to be moderated as our economy meanders through a volatile era". I would not say we are meandering. I think we are navigating. But it is a volatile era and, fundamentally, Prof. Tan is right. We cannot just look at one year of strong growth and budget surplus, and immediately commit to increase indis

Efficient and effective Government

Maintaining fiscal discipline and balancing the Budget amidst growing spending pressures means that we have to keep the Government lean and trim. Some MPs, like Prof. Ivan Png, have applauded the Government's efforts to outsource or, more accurately, to best source. On the other hand, Mr Teo Yock Ngee and Mdm Halimah have expressed their concerns about the job security of employees in the public sector.

We have to strike a balance. On the one hand, we want the public sector to be as lean as possible, so that it will function efficiently and minimise the burden on taxpayers. On the other hand, we must treat public sector employees fairly, especially as many of them have put in years of dedicated service.

Public sector agencies often do not have a bottom line to measure, and therefore do not on their own face the same pressures as the private sector. If you are running the Ministry of Defence, how do I measure the results? Not from the size of the army or air force, not from the battles won, but from the peace assured. But, if you have peace, you never know whether that is because you had a good SAF or whether you did not need such a strong SAF. It is intangible, but it is critical. So, you have to find other ways, proxies for the bottom line, and the way we are trying to do it is by trimming the budget and by best sourcing to apply the pressure to drive down costs and to spur greater productivity.

Mdm Halimah expressed concern that we are outsourcing too many activities

criminate social spending because, as Prof. Tan also points out, such expenditures "once incurred, are recurring and difficult to retract". and that this will lead to a loss of core skills in the public sector. But

I think she does not have to worry because we are outsourcing only non-core functions and, in fact, we are only going to market-test 20% of the non-core functions. These are not skills that are core to the functioning of Government Ministries. These are ancillary activities which the Ministries have to carry out and which really distract them from their main mission and which we are market-testing in order to see whether the private sector can do them better.

The non-core functions make up only 16% of all Government functions. So we are going to market-test 20% of 16% which means about 3% of all Government functions. Although the idea is new and unsettling, the scale is modest. We are taking a gradual approach and there will be ample time for the public sector workers to make necessary adjustments.

But I can understand why the public sector workers are unsettled by this talk of market-testing and best sourcing. In the private sector, restructuring and job losses have always happened regularly. But in the public sector, they are something new. The public sector has an important role to play and we will always need good and hardworking civil servants to fulfil these roles. In fact, we need more good and hardworking civil servants to fulfil these roles. But, today, it is not always possible for the civil service to employ a person from school-leaving until retirement and, indeed, many civil servants on their part see a job in the public sector as only one stage in their working careers.

From time to time, restructuring or outsourcing becomes necessary. In such cases, the civil service will work closely with the unions to help the workers affected by the changes, whether these changes arise from job restructuring or from best sourcing. Where possible, we

I give you an example of how changes which are necessary can be done skilfully. In February, IRAS released 120 officers as part of its overall restructuring exercise. I happen to know this because I used to be Chairman of IRAS. The 120 positions have become redundant because of computerisation and the increased use of e-filing. It used to be that IRAS actually had to hire temporary workers at tax collection time to open the envelopes, unfold the submissions, and feed them into the scanners. But now that we do it on the Internet, they do not need the staff anymore. So IRAS worked closely with the unions in order to treat the affected staff fairly and reasonably and, in fact, gave them one whole year's notice. And having identified the redundant positions, IRAS invited those who wished to leave with separation benefits, under the Special Resignation Scheme, to indicate their interest. More than 120 staff responded. So, in the end, some officers were disappointed not to have been chosen to be retrenched. Each affected officer was given a training allowance of up to $2,000 for training and that would help increase their deployability. IRAS arranged for counselling for the staff and helped to facilitate their outplacement by having NTUC's Joblink briefed staff on the vacancies available.

I think, overall, our efforts to build a lean civil service are showing results. For example, last year, we introduced a Manpower Management Framework to reduce headcounts by 3% per year over

We have got to keep the Government lean and trim and subject it to the same rigours of the private sector. Other governments are having to do the same. The Americans are restructuring. They have an enormous bureaucracy. The British are restructuring. They are famous for their bureaucracy. You have watched "Yes, Minister". We also have to become efficient because only then will we be able to continue providing Singaporeans with the same level of public services while keeping the tax burden on businesses and the people light.

Fostering Economic Growth

There is a sentiment amongst Members of Parliament that this Budget should have done more to help businesses. But as I said earlier, we should view this year's budget not in isolation, but in the larger context of all that we have done in recent years to restructure the economy, grow our industries and boost our competitiveness. I have made a table (Table 1*) in the handout which lists the major tax changes that Government has introduced for businesses in the last five years, and the changes have saved businesses at least $1.8 billion each year.

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will redeploy the staff. If it is not feasible, then we will release the staff who are affected on fair and reasonable terms. There will also be training opportunities to help staff transit to other careers. Mr Teo Yock Ngee expressed his concerns about this. I share his concerns. I assure him and other Members that we will see to it that our public sector workers are treated with fairness and consideration. We owe it to them.three years, or else to have Ministries pay a headcount surcharge of $10,000 per head per year. The framework has made agencies more mindful about whether they needed to hire replacements when staff retired or left for another job. At this point, it looks like most Ministries have been able to meet the 3% cut in headcounts through natural attrition, resignations and normal retirements. Only a few Ministries will actually be paying the $10,000 per head surcharge and it shows that the system is working because it has allowed the flexibility and in the cases where the Ministries did need the staff, they could do so and, if necessary, we can adjust their budgets to allow them to do so.

We now have a tax structure that is one of the most competitive and pro-business in the world. And our policy approach is to ensure that our taxes are low and our costs reflect market conditions so that we do not distort the economy and incentivise people to do wrong things which are counter-productive. As Prof. Ivan Png said, we aim to keep our tax system as simple and as free of distortions as possible, though there are times when incentives and assistance schemes are not avoidable and are necessary. We have achieved the 20% target rate set by the ERC. But we will continue to monitor trends in tax rates in other countries and will make further adjustments if this becomes necessary and if our fiscal position allows.

I know that several Members have asked for even more Government help for businesses. But the fundamental question which we should ask ourselves is how best Government can help business and foster economic growth. Our basic approach is to pursue market-based policies, keep the corporate tax burden light and create an overall business-friendly environment. Our economy is open, we do not impose tariffs and we provide a level playing field for all companies.

The alternative to this is to protect our local companies, to give local businesses special grants or protect them from competition. It may benefit the companies in the short term, but in the long term, it will sap their vitality and dampen their entrepreneurial spirit. We will end up with uncompetitive local companies and an inhospitable environment for foreign companies to invest in Singapore. MNCs will be discouraged from putting their projects here and we will tarnish our reputation and our international image as a business-friendly centre. The experience of many countries which have tried to

This commitment to free competition and open markets does not mean that the Government therefore cannot help local companies. We provide incentives and assistance schemes to reward promising profitable companies, not subsidies and grants which artificially lower costs for failing ones. If their businesses are no longer viable, it is better for them to exit than for the Government to keep them on life support or intensive care. The more protection the domestic enterprises receive, the less incentive they have to restructure, less competitive they will be, the greater the drag on the economy, and for those in the non-viable businesses, the longer the pain and struggle before they eventually fail.

Mr Gan Kim Yong and others feel that there is room for Government to do more to lower business costs. It is right that we should continually seek to reduce business costs. But we should do this by becoming more efficient, and by making our factor markets - land and labour, capital markets - more competitive and flexible so that they can respond quickly to changes in demand and supply. And we have evidence that we are succeeding.

Firstly, look at labour - wages. Labour cost per unit of output for the manufacturing sector has come down by 9% since 2003, and by 4% for the economy as a whole since 2003. This is the result of strong productivity growth, as well as the CPF cuts. Our wages are also now more flexible. MOM conducted a survey in June 2004 which showed that 80% of the workforce in large enterprises and 42% in small and medium enterprises already had some form of flexible wages.

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protect local businesses in this way and failed should warn us about the dangers of going down this path. Having an open and competitive economy is the foundation of our success. It is a fundamental tenet which we must keep. Secondly, land. Members have spoke quite a lot about rentals, and I refer Members to Chart 3* in the handout, which shows clearly that industrial and commercial rentals have continued to come down, and are adjusting to market conditions. They were at a high in 1996, and they came down. The shop and office rentals went back up around 2000/2001 and since then, they have been coming down again, only now just beginning to stabilise.

Government itself, as the landlord, has given $2.4 billion in rental rebates to JTC and HDB tenants since the Asian crisis. We are going to phase this out finally in July. I know some Members have asked for the rental rebates to carry on and said that it is not time yet. But if the rebates have to continue year after year, even when the economy is growing at full potential or even stronger than that, then something must be wrong. Either our market rates are not really market rates and we are pegging our rental rates too high, and then we have to give discounts, the way hotels do just to make their customers feel good. Or maybe some of the tenants have businesses which are not really viable and they are being assisted to hang on by the rates which are artificially being held down, even though there are other businesses wanting their space, willing to pay more, to do the business. So JTC and HDB have revised their rentals to reflect current market conditions. At the same time, HDB is working out a scheme to help to restructure and rationalise the retail shops in HDB estates. I think it is better for us to tackle the problem now, than to let it drag on from year to year.

Thirdly, in terms of utilities, electricity prices go up and down with oil prices, but if you adjust for oil prices, electricity prices have come down by 11% since 2001, over the last three-plus years. And they have fallen by 1% just in the last one

One business cost which this Budget has increased is the foreign worker levy. Dr Wang Kai Yuen and also Dr Ahmad Magad said that it is too soon to increase the foreign worker levy. We lowered the levy for skilled workers in 1998 and 1999 to help businesses to save costs and cope with the economic downturn. Today, most sectors of the economy have recovered, and it is timely to restore the levy to more realistic levels. I do not say to the old levels, I say to more realistic levels, because I think we have to find a new benchmark. But at $50 per worker per month, I think that is below a realistic level. We should bear in mind the underlying purpose of the levy, ie, to control the number of foreign workers here, and to prevent excessive number of foreign workers from depressing the wages of Singaporeans.

year alone. This is the result of the liberalisation and the competition which we have introduced into the industry. So I think, overall, our costs are competitive and under control.

I believe that overall businesses will be able to cope with the changes. The increase in levy will only raise the operating cost marginally, and we are also raising the levy in two steps, to give businesses more time to adjust.

Dr Teo Ho Pin pointed out that companies in the construction and marine sectors will be more adversely affected. This is true. But the construction sector's problems are really structural. Demand has fallen, and there is over-capacity in the industry. It cannot be solved by keeping the foreign worker levy low. Also, the industry is over-reliant on poorly skilled foreign workers, and productivity is low, and has remained low for many years. Increasing the levy will provide construction companies with the right incentive to reduce their reliance on labour, increase productivity, and restructure. It is not the only thing we

As Mr Chay Wai Chuen pointed out, Australia has a highly productive and efficient construction industry. It turns out high quality work, at affordable prices, using well-paid Australian construction workers. We should learn from them.

Mr Chiam See Tong expressed concern about the other change we are making to the levy scheme, which is the new $500 levy for companies which want to exceed the dependency ratio and he is afraid it will drive businesses away. I think Mr Chiam may not have quite understood how the new levy will work, because the employers who are below the ceiling today, will not be affected by this new levy at all. They can carry on as they are, paying the $50 or eventually the $100. The $500 only kicks in if they want to hire more workers than they are presently allowed to do. Today, they cannot do it at all. In future, if they want to do it, you pay a high levy - $500 per worker. So it represents a liberalisation for the companies, not an additional burden.

Mdm Halimah has a different concern on this point. She thinks that this $500 is still too low. She wants it to be even higher because she is afraid that employers will hire foreign workers at will and displace Singaporeans. I do not think this will happen. Firstly, we are going to impose a limit to this new flexibility. There will still be a dependency ceiling, but higher than the present one. So at $500, you can get more workers, but up to a limit, and you still have to hire a certain proportion of Singapore workers.

Helping local enterprises

Mr Speaker, Sir, no Budget is complete without measures to help small and medium enterprises. And, no Budget Debate is complete without calls from MPs for more help. I am glad that SMEs have so many champions in this House. They are an important part of our economy and we want to see more of them thrive, innovate, and grow. Many of the more specific suggestions raised by Members on developing local enterprises will be addressed at MTI's Committee of Supply. Here, let me respond to some of the more general points that MPs have raised.

First, I am glad that Members welcome the introduction of loss carry-back. Dr John Chen has asked if the cap on the losses that could be carried back should not be set higher than $100,000. I believe this is not necessary because our intention is to target the benefit at the SMEs and not at the bigger companies. IRAS' data shows that among all the companies that made losses in the Year of

Mr Inderjit Singh spoke at length about what needs to be done to help our local enterprises to grow. As he rightly points out, we should not focus only on small and medium local enterprises, but all local enterprises, including the ones which have done well. In fact, the ones which are no longer so small or medium should also be counted to our credit because they have succeeded and they will show the way for others to follow. They are, Hyflux, Osim, Creative, and for that matter, many Temasek-linked companies - all expanded into the region and beyond, and contributing significantly to Singapore's economic growth and employment creation.

We already have many schemes in place to help local enterprises. I have made a list of some of them and you can see them in Table 2* of the handout - various schemes in place targeted at local companies. This is just the schemes that apply to all local enterprises. It does not include industry-specific schemes administered by agencies like IDA, MDA or STB. Local enterprises can get help to access financing, upgrade their capabilities, and expand beyond Singapore. Dr John Chen remarked that micro-loans would be a very good idea. I agree. In fact, I think there is a scheme. If you look at the list we have a micro-loan for small businesses which is administered by SPRING. It is on the first page of the handout. It has already provided some 6,000 micro-loans amounting to close to $200 million since 2001. IE Singapore brings together

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have to do. We have to work with the industry in order to upgrade their skills and technology levels, working procedures, buildability, and so on. But there must be some pressure on employing foreign workers and the levy is part of this pressure. Secondly, I do not think $500 is low at all. It is quite steep. Companies would think very hard before paying this amount for an additional foreign worker. I may be wrong. She may be right. We will have to see, monitor the situation carefully and, if indeed, there is an unexpected influx of foreign workers, then we will tighten up by raising the levy. On the other hand, if $500 proves to be too high, and too few companies that need this flexibility can afford it, we may need to lower the $500 carefully and gradually, so that we would achieve our objective. Our aim in introducing this higher tier for companies that need additional foreign workers is not to loosen up the overall limits on foreign workers, but to make the market for foreign workers more flexible and responsive. The idea is to help companies to thrive and so create more jobs all round, including for Singaporeans.Assessment 2002, which I think is the latest for which they have analysed, more than 70% made losses of less than $100,000. Sir, loss carry-back is to help viable companies that are experiencing temporary downturns, and not companies that are basically non-viable. Other countries which have loss carry-back like UK, Germany and Ireland, also limit their loss carry-back feature to a one-year period. businesses from the entire supply chain to seek out business opportunities overseas, either in a consortium or a cluster approach, so that these businesses can complement each other, and band together to take advantage of the opportunities in the region.

One example of such a consortium that has ventured overseas is the Singapore Airport Consortium, which comprises 12 Singapore companies from our airport industry, including smaller home-grown companies like Inter-roller Engineering Limited and WEC Engineers & Constructors Pte Ltd. The Singapore Airport Consortium serves as a business development vehicle for these 12 companies to market and secure projects in China. The combined strength of the members of the consortium increases the chances of each consortium member securing projects. The SAC also enables these Singapore companies to work together to bid for entire projects, whereas previously each of them could only sub-contract the projects.

Mr Inderjit Singh also spoke about how, unlike Taiwan, we have not developed our local companies, and how the Singapore Government allocates more resources to multinationals via EDB. I think Mr Inderjit Singh is right that Taiwan has a more vibrant local enterprise scene than Singapore. But I do not think it is just because of the Taiwanese government's support. The structure of their economy is different, the depth of their talent is much greater and, of course, they go overseas into China particularly, and they work together when they go overseas and form consortiums so that they give mutual support to one another. We in Singapore have a different set of circumstances and we rely on multinationals to grow our economy for many years. Now we want to complement the multinationals with local enterprises and with entrepreneurship, but we still want to attract more

The Singapore Government, as much as any one, wants our SMEs to succeed. Our schemes and incentives are equally accessible to both local and foreign companies, whether it is a pioneer incentive or investment allowance. The schemes are open and they are available also to local companies and have been given to local companies. We do not discriminate against local enterprises. Indeed, in some areas such as access to loans and equity-financing, we have more schemes for local enterprises than for MNCs because de facto MNCs do not need these schemes. EDB has schemes like the Startup Enterprise Development Scheme (SEEDS), which is specifically targeted at local firms.

We will do our best to help local companies, to help them restructure and upgrade, improve their productivity, enhance their access to financing, bring them together, and to help them to reach and project into the region, beyond Singapore. But we must always bear in mind that it is ultimately the companies' own vision, drive, resourcefulness, sweat and toil that will make them successful.

A good example of such a company is the Sheng Siong Supermarket chain. Those of you who are in Sengkang, Hougang, Ang Mo Kio or Woodlands, would know about it. The owner, Mr Lim, first started off as a pig-farmer, then moved on to become a butcher. He started the first Sheng Siong Supermarket outlet in Ang Mo Kio in 1985. He opened the second store in 1988, and he has now got, I am told, 16 of them all over the island. I believe he is even planning to bring his business into Malaysia soon.

His success did not come easy, especially in the face of competition from

Many MPs, Mr Inderjit Singh, Dr Amy Khor, Dr Loo Choon Yong, Mdm Cynthia Phua and others have suggested that we set up a single, dedicated agency to promote local enterprises. MTI, in fact, studied this issue thoroughly in 2002, when it considered merging SPRING and IE Singapore but finally it decided against doing so because it felt this would dilute the different missions of the two statutory boards.

Also, it is not realistic to expect that a local enterprise development board will be like EDB. EDB targets just a few hundred multinationals and, therefore, can focus on their needs. But there are more than 110,000 SMEs in Singapore - a very diverse group of companies, at different stages of their life cycles, and having different needs. A single agency could well turn out to be heavily bureaucratic and unwieldy, losing focus and impact along the way. We have studied other countries. Some of them have gone for a single-stop approach for SMEs and these are some of the drawbacks which we have observed. So we have two agencies - SPRING and IE Singapore - to focus on the different needs of Singapore companies. SPRING's mission is to help the numerous local enterprises get going, improve their capabilities, restructure and grow, domestically in Singapore. IE Singapore's mission is to promote Singapore companies that are successful to venture overseas. There is also the Pro-

So rather than trying to solve all the SMEs' problems through one omnibus single agency, we should ask ourselves how the Government can better exploit existing expertise and capabilities in its specialised agencies, to give help to local enterprises in a seamless and coordinated way, to get them to work together and support the SMEs with their respective specific skill sets. We welcome suggestions on how we could do better in this respect. Members may or may not know that Mr Inderjit Singh is on SPRING's Board. He has a keen interest in championing SMEs and I am sure he would be more than willing to listen to any suggestion that Members may have, and ensure that they reach the relevant authorities, or you could raise it with MTI or with me.

Dr Amy Khor suggested that we should improve small companies' chances for winning Government contracts by either breaking up contracts into smaller ones, or by recognising the combined financial strength of SMEs banding together. We have already done the second since November last year. Companies can now join together and form a consortium to bid for Government orders. On the whole, smaller enterprises have fared well with Government contracts. Already, they win a significant number of contracts from the public sector. Of the 594 Government tender contracts with value up to $100,000 that were awarded between 1st April 2004 and 31st December 2004, 90% went to companies with net assets below $500,000. So, many Government contracts are already going to small companies, and I think as they get stronger, more will do so.

Besides ensuring a conducive overall environment for businesses, we will continue to promote in a more focused way certain key and promising sectors of our economy. Tourism is one such sector, and the proposed Integrated Resort, including possibly a casino, is part of our overall set of initiatives to promote tourism.

multinationals to come here because we still need them, and there is no country which can afford to do without them. retail giants like Carrefour, NTUC Fairprice and Cold Storage. But he is enterprising enough to find a niche for himself and to stay ahead of his competitors. For instance, to bring his costs down, he brings in 30% of his goods from across the Causeway, and some of these goods are directly delivered to the shelves of his retail stores, to save on warehousing and handling costs. I am told that he makes it a point to keep a healthy cashflow, so he can pay his suppliers promptly and get better prices for his goods.Enterprise Panel, chaired by the Head of Civil Service, which reviews and removes rules which are unfriendly to businesses, especially the SMEs.Putting the debate on the casino in perspective

The issue of whether we should build such an Integrated Resort has generated vigorous and sometimes emotional debate, certainly passionate debate, among Singaporeans. It is good that so many people are so actively engaged in this debate. It shows that Singaporeans care for the issues that affect our economy and our society, and that they care deeply enough to want to speak up and be heard. This is what an active citizenry is about.

But an active citizenry does not mean the Government abdicating its responsibility. The Government has been elected and entrusted by the citizens to decide on issues and safeguard the long-term interests of Singapore. It will pay careful heed to the various views expressed, especially views expressed in this House, and it will take them into consideration before arriving at a decision.

But the Government cannot govern by referendum. The casino is not an issue of national survival or sovereignty that deserves to be settled by a referendum, as Dr Loo Choon Yong suggested. Nor is it an issue of conscience or fundamental principle like abortion or organ transplantation, because we already have many forms of legal gambling in Singapore. So there is no need for a free vote in Parliament, which Mr Tan Soo Khoon has suggested. It is a policy matter - whether to allow an additional outlet for gambling, and to weigh the pros and cons to decide whether the economic benefit to

Let me put the issue in perspective. The casino will neither be the panacea to the challenges which are facing us - boosting growth, creating jobs, or raising revenues - nor will we allow it to undermine the foundations on which Singapore has been built and which we have come to stand for - hardwork, strong families, safe, secure and a wholesome environment. Nobody can predict exactly how things will turn out. But this should not paralyse us from making a decision one way or the other. We must be willing to push on, and let the results speak for themselves. This is the approach we take to all our major decisions, not just on the casino - be guided by facts; assess costs and benefits, both social and economic, tangible and intangible; take a holistic approach; adopt a long-term perspective; not to be swayed by emotion or populism; then exercise judgment; and in good time, with due deliberation, make a decision and implement it well.

Tax Issues

Personal income tax rates

Let me now turn to individuals and households, and address some of the specific tax proposals that Members have raised.

Dr John Chen has asked if our personal income tax rates should not be reduced in one step rather than two steps. Our personal income tax structure

These cuts therefore send a very strong signal for talent attraction. The fact that we are phasing them in over two years will not detract from this signal. But from an immediate fiscal perspective, phasing in the cuts gives us more resources to help groups that are finding it difficult to keep up with restructuring. If we had cut the personal income tax rates in one step instead of two, our revenue loss next year would be twice as much and our ability to give early assistance to groups that need it would be constrained.

Dr Warren Lee lamented that middle-income earners did not benefit as much from the personal tax reductions as high-income earners. The reason this is so, and the middle-income enjoy less tax savings, is simply because they pay less tax to begin with, as a percentage of their income. An individual earning $80,000 a year pays an effective tax rate of 5.4%, compared to an individual earning $300,000 a year who faces an effective tax rate of 13.1%.

Dr Warren Lee has also said that some taxpayers will have to pay higher taxes because of the falling CPF contribution rates for the elderly and the reduction in CPF contribution ceilings. This is true, but this is only because their disposable incomes have gone up. If they wish, they can put this additional income into their SRS accounts and enjoy a tax deferral. And with careful planning of withdrawals after retirement, the individual could end up paying little or no tax on his SRS withdrawals.

On SRS, Dr Ong Seh Hong, Prof. Low Seow Chay and Dr Ahmad Magad have suggested raising the SRS caps, and not tying them to the CPF salary ceiling. We have simplified the rules on the SRS contribution caps. Instead of capping the amount which an individual can contribute at his income level, we will now apply a common absolute cap of 17 months of the prevailing CPF salary ceiling. The CPF salary ceiling has come down, but the change we are making to the SRS contribution caps go in the opposite direction, and will allow Singaporeans who earn below the CPF salary ceiling and the self-employed to contribute more to the SRS, without incurring more tax.

Estate duty

Mr Chiam See Tong and Dr Loo Choon Yong both suggested abolishing estate duty. Our exemption levels on estate duty are high - $9 million for residential properties and $600,000 for other assets. And the rates are low rates - the first $12 million is taxed at 5% and subsequent assets are taxed at 10%. So estate duty affects primarily the wealthy families.

With personal income taxes coming down significantly in recent years, it is not unreasonable for the state to impose a modest estate duty - levied only on the wealthy. It ensures that our tax system is progressive and it gives a helpful signal of social equity because, in principle, we would like each person to start off life from the same starting point. In practice, it is not completely possible because they have their parents. They have wealth. They can give their children gifts while they are alive. They can leave a bequest to their children as an inheritance. But we would like to equalise at each generation as we go along, and the estate duty is a signal of this intention.

Prof. Ivan Png has suggested that we rebalance estate duty, because the exemption on the house is so much bigger than the exemption on other assets. He has a point. I agree that having different exemption limits for residential properties and all other assets could potentially distort people's investment choices towards residential property over other assets. But home ownership indeed was the purpose of this policy. We do not think there is a strong need now to increase the allowance for non-residential property assets and moveable assets. The $9 million limit for residential properties is high, but it was set in 1996, at a time when property prices were rising sharply. And I think quite a number of families were afraid that if the home owner died and the estate had to pay duty on the home they were living in, this would impose hardship on the survivors. But since then, conditions have changed. So we will review it from time to time, just as we review other aspects of the estate duty rules and all our tax legislation.

Helping Singaporeans in need

Besides tax changes, this Budget also includes measures to help Singaporeans cope with changes in the economy, to encourage savings for retirement, to support families, and to promote community involvement and philanthropy. Members have generally welcomed the measures, but some have qualified their happiness with suggestions on where we can do more. I am heartened that Members have taken the time to study and think about how the Government's assistance could be more effectively

Mrs Yu-Foo Yee Shoon is heading the ComCare steering committee to examine how best to reach out to Singaporeans in need. While the ComCare Fund is managed by Government, the assistance measures that it supports should indeed be administered in a devolved and decentralised manner, as Dr Amy Khor and Mr Sin Boon Ann have suggested. So I am sure Mrs Yu-Foo Yee Shoon will welcome useful ideas and suggestions from Members. But, here, let me paint the broader considerations and principles that guide our policies on helping Singaporeans in need.

Helping the low-income and unemployed

Several Members, including Mr Ahmad Khalis, Prof. Ivan Png, Mr Zainudin Nordin and Mr Sin Boon Ann, have expressed concern about the difficulties of the low-income and the unemployed. Dr John Chen particularly has highlighted that the bottom 20% of households have not fared well.

Most Singapore households have seen their lives improve steadily. If we take it over a decade, household incomes have gone up across the board for all groups. But the years since the Asian crisis in 1997 have been tougher, especially for the lowest 20% of households. This lowest 20% includes households where the breadwinner has lost his job or suffered sharp reductions in wages. Although many of them have assets in the form of their HDB flats, they live day-to-day and often find it difficult to make ends meet.

Mr Zainudin Nordin was worried that an underclass is forming in Singapore now. Because he talked about MPs seeing

This problem of a segment of the population being left behind is not unique to Singapore - other developed countries are also grappling with this. Globalisation has put many low value-added jobs at risk and driven down the wages of lower-skilled workers everywhere. The best way to help such lower-income households is to create job opportunities for the unemployed and educational opportunities for their children. Only then can they climb out of poverty, either in this generation or, if not, especially in the next generation.

For job opportunities, we have put a major effort to match people to jobs. The WDA has worked very hard to reach out to job seekers through the CDCs, job fairs and many means. They have used NTUC, grassroots organisations, and advisers have also helped. We have had some success, but the effort and the cost per job matched have been enormous. Because for every match we have, we have many people whom we try and try again, and somehow we are not able to get the right person linked up with the right job. Sir, we have got to keep on trying, and to find ways to do this better. Mr Ahmad Khalis and Mr Matthias Yao told us how small gestures, like having CDC officers accompany job applicants to the workplace, can go a long way. I hope to see more such efforts, and I think we can do better.

I agree with Dr Warren Lee and Mr Ong Ah Heng that sometimes, lower-skilled workers turn down jobs because they feel that after deducting for CPF and transport costs, they have almost nothing left. Therefore, we should strengthen

Singapore of doing so outweighs the social costs. Hence, I said in the Budget speech that this is an issue that the Cabinet will decide, after hearing all the views that have been expressed and studying the concept proposals submitted by the interested bidders. We have received a total of 19 proposals, and we will make a decision in 4-6 weeks after studying the proposals carefully. is already very competitive. For chargeable incomes up to $390,000, Singaporeans are already paying less tax here than they would in Hong Kong. With the latest cut in the top PIT rate to 20%, this crossover point increases to $540,000. In other words, 99% of our taxpayers pay less tax in Singapore than they would if they earned the same income in Hong Kong.SRS Mr Chiam expressed the concern that our estate duty is holding back the development of Singapore as a wealth management hub. I think this should not be a problem because estate duty is levied on foreigners only for immovable assets. All movable assets of foreigners are exempt from estate duty.delivered - and I am sure they will raise these issues during the Committee of Supply, particularly in the MCYS Head.families which are chronically unable to look after themselves and their children. And in the last debate in January, Dr Tan Cheng Bock mentioned this too. It is true but so far, the numbers are small, but we have to watch this carefully because, potentially, it can be a serious problem.incentives for people to get back to work

and upgrade their skills so that they can take on better jobs. We will support them but they must make the effort themselves. And this is what our REAP programme seeks to achieve because it redesigns and enhances the pay and conditions of existing jobs, to make them more attractive for Singaporeans to take up. And it provides workers with financial incentives to adjust to their new jobs and to stay with them.

REAP is therefore not welfare in the traditional sense of the word, but a "welfare-to-work" measure to get people back into work, and to support them in the transition to new employment.

Mr Chiam See Tong suggests a different approach. He wants unions to fight for a minimum wage for lower-skilled workers. I think this is a recipe for failure, and it will hurt our workers, although it is well-intentioned. Minimum wages do nothing to help the unemployed find jobs, or help at-risk workers keep their jobs. In fact, they encourage employers to cut back on employment at the lower end. And the experience of countries with minimum wages is that it often raises unemployment. In European countries which legislate minimum wages, unemployment is typically close to 10%, or in the case of Germany now, more than 10%. Mr Seng Han Thong is right when he said that the best way to help lower income workers or the unemployed is not to introduce a minimum wage but to redesign jobs so that they can justify higher wages.

Secondly, education opportunities. To prevent an underclass perpetuating into the next generation, we have to help the children of these families to do well. In schools, teachers and principals know which students are at risk, and try very hard to help them to succeed. But they cannot solve the problem alone. Ultimately, parents must want their

The self-help groups have a role to play, to reach out to families at risk, to counsel them, to encourage them to support their children and give them a fair start in life. It is a sensitive matter, but it is a reality that many of these families are unable to manage their own affairs and somebody has to help them, guide them and encourage them. The self-help groups will not find it easy to do. But they are the best placed of any organisation to do this.

The alternative to this approach of emphasising jobs and education is Mr Low Thia Khiang's approach of state welfare. Mr Low spoke about how "welfare" should not be a "dirty word" and the Government should not be afraid to give more direct welfare. We should be quite clear what Mr Low means. He is not thinking of providing assistance in a limited and targeted way that the Government is doing, seeking to maintain our work ethic and the spirit of self-reliance. He is thinking of generous welfare provision as an entitlement to a wide range of Singaporeans - the way it is provided in much of Europe, and in the US before they reformed their welfare systems. For example, he specifically mentioned universal healthcare benefits for all without means testing. This is becoming his consistent line. In the debate on the President's Address last month, he cited Finland as an example. Then I challenged him, he backtracked, he said he is only proposing to study Finland, not to follow it. Now, he is trying again.

As I told Mr Low in Parliament in January, he owes it to Singaporeans to be upfront about how he proposes to pay for his seductive schemes. In every country with comprehensive state welfare, personal income tax rates are typically

Mr Low spoke of higher income earners paying more taxes. The top 10% of our taxpayers already contribute 75% of our personal income taxes. We are lowering the top rate from 22% to 20% over two years, and MPs have clamoured for me to do it faster. Does Mr Low intend to raise their taxes instead, and risk having some of the best and most talented go elsewhere? Or does he propose to tax the middle-income earners more heavily? Or does he propose to extend the tax net even widely to the two-thirds of our working population that currently pay no tax? Or maybe he is thinking of raising the GST rate. I think we deserve to know.

But the bigger danger of what Mr Low proposes is eroding Singaporeans' desire to be self-reliant and instead breeding an "entitlement mentality". I know that MPs are quite conscious this is a real danger. Ms Irene Ng already expressed her concern that we may already have created a sense of entitlement with our U-Save scheme. Mr Ong Kian Min told of how one of his residents insisted on getting his entitlement from one particular scheme that he had missed out on, even though Mr Ong offered him the equivalent benefits from other schemes - he says 'no', give me the rest, but give me this too. And I am sure Members have come across many similar examples.

When we talk about doing more to help Singaporeans affected by the economic changes, we are talking about the people who are at the bottom end, the bottom 20%, the people who are potentially in the underclass. We have many schemes implemented by MCYS

We have a tried and tested compact, a social compact, that we have forged over the years - to keep our tax burden light so as to encourage enterprise, to subsidise only the essentials so as to encourage personal responsibility, give Singaporeans the choice over how to spend their incomes, and give extra help to those who need special help, who are a minority. We also help individuals save for their retirement, facilitate home ownership, and encourage insurance coverage for their healthcare needs. Ms Indranee Rajah spoke of how the Budget and the various assistance measures are like a bicycle built for two - the Government will do its part, but Singaporeans must pedal hard as well. I think that is the right approach. If we all hope to sit behind, and leave the rider in front to do all the pedalling, the bicycle will soon stop and we will all fall off. But for those who truly cannot fend for themselves, we have schemes which directly extend additional help.

Helping older Singaporeans

One group we have to focus on are the older Singaporeans. Miss Penny Low, Mr Sin Boon Ann, Ms Irene Ng, Dr Lily Neo, Dr Ahmad Magad and Mr Iswaran all spoke about the need to do more for them, particularly in the areas of employment, housing, retirement finances, and healthcare.

The key to meeting the needs of older Singaporeans lies in ensuring that they stay employed longer, build up adequate

First, stay employed for longer. We have formed a tripartite committee to recommend measures to help older workers work longer. Raising the statutory retirement age may be part of the solution, but it cannot by itself enhance the employability of older workers. Only 57% of the population aged 55-59 years are in the labour force today, even though the statutory retirement age is 62 years. We need more holistic solutions for older workers to stay in the labour force for longer periods. And the tripartite committee will study this.

Sir, Members have called for incentives and tax reliefs for companies which hire older workers. The tripartite committee will study these as well, but this should not be our primary approach. What is key is that employment of older workers must make economic sense, and must contribute to their employers' growth and profitability. They must be cost-competitive, because that is what will create and sustain jobs for older workers. Otherwise, once you take away the incentives, the grant, the subsidy, the employers will let the workers go again. Fiscal subsidies therefore go against this as they have to be increased over time to retain their effectiveness.

The strong economic growth last year has improved the employment situation for older workers. The unemployment rate for those aged 50 years and above has fallen to 3.3% in September last year, compared to 5.4% in September the year before. So, in fact, if you look at the unemployment rate for people 50 and

Secondly, building up sufficient retirement savings. We have been helping to do this, to help Singaporeans build up their retirement savings by topping up older Singaporeans' Special and Retirement CPF accounts whenever we can afford to do so. But this can never be enough. The best way to ensure adequate savings in retirement is to stay employed longer. Because if you work for 30 years and you expect to retire for 25 years, then you must put aside at least half of what you save to provide for the time when you are not working, and that is not possible. So the longer you can work, the more you would be able to provide for your retirement and, in fact, the healthier and the better off you will generally be. Also, hard-earned savings must be husbanded for the retirement years rather than be diverted to other uses, however worthwhile. We have already taken steps to limit over-consumption of housing through the CPF. These measures will take several years to work through, but gradually this will restore the balance between housing and other investments for old age.

Dr Ong Seh Hong rightly pointed out that Singaporeans' CPF savings can earn better returns if they are invested wisely. But we must remember that in financial markets, higher returns invariably mean higher risks. So we want Singaporeans to have higher returns. But can Singaporeans

For the upper and middle income groups who have savings over and above the CPF, what Miss Low described to have a CPF, to have the SRS, to have some other schemes, I think she called it Section 5, these are possible ways a prudent professional can plan for retirement. But for the lower end of the population, many of whom have the CPF as their main savings and very little discretionary saving over that. We have to work within the CPF limit. Because it is not possible to put aside another 5% or 10% of your income, put it in this account, and we have some investment schemes or some tax arrangements and, therefore, you will have more for old age. Because they have to balance between what they need now and what they need in old age. And they have to work within this 33% because that is what the employers are able to afford if you are hiring workers. Otherwise, it will be non-competitive compared to foreign workers or workers elsewhere. Within this limit, we have got to find the best scheme and deploy the money in the best way, so by the time he retires, it will last him for as long as possible. Even then, not completely, because we have to depend on his HDB flat being worth something, we have to depend on his family chipping

The third point on provision for the elderly is that families have a responsibility to care for their elderly dependants. This is particularly a challenge for those families who have old people to look after and also young children to look after, as Ms Irene Ng, Mdm Ho Geok Choo and Prof. Ong Soh Khim all have drawn attention to. The Government appreciates the difficulties faced by this "sandwich" generation of Singaporeans, and we will continue to provide support to them.

It is not true that Government provides more support for childcare than for eldercare. The public, and Prof. Ong, may not be aware, but the Government subsidises 90% of the development costs of VWOs providing eldercare services. It also grants other subsidies to VWOs and needy Singaporeans to further defray the cost of eldercare. The Government also provides tax relief and foreign maid levy concessions for looking after elderly parents to families and also to singles.

Low-income elderly Singaporeans

children to stay in school, to provide a conducive environment at home for the children, and the children must make the effort themselves.well above 30% and their VAT rates, equivalent to our GST, are 15-20%, or higher. So which tax does Mr Low propose to raise, by how much, and on whom?and the CDCs and the grassroots organisations to help them find jobs, pay their utility bills, meet their hospital charges, help them to cope and get on their feet again. We are doing more, eg, through the ComCare Fund. In addition, whenever the budget can afford it, we will implement top-ups and rebates to help this group. This is what I have done in this Budget.retirement savings, and their families and the community play an active part in supporting them. As Miss Penny Low put it very succinctly, "Every individual is responsible for his/her own financial well being" and social safety nets should be the last resort only if their families cannot help them. above, it is actually slightly lower than the overall unemployment rate for all age groups. So instead of introducing broad fiscal incentives for hiring older workers, our primary approach has still to be to help older workers be more competitive in the job market, be it through upgrading their skills, re-designing jobs or reviewing the wage structures, while at the same time addressing the mindsets of both employers and older workers. If we need fiscal incentives at all, they must be targeted at helping the lower-skilled and lower-educated older workers. bear these higher risks? How do we design a scheme that allows Singaporeans to benefit from the potential upside without too much risk from the downside? We had studied Private Pension Plans and, eventually, we came to the conclusion that they would not be viable. Now, we are studying other possibilities to increase returns for CPF savings without raising the risk unduly for individual members. I know Members have an interest in this. I heard Miss Penny Low just now speaking and she knows a lot about this subject. I think it is something which we will have to study in detail.in to help him to look after himself or herself.

can also turn to Medifund for additional support. In FY 2003, close to 220,000 applications were considered, and virtually all the applications were approved from Medifund, and the funds disbursed amounted to $34 million. So, we do many things to help the elderly, but this is a big subject. We will have to continue to revisit it regularly because, as our population ages, we will have to make many adjustments to our society and our economy in order to make the whole fit together and work.

Balancing between being inclusive and being targeted

Finally, Members, including Ms Irene Ng, Prof. Ivan Png and Mr Ong Kian Min, felt that our top-ups and assistance

When our aim is to help those in need, then we should target the assistance better, so that it reaches those who need it the most. It is not easy to do precisely, because every household has different circumstances, and we cannot examine the finances or the spending habits of each household to decide who is in need and who deserves help. It is not only intrusive, but it is just not practicable. So, we have used proxies, like HDB flat size or sometimes with your CPF balances, although this is not ideal. But we will bear in mind the MPs' comments, and we will try to develop better ways of targeting and identifying who needs the help. Then we can do it more effectively and equitably in future.

However, we need to balance between being inclusive and being targeted. When our economy has done well, and we have achieved good surpluses, it is only fair that some of it is distributed to all Singaporeans, including the higher-income groups who pay the bulk of income taxes. Some groups have complained that they do not receive much from this Budget, and that the Government has not put any real cash into their hands. They may have forgotten that Singaporeans have just received the third tranche of Economic Restructuring

Conclusion

Mr Speaker, Sir, this Budget is based on a vision of what Singapore can be, and how the Government and people, working together in tandem, can bring about this vision. The Government will continue to provide the fundamentals for this vision: security and stability - strong defence, good governance, sound regulations, prudent fiscal position, low inflation, safe streets.

Beyond these fundamentals, Singapore must also represent opportunity. The Government will create opportunity by making available quality education, affordable healthcare and good housing. It will also provide a conducive climate for individuals to be the best they can be and for businesses to grow and succeed.

But Opportunity is ultimately a matter for individual confidence, competence and commitment. It is the effort, the determination and the spirit of the people - individually and collectively - that opens up Opportunity and brings success.

And for Singapore to be truly home, we must also build Community. This means standing together in times of crises, supporting those who have difficulty keeping up with the pace of change, caring for those in need, sharing the fruits of success, leaving no one behind.

The vision is Opportunity with Community, resting on a foundation of Security and Stability. So, let us together

measures are currently spread too widely and thinly and, in their words, it is said "not targeted enough". I agree that, for targeted incentives, we should target the assistance better, in order to direct our limited resources to meet specific needs, and to get them to reach those who need them most. And that is why we need to think of extending means-testing in healthcare, and setting the right cost recovery rates in higher education. But working out the best way to implement these principles is not easy, and we will proceed carefully. We have said this many times, but I will say this again. No citizen will be deprived of basic healthcare or tertiary education for lack of means.Shares just a month ago. In fact, one of the reasons why Chinatown was booming this year is because of the ERS. And 1.3 million Singaporeans have already withdrawn more than half a billion dollars of their ERS in cash. But, alas, the Minister for Finance is not the cai shen ye or God of Fortune, with ang pows for everyone every year.secure that vision. Let us have strong bodies to persevere and to weather the changes that come our way. Let us have willing hands to help one another and to seize the opportunities that are out there. Let us have tough minds to face the challenges ahead with courage and conviction and to make the right decisions. And let us have warm hearts to care for one another and to beat for Singapore as our nation and our home. [Applause.]

May I have your permission to clarify, Sir?

Yes.

Sir, I wish to clarify. In my speech, I did mention that I am fully aware of the pitfalls of a welfare state. But looking at the situation of our economic volatility over the years, I do not think that there is a way out for people who really cannot get jobs. And I think it is fundamental for the Government to provide basic support for people who cannot get jobs.

Secondly, I think it is the fundamental duty of the Government to provide things like basic healthcare. Whether you want to call it welfare state or whatever you call it, I note that some of the Government schemes of help provided to the low-income families are, in fact, welfare. But you do not call it "welfare", you call it "assistance".

Sir, there are cases where people who wanted to look for a job could not get one. They tried the CDC, WDA, etc, went for interview, but eventually still could not get a job. I have a constituent who was a truck driver with ENV. But because they outsourced and were privatised, he lost his job. He tried getting a job but could not. Now, he cannot pay his bills. He is facing financial difficulty. Which scheme

Sir, the Minister for Finance also asked me where the money is going to come from and what taxes to raise. I wish to clarify that, from the Budget, I noted that, based on operating revenue, we do not take into account investment income and also some capital receipts as part of the revenue of the total Budget. I also noted that, in the past few years, investment income revenue has been quite stable, at about $6 billion. I am not sure whether that is all or part of the investment income of the reserve or inclusive of reserve which forms part of the NII, and of which $1.82 billion was taken in this Budget. I think the Constitution allows up to 50% of investment income to be used. So, I think if we can take in, say, another $1 billion from our investment income, perhaps we can provide more help and support to those who are in need.

would the Government use to help people like him? Yes, we want to teach people how to fish. But there has to be fish for people to fish. You teach them how to fish, but there is no fish. That is why I think that it is the fundamental duty of the Government to provide help and, I believe, direct help. You can call it welfare or whatever, but financial help for those who really cannot find a job to tide them over. And that has to be made explicit, so that these people have the confidence to know that if they really cannot get a job and are facing financial difficulty, at least help is at hand.

Mr Speaker, Sir, I will take the Member's second point first.

We are already taking in investment income contribution into our Budget for our total revenue in order to spend, according to the limits of what is allowed in the Constitution. So, when I say we have $210 - $220 million of surplus next year, I mean, including investment income. If we did not have investment income, that would be negative, and we will be running a deficit. So, there is no

As for basic entitlement to look after somebody who is out of work, somebody who needs basic medical care, I think we can say that we will provide basic medical care for everybody. It is not free. It has to be paid for. If you are in a C-class ward, you have to pay for it, though at a very highly subsidised rate. There are Medisave and MediShield to help you, and if despite that you still cannot do it, then there will be a medical social worker who will look at your case and you can go to Medifund, and Medifund will help you. Through that system, we have been able to provide good health care to the vast majority of Singaporeans, better than what you will get in the most advanced countries in the world, and better than you will get in China, where things are supposed to be free.

As for basic responsibility to look after people who are not working, as a slogan, many governments say that. As a reality, all governments know that there are limits to what they can do. The Americans used to have welfare: "If you are out of a job, we will provide you "x" dollars percentage of your last-drawn pay for so many months." The Scandinavians have a scheme where, if you are out of work, you have 90% of your last-drawn pay for life! It is marvellous. Why do we not do that? Who will pay for that? Why should anybody work, if that is available? How will a country strive to get ahead? What we can do is what we now have, for example, rental and utilities assistance, employment assistance schemes, People for Jobs Traineeship Programme, REAP, and we are going to have ComCare. We have schemes which will help but will never let up on the pressure for the

We will cover nearly everybody in Singapore with either a job or assistance, and provide for a home over their heads. To reach 100%, I do not know whether that is possible in this real world. 95%, yes; 97%, quite possible, if we have a good year; 99%, I do not know whether that is possible. That is the reality. We will strive for the best we can, and I think we have delivered the best we can for Singaporeans. We feel the pressure. But if you just yield to the pressure unthinkingly and say, "I am just taking a small step. Do not worry. I know what you are talking about. This is just a little bit better and I will try my best to be careful", you can take a series of very well-intended small steps and end up in the wrong place, with a result which is worse than you are in today, and regret it and take many years and, maybe, never come back.

Question put, and agreed to.

Resolved,

That Parliament approves the financial policy of the Government for the financial year 1st April, 2005 to 31st March, 2006.

secret pocket somewhere. You will have to raise taxes. You cannot do it with smoke and mirrors, and you cannot just wave your hand and say somehow we can afford this. person to have to go and do something for himself. So I will give it to you for three months. After three months, you will have to come back. I may extend it for you, but I want to know that you have been trying, you are working, or you are trying to get work, or there is some fundamental reason why you cannot, in which case, I can look at you in a different sort of way. But to say that it is our job to look after everybody who does not work - which can potentially be 10-20% of the population - I think that is not something which any government can responsibly deliver. And those who have tried to do that have regretted and pulled back very painfully. The Americans, British, Australians and New Zealanders have done so. Now, even the French and the Germans have decided that the world has changed, and if they do not do this, the Poles, Hungarians and Czechs will eat their lunch, and they better work longer hours, better be more flexible and cut back on benefits and earn their living for themselves.

Order. I propose to take the break now. I suspend the Sitting and will take the Chair again at 3.15 pm.

Sitting accordingly suspended

at 2.58 pm until 3.15 pm.

[Mr Speaker in the Chair]

Sitting resumed at 3.15 pm

Order read for consideration in Committee of Supply [1st Allotted Day].

Main and Development Estimates of Expenditure of Singapore for the financial year 1st April 2005 to 31st March 2006, contained in Paper Cmd. 2 of 2005.

For convenience, I shall take the totals for each Head of Expenditure in the Main and Development Estimates as they appear in the last columns of the schedules of estimated expenditure under the Main and Development Estimates Outlays for FY 2005 on pages 14 and 15 respectively of the Command Paper.

A total of 362 amendments to the Estimates of Expenditure have been submitted this year. The guillotine times to the discussion of the Heads of Expenditure under Standing Order 92(7)(a)

I shall deal first with the Heads of Expenditure in respect of which amendments stand on the Order Paper Supplement.

have taken into consideration the earlier commencement time of the Committee of Supply for each allotted day. I must remind honourable Members that the times for discussion of the Heads of Expenditure include the replies from the front bench. With the assistance of the digital timer displayed in the Chamber, I trust that honourable Members will be able to adhere to the speech times indicated against their amendments. As usual, I would urge honourable Members - both from the back and front benches - to be observant of their speech time limits, as I will be very assiduous in my time-keeping.

Head U - Prime Minister's Office. Dr Ahmad Magad.

Service Quality of Civil Service

Sir, I beg to move,

That the total sum to be allocated for Head U of the Estimates be reduced by $100.

Sir, the Government's continued push on the economy drive in the civil service, amongst others, is seeing an additional 3% budget cut of all Ministries, except MINDEF. Including last year's 2% cut, the total permanent reduction is now 5%. I applaud this move, as just like in the private sector, the public sector should also find ways and means to be cost-effective, minimise waste and increase productivity.

However, Sir, just like Mrs Lim Hwee Hua said in this House last year, we have painstakingly built our civil service to the level today, renowned for its integrity and

Sir, another concern I have is also potentially the signal that the Government is sending that the budget cuts may translate to lower salary increases and lower starting salaries in the civil service. Retention and attraction of talent, Sir, requires a rigorous compensation management programme to be put in place. People, particularly top talent, must feel comfortable that they are compensated at market rates in order to retain them. I would like the Prime Minister to clarify about the thoroughness of the compensation management system in the civil service to ensure that we will not face an exodus of talent from the civil service and also that it is capable of attracting new talent necessary to maintain and continually improve service quality within the civil service.

efficiency. It is evident from what the Prime Minister has just explained in his closing Budget Statement's speech that the move to implement the additional 3% cut has been carefully thought through and taken into account that last year's 2% budget reduction for all Ministries has not had any negative impact on service quality to our citizens. I would appreciate it if our Prime Minister could provide this House with a better understanding of some of the measures that the civil service has put in place to ensure that service quality, including counter services, is not jeopardised as a result of the additional 3% budget cut and also the recent operationalisation of the five-day work week in the civil service.

Mr Teo Yock Ngee, you can take your four cuts together at one go.

Contract and Part-time Employment

Sir, I have the following questions and points to make for the Prime Minister's Office, specifically the Public Service Division.

First, may I know what are the terms and conditions of contract employment in the public sector? And what is the number and percentage of public officers, in terms of divisional status, who are employed under such contract terms?

Was there an increase over the years in the employment of contract employees and why? And how many have been emplaced on the permanent establishment eventually?

Also, is there a limit to their renewal of contracts or are contracts renewed indefinitely? And is there a quota and cap on this? This must be of great concern to the Government as an employer because such terms of employment are insecure and lack prospects. Most of these employees could be neither executives nor professionals who have much higher qualifications and better job mobility in the labour market.

Second, may I know how many public officers are on part-time employment? Could the Prime Minister's Office, Public Service Division, provide figures in terms of categories of staff, divisional status, age and gender?

Would the Government consider making part-time employment more attractive to encourage those who are not working to return to the workforce? This may attract the economically inactive but able-bodied to be self-reliant and make a contribution to the economy of Singapore.

The Tripartite Guidelines on Family-Friendly Workplace Practices were drawn up by the National Tripartite Advisory Panel to develop and promote the above at the workplaces in August 2004. The Government has also since implemented the five-day work week, equal medical benefits for men and women officers, cut in maid levy, and an increase of paid maternity leave from 8 to 12 weeks.

Could the Prime Minister's Office, Public Service Division, confirm that employees under either contract or part-time employment will not be denied of such basic terms, conditions and these additional benefits?

Extension of Service Beyond Retirement

Sir, I am making the following request for public sector employees to the Prime Minister's Office, Public Service Division.

May I know if the Prime Minister's Office, Public Service Division, is studying the feasibility of allowing older employees to work beyond their legal retirement age of 62? This is in view of the longer life expectancy (about 80 years of age) of Singaporeans and their need to work longer.

Although a tripartite committee, comprising the Government, trade unions and employers, has been set up to discuss and deliberate on the issues concerned, I would like to know if the Government is taking the initiative to look at the possibilities of some areas of work available. We were told that, at the moment, work beyond retirement or an extension of service, as we call it in the public sector, has been considered on a case-by-case basis. May I know what do they mean by this and how many are on such extension?

In my view, would it not be better if the various Ministries start identifying and discussing with unions on what are the jobs that could be done by the older employees? Or would the Ministry consider redesigning and creating some jobs suitable for the older employees? I think we should be more proactive and constructive as the tripartite committee may take some time to work out its recommendations and so on.

The Government, as the largest employer, should show the way and set a good example.

Employment Adjustment Programme

Sir, I am proposing a review on the matter to the Prime Minister's Office, Public Service Division, for consideration.

The Employment Adjustment Programme (EAP) is quite different from the new scheme that we have just introduced, ie, REAP. This exercise in the public sector is conducted for organisational renewal purposes. It is a voluntary scheme meant for officers who do not have a good job fit in the area of work or stagnating in their performance to leave the organisation. The Special Gratuity Scheme (SGS) is one of the schemes, besides the Early Retirement Scheme and Optional Retirement Scheme.

It is now a voluntary scheme, unlike 2-3 years ago, which means that employees could apply for it subject to the respective employer's approval, which could either be the respective Ministry or statutory board. The employer has the right to reject the application.

I have no question on the details such as the calculation of payment except on the practice and implementation of the Scheme, though it must not be confused with the Special Resignation Scheme (SRS) that is based on redundancy.

Why are the employees still being offered to apply to leave under SGS? And to make matters worse, there have been cases where they were offered time and again each year. Why again? I think this is rather demoralising and tantamount to telling the employees that they are no more needed here and they can leave now. Why not just let the employees apply and the employer consider their applications? I certainly hope that the

Disciplinary Proceedings

Sir, I am proposing a review on the matter of interdiction to the Prime Minister's Office for consideration. The meaning of "interdiction" here is suspension from work. The interdiction clause in the Public Service Commission (PSC) Disciplinary Proceedings is archaic, outdated and should be reviewed.

Currently, a public officer who is charged under the above Regulations could be "interdicted and may not receive such portion of the emoluments of his office for such period during the time of interdiction as decided by the Commission." This means that the officer concerned, while pending consideration and investigations by the Commission, may not receive his normal pay or only part of his pay.

There have been cases of public officers under investigations and were interdicted without pay. During this period, they have not been convicted. These investigations were prolonged and, in the meanwhile, the officers faced hardship and were not able to support themselves and their families. Union officials representing them had to appeal to the Commission for consideration, but most of the times, were not successful.

May I request that the Prime Minister's Office, or whichever authority, take a look again at the plight of these officers affected? Why be so unkind and unfair to the employees when they are not proven guilty as yet? And why is the Commission taking such a long time, sometimes as long as six months or longer, to close the case?

Prime Minister's Office, Public Service Division, can do a review on this matter.

Mr Chairman, Sir, I would like to thank Dr Ahmad Magad and Mr Teo Yock

A clean and efficient public service is the bedrock of good governance in Singapore. It has helped to ensure that policies are implemented effectively and in the national interest. It has helped us to keep taxes low because public services are delivered efficiently. It has helped us build trust between the Government and the people, because Singaporeans know that public servants are not corrupt.

We have a first-class public service. But it is critical that the public service continues to reinvent itself in order that it can help the Government serve the people and enable Singaporeans to create and seize opportunities.

An important new focus for the public sector is to put customers and citizens at the centre of policy regulation and service delivery.

Ngee for taking an interest in issues related to the public service.

This means that public servants must have a systematic way of taking in the views of customers and citizens and actively find out what is happening in their area of responsibility and among the people whom they are supposed to be serving.

3.30 pm

An example of good practice is the Pro-Enterprises Panel, which includes not just top public servants but also representatives from the private sector, to ensure that rules and regulations do not unnecessarily hinder business. There have also been concerted efforts to raise the level of public consultation to ensure that the voices of Singaporeans are heard in the policy making process. Since the launch of the Feedback Unit's online consultation portal in 2003, more than 17,000 submissions from the public have been received through its various online feedback channels. This shows that Singaporeans are ready and keen to partner with the Government to create a

We also need good people in order to have a first class public service. To attract, develop and retain good people, the human resource management practices in the civil service must be progressive, responsive and flexible. Over the years, the Public Service Division (PSD) has empowered Ministries to give them more flexibility to decide on terms and conditions of employment. They, therefore, become responsible for their own employees. There is now greater emphasis on performance-related pay and career development. More recently, the civil service has led the way in promoting flexible work arrangements and a better work-life balance for its employees.

Even as agencies are given more autonomy to meet customer needs, it is vital that Government agencies act in concert. A key responsibility of the Public Service Division is to develop a common ethos and understanding of the principles of governance so that the various agencies could function effectively together as a part of one networked government.

Dr Ahmad Magad asked if the 3% budget cut would undermine the service quality of the public service. I would like to assure Dr Magad and Members of the House that the Government continually seeks new ways of doing more with less and without sacrificing service quality. The additional 3% cut in the budget of Government Ministries aims to encourage greater prudence and efficiency in the public service. Ministries are encouraged to review their functions and staffing levels and, where appropriate, streamline their processes and operations so that

The civil service is committed to serving the public. When the service moved to a five-day work week, it was promised that service levels to the public would not be affected and, indeed, they have not. Customer volumes at Government counters on Saturday are high, as it is a preferred day for many Singaporeans who do not work on that day, to visit Government public service counters. As such, Government agencies continue to provide counter services on Saturday, by giving staff the appropriate time off or by rostering staff on duty.

The Government has also sought to raise the quality of service through innovation so that they are not just dependent on counters, but there are other service outlets as well. Today, more than 1,600 Government services are available on the Singapore Government Online portal. E-services deliver new value and, the way that our E-services are constructed today are that they are focused around what a citizen needs or wants in particular phases of his life, rather than on what the Ministries do. They allow public services to be delivered any time to customers anywhere while reaping cost savings. Citizens unfamiliar with accessing e-services could get help through the eCitizen Helper programme, which is available in more than 50 locations in Singapore.

To ensure that the public service maintains service standards, Mystery Customer Audits have been implemented where public agencies are paired up to conduct incognito service checks on each other. Results of the (Mystery Customer) Audits and the service standards of the

Dr Magad also raised concerns about whether the budget cut would undermine the civil service's competitiveness in talent attraction. Let me assure him that attracting and retaining a fair share of talent has always been, and will always be, one of the service's top priorities. We believe in recruiting the best person for the job, and in getting the best out of him or her through timely rewards and recognition.

Even with the budget cuts, the civil service will continue to ensure that it remains an attractive employer. For example, the Public Service Division regularly reviews the civil service's employment terms and conditions to ensure that its compensation and benefits packages are competitive and benchmarked to the private sector. This is to ensure that the Government is able to pay appropriate market salaries to attract top talent where they are needed. I should point out that in maintaining appropriate market salaries, the salaries do go up and down, with the market benchmarks.

These efforts have led to a steady increase in the inflow of mid-career officers from the private sector in recent years. For instance, in the Management Executive Scheme of Service which recruits graduate officers into a variety of jobs in the Ministries, about one third of recruits in 2004 were mid-career officers from the private sector, compared to about 13% in 2000. This trend confirms that the Government is still competitive in attracting good officers, including top talent from the private sector.

I would turn now to the points that Mr Teo has raised. To position itself as an

Contract employment provides the service with greater flexibility and responsiveness in its manpower management and recruitment strategies. It also provides the individual who seeks employment greater flexibility as well, because he could come in for a term of employment and then choose to do something else later on. This is attractive to many younger people especially. It also allows the ministries to tap on a wider pool of candidates, such as mid-career officers from the private sector, some of whom may prefer the flexibility offered by contract employment.

Currently, Ministries could appoint an officer on contract terms for short-term projects or as a means to assess the suitability of the officer. There is no limit placed on the number of times a contract could be renewed. Contract officers generally enjoy similar salaries and benefits as those of any officer on the permanent establishment doing a similar job. Good officers are usually offered permanent positions after 1-2 years. We do not set any quotas on the number of contract officers who are emplaced on the permanent establishment as this would depend on a number of factors such as the availability of suitable permanent jobs, the officer's employment track record and his suitability for a long-term career with the organisation.

Although contract employment has become more prevalent in the job market, the majority of civil servants are employed in the permanent establishment. The percentage of contract officers in the civil service has remained fairly stable at about only 4% over the past three years. Although at the point of employment, the percentage of contract employees has gone up, many of them are eventually

Mr Teo also spoke about the treatment of part-time officers in the service. Flexible work arrangements like part-time employment allow civil servants to balance their work and their family or other personal commitments. Over the past five years, about 1,000 civil servants have gone on part-time employment. The majority of them are female officers. Let me assure Mr Teo that officers working part-time are treated like their colleagues working full-time. They enjoy the same terms in salaries, benefits and bonuses except that these are pro-rated based on their individual work options. They are assessed no differently from full-time officers and their service is recognised for promotions and service benefits. Upon return to full-time employment, the officer's salary and benefits would be the same as those of similar full-time officers.

On the extension of service beyond retirement, the civil service welcomes and values the contributions of older and retiring civil servants, given their wealth of experience and knowledge.

The service already has a re-employment policy for Ministries to employ retired officers or to extend the services of retiring officers if they are still fit and want to continue working. These officers could be re-employed under a range of flexible work and contract employment schemes. Over the past five years, more than 650 officers have been re-employed or have had their service extended beyond retirement age, either in full-time or part-time positions. These officers are employed in a diverse range of jobs, such as teachers, translators and officers running our juvenile homes. I will be happy to hear any suggestions from Mr Teo or any of the others, and also to see whether the suggestions that come out

Mr Teo has also made a suggestion to improve the implementation of the Special Gratuity Scheme in the civil service. Mr Teo has explained what the Special Gratuity Scheme is all about. It allows eligible officers who do not have a good job fit and who have reached the ceiling in their careers to leave the organisation, if they so choose. The decision as to whether to take up the programme is entirely up to the officer.

I do agree with Mr Teo that the programme should be implemented with some sensitivity. For this reason, the Public Service Division provides a forum for Ministries to discuss and share good practices. Ministries are also encouraged to communicate the intent of the programme clearly and explain the application process to their officers. Continuing feedback from the unions and other stakeholders will be of benefit to us.

Let me move on to disciplinary proceedings. First, I would like to explain that under the Public Service (Disciplinary Proceedings) Regulations, the Public Service Commission can interdict a public officer from duty provided that criminal proceedings or disciplinary proceedings are being contemplated against him with a view to his dismissal or retirement in the public interest. Interdiction is, therefore, invoked only in cases where the offences are of a serious nature and the officer's continued presence in office either poses a serious risk to office security, hampers investigation into the case against him, compromises the safety of persons (for example, in the case of school students where the case involves molestation or other immoral behaviour by school staff), or undermines staff morale.

As officers are interdicted only for serious offences and not required to report for work, some part of the officer's

I would like to assure Members that a decision to interdict an officer is taken only after very careful consideration. Over the last three years, of the 372 disciplinary cases completed by the PSC, only 72 were interdiction cases. 71 of these ended up in court conviction or dismissal or retirement in the public interest. Only in one case was the officer reinstated with back-payment of salaries withheld.

PSC is mindful of the fact that the disciplinary process should be efficient, especially in view of the possible financial strain faced by an interdicted public officer. Sometimes, the length of time is because of the investigation process by the various investigation agencies. Regular reviews are carried out to expedite the effective handling of disciplinary cases without compromising the impartiality and rigour of the system. We will continue to see how the process could be carried out more expeditiously.

better Singapore. The public service will continue to provide more channels to engage Singaporeans and actively incorporate their views, where constructive, into the policy formulation process.workload remains manageable. I can quote an example. The Singapore Police Force has outsourced its vehicle management function. This has led to substantial savings and, more importantly, freed up its manpower for core policing duties. Government agencies involved are publicly available on the PS21 Internet website. Every public agency also has a Quality Service Manager to respond to customer concerns and feedback about service quality. attractive employer, the civil service has also introduced a range of employment options such as contract and part-time employment.absorbed into the permanent establishment after several years.from the Tripartite Committee would be useful for the civil service.salary is withheld. In order not to cause undue financial hardship, only up to 50% of an officer's pay would be held back pending the outcome of the case against him. Only upon court conviction would he be put on no pay. If the disciplinary proceedings ultimately do not result in the officer's dismissal or retirement in the public interest or other punishment, he would be refunded the full amount of the emoluments which he would have received had he not been interdicted.

Role of a Member of Parliament

Sir, I have got a cut on the role of an MP. "Members of Parliament represent the whole community, responsible in the last resort to their own consciences" wrote Professors Waite and Philips in their book "Constitutional Law". This quote is in the context of the English parliamentary system. But, in Singapore, our system is the dominant-party system with an

What does this mean? To me, it means that in Singapore's case, due to the ruling party being a one-party government for so long, about 50 years, it has come very close to the civil servants. The civil servants feel obliged to help the PAP readily since it is so close to the ruling party. The implication is that those who are in the PAP or have close connections with them get things done more readily, for example, the allocation of TOL of large pieces of land to the PAP election candidate in my constituency. People who believe in a democratic system of government shall not tolerate this kind of situation because it can be easily abused.

I have got this kind of problem in my constituency. Large pieces of land aforesaid, in my constituency, and choice places for putting up banners, have been allocated to my rival, the PAP election candidate. And, furthermore, Government policies which involve public funds are given to the PAP election candidate to implement at Potong Pasir. I refer to the HDB offering free services to make good spalling concrete.

"administrative state", according to Chan Heng Chee in her book entitled "The Dynamics of One-Party Dominance - The PAP and the Grassroots". She says that Singapore is an administrative state.

The information about such free services was told to the PAP candidate but not to the elected MP in the constituency. I came to know of it only at a very late date when the programme was at its tail end.

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With this kind of a situation, I have a fear that my work as an MP shall be hindered. The saga which I am about to cite refers to planting of trees again. I say again, because when I was first elected, the HDB even refused permission for me

to plant one tree. This time round, residents requested me to plant a row of trees along a footpath linking the MRT station at Upper Serangoon Road to Block 147 at Potong Pasir Avenue 1, to provide a shade for them from the sun. That request was made about six months ago in August 2004.

The timer is flashing, Mr Chiam.

After about six months of correspondence and telephone calls, I was told that permission had been granted to the CCC, and the PAP election candidate, as adviser, could plant the trees. To make a long story short, finally, I did plant the trees myself.

Mr Chiam, you have asked for four minutes and I have given you four minutes.

Elections Office

Sir, I said it in the last two years' budget debates and I asked for it again at the debate on the President's Address this year, and I still think it is very important for me to raise it again in this year's Budget debate, ie, to have an independent elections commission.

Sir, until our public - local and international communities - can see, agree and be satisfied by an independent elections commission that the general election in Singapore is truly free and fair, we are far from being a vibrant democratic, cosmopolitan, advanced and talent-attracting society.

There is no better way to silence all the critics - myself included - than the setting up of such an independent elections commission, headed by a retired

If the Government is good, and currently it is good, there is no need for it to be afraid of setting up such an independent elections commission to help promote our image as a country with a free and fair elections system. Why the big hesitation?

This lack of an independent impartial referee to oversee our political system is the greatest disgruntlement any Singaporeans have against our Government. By removing itself as the referee when playing in the game, the PAP Government will silence all critics immediately about any unfair electioneering activities and it will win more praises - both locally and internationally.

Judge and comprising citizens of public repute, like retired CEOs, ex-NMPs, Government and non-Government NMPs.

Sir, I thank Mr Chiam and Mr Steve Chia for raising these two perennial issues and for giving me an opportunity to speak under the PMO Head.

Every year, we have to deal with their pet peeves - one about the role as an MP and the other about an independent elections commission. Mr Chiam cited the British example and talked about the British constitution and about the role of the MP. I am sure he knows that, over the years, we have evolved quite a bit from the British system. The British gave us the Legislative Assembly, and then we turned it into a Parliament when we became independent. Since 1984, we have Mr Chiam as an elected MP from the Opposition. We have Nominated MPs, those seated at the last bench, and Mr Steve Chia as a Non-Constituency MP.

Mr Chiam thinks that by just being an MP, he can do anything he wants in his constituency. I think he probably misunderstood his role as an MP. There

Since the late 1980s, we also have a system that allows the MP to run the HDB estates which they are elected in. That is only for HDB estates. The MP does not manage the private estates. In other words, Mr Chiam cannot really do whatever he wants in Sennett Estate.

Mr Chiam talked about the tree that he wanted to plant in 1985 which subsequently, for some reason, disappeared. I do not know what was the cause of its disappearance. Now, he again said that his residents wanted him to plant trees near a footpath on land which is owned by the Government. He thought that it had been unfair that as an MP, he cannot plant a tree. I hope that in his 20 years in Parliament as an MP - or more if he gets elected the next time - he would not just be remembered as an MP who only wants to plant trees for his residents, and is always worried about whether the trees will survive or not.

I wonder if Mr Chiam thinks that he can just do as he pleases to plant a tree in an open space, say, in Sennett Estate, and ask his contractor to plant the tree because the Sennett Estate residents want a tree. I do not think so. He will still need to get approval from the Land Office if the land is owned by the Land Office or get approval from the LTA if it is on LTA land. The piece of land which Mr Chiam talks about belongs to the State and has been leased to the CCC on TOL. Therefore, he should rightfully get the permission of the CCC to plant the trees, which he did not. I think he was advised to do so and he still has not.

By the way, Mr Sitoh is the adviser. He is not just a PAP candidate defeated by him. Being the adviser of the CCC, he has things to do which include helping the residents, because many of our grassroots organisations also help the residents. For example, during the SARS crisis, we had our grassroots leaders going all out, together with their advisers, whether it is for temperature taking, delivering food or helping those who need assistance during the time when they were quarantined.

Mr Chiam suggests that the HDB should allow him to tell the residents about the spalling concrete repair scheme, I think that is quite another matter. The HDB does not need to tell the MP. The adviser is the one who has been notified by the HDB. Therefore Mr Sitoh asked the residents if they needed help. I suppose Mr Chiam can always work harder so that the residents in Potong Pasir will benefit from the hard work given, by both Mr Chiam and Mr Sitoh. And if Mr Chiam has to work harder because of Mr Sitoh, then so be it. But if he does not want to, then the residents will decide at the next election.

As regards Mr Steve Chia's question on an independent elections commission, he says that we should have one so that we can profile and project ourselves to the world that our election is free and fair. And since we have parliamentary democracy, we must therefore be "seen" to be democratic. I think Mr Steve Chia is probably also aware that our election system has always been free and fair. If not, he would not be here too. And because we have evolved our system to suit our needs, we have even given the opportunity to somebody who had lost the election to speak in this Parliament.

As for Mr Chia's suggestion that the Government is afraid of setting up an elections commission, I do not think so. We just do not think that there is a need for one, and we should not just blindly

The Elections Department has conducted elections for a long time, I believe, even during the British days. That was how we had the Legislative Assembly. Over all these decades, no one has ever said that the Elections Department has been unfair, even though it is under the Prime Minister's Office. The election rules apply to all candidates, both the ruling party - the PAP - as well as the Opposition. In fact, during election time, I heard my PAP colleagues complain about the Elections Department being too strict on them - getting them to remove posters and telling them not to put up this or that if they did not comply with the election rules.

Singaporeans know that we have a free and transparent election system that is fair, even though elections are organised by civil servants. And to say that civil servants are beholden to the PAP, I think that is an insult to the civil servants who have served the country so efficiently. Our civil service has always been rated to be very good compared to other countries in the world. I think Mr Chia will surely not believe that he had lost unfairly in Chua Chu Kang in the last election because the Elections Department had not been fair to him.

I do not believe that the general election can be more free and fair just by having an independent elections commission. We also know that not all countries with independent elections commission have had elections that were free and fair. In fact, in many countries, there were allegations of fraud and unfair practices, such as ballot box stuffing and vote buying and other kinds of

In the past many elections, the fact that 25%-35% of Singaporean voters voted against the PAP showed that they had no fear in doing so. On the other hand, those who supported the PAP testified to the fact that they endorsed what the PAP had been doing, including the holding of free and fair elections. Otherwise,

are duties of an MP which all of us have to fulfil, like looking after our constituents, listening to their complaints, filing petitions for them, writing letters to the authorities, and coming to Parliament to raise issues for residents, issues of national importance, and scrutinise the Bills in Parliament, and then cast their votes accordingly. follow what other countries are doing. But if we want to learn from others, we must also choose what is good for us, and we choose wisely what is suitable to our context.malpractices. Indeed, many of these commissions were set up because of allegations of abuse during elections by the political parties. That is not the case in Singapore.

on such a fundamental matter as choosing their representatives in Parliament, there would be a huge outcry from Singaporeans if election is not free and fair. They would not stand for this, and the PAP would not have been here since 1959.

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What matters is not whether it is an elections department or an independent elections commission. It is the integrity of the electoral system as well as the civil servants and people who run it. Having an independent elections commission does not change anything if officials are corrupt and biased. Our Elections Department is run by civil servants and officials from other Ministries, and they have been doing their job transparently.

We all know that this is not the first time that we hear of calls to set up an independent elections commission and it is also not the last time. I am sure we will hear from Members again in future years, and I look forward to the opportunity to reply.

Can I be allowed to clarify?

We have time. Go ahead.

Sir, the facts of this tree planting case show that residents

have requested me to plant the trees. The HDB and/or the CCC had stopped me from doing so as an MP. I think this is an important point. Can anyone stop the MP from doing his legal duties?

Yes, when an illegal act is being done, certainly, it can be stopped. Even for Mr Chiam who, as the MP for Potong Pasir, did something on the property that did not come under his management as a Town Council Chairman, he would not be allowed, and I have just cited the example of Sennett Estate. If there is a piece of land, and Mr Chiam says that his residents have asked him to plant a tree there, I am sure he will be told to remove it because he just cannot, as an MP, do as he pleases.

Sir, I would like to clarify my point. It is not that the elections are not free or not fair, but the image that is presented both in Singapore and internationally. We have international bodies coming to understand and study our elections system, and putting up reports saying that the electoral process could be more fair and free. It is the image that we need to project to the world that has to be done. I believe that the setting up of an independent elections commission would address that issue.

Does Mr Chia agree that our elections system is free and fair? I note that he nodded his head. It means he agrees. If it is, then what image are we projecting to the world? It must be that it is a free and fair election system. Right?

It could be more free and fair.

It is free or fair. It cannot be more free, less free or less fair. It cannot be one way or the other. What are these international bodies coming here to tell us what to do? Maybe Mr Chia can

tell us what are these independent or international bodies.

Sir, I am clarifying that it has to be more fair. If you look at the last general election, the way the electoral boundaries were redrawn and the way the timing was given, all these were explained in the past. But it goes to show that a certain process leading up to the election was not very fair to the non-governing party. So what we are asking for is to make it appear more fair to everybody.

I think we are belabouring the point. The fact is that we have an Electoral Boundaries Review Committee that delineates the boundaries, and the Committee comprises senior civil servants who know the profile of the demography of our voters. They have been doing this job for years. As for the last general election, there was not very much time even though the election was supposed to be held much later. But because of some extenuating circumstances, like September 11, we had to hold it immediately after September 11. As a result, the publication of the Electoral Boundaries Committee's Report was not put out to the public with enough notice to the Opposition MPs and others. We will try not to repeat that.

Sir, is there time for another clarification?

Yes, please carry on with your clarification, Mr Chiam.

Thank you, Sir. About this tree planting at Potong Pasir, permission was given to the CCC to do so. But permission was not given to the MP to plant the tree. If that is the case, we might as well have the CCC or its adviser run the constituency. Why bother to have elections and elect an MP?

In the first place, Mr Chiam knew that for that piece of

land, TOL was granted to the CCC. Since TOL was granted to the CCC, and when the CCC wanted to plant the tree, they should be allowed to do so. But Mr Chiam got wind of this and jumped the gun and went to plant the tree. In fact, he instructed his contractor to plant the tree, even though he knew it.

It was delayed.

He knew that the CCC was going to plant the tree. Right?

No.

You did not know?

I did not know whether they would do so.

But did he know that they were going to plant the tree?

They did not say so.

Let me see whether I can find something here.

They did say that they were going to plant a tree.

This letter was dated 18th October 2004, addressed to Mr Chiam See Tong, as Member for Potong Pasir. This letter was written by the Director, Property and Land Department of HDB, and, of course, it referred to Mr Chiam's request to plant a tree. It said that, "The footpath linking Blk 147 at Potong Pasir MRT Station was constructed by the LTA in August 2003, in response to the request from the Potong Pasir CCC and residents. As a follow-up programme, the CCC plans to plant trees and install lightings along the footpath. The project is likely to be implemented shortly." Did Mr Chiam see this letter?

Yes.

Therefore, he jumped the gun.

No, they had not done so.

Did they give Mr Chiam any right to jump the gun?

No.

It did not. I am glad he recognises this fact.

Sir, there is still some time. Would I be allowed to seek a clarification from the Minister?

Yes, a short one.

Thank you, Sir. The Minister has said that we have free and fair elections. Would he clarify or elaborate on what account or basis he said that we have free and fair elections, especially in relation to (1) how do the Serial Nos. on the ballot papers ensure a free and fair election; (2) how does redrawing of boundary without consultation with the Opposition constitute a fair and free election?

Sir, I have also explained on many occasions the reasons for having the Serial Nos. on the ballot papers. The Serial Nos. on the ballot papers are to make sure that in the event there is an election petition saying that there is fraud, then we can always apply to the High Court for a court order and open the ballot boxes for inspection. Supposing there are 20,000 voters but 22,000 votes were cast, then obviously somewhere 2,000 votes were slipped in. If there is no Serial No., how are we to determine which is a genuine one and which is not? We have very good reasons why we have the Serial Nos. Nobody has

On redrawing of boundaries without consultation with the Opposition, the Committee also did not consult the PAP either.

ever said that they are afraid of the Serial Nos. and therefore afraid to vote against the PAP. The fact that 25% to 35% of voters voted against the PAP in every election and the fact that they voted for Mr Low, Mr Chiam and, in the past, two other candidates also showed that they were not afraid of the Serial Nos. appearing on the ballot papers.

Dr Ahmad and Mr Teo, do you have any clarifications to ask? No? Yes, Mr Chia.

Sir, the Minister replied that the last election was supposed to be much later but, because of 911, the Government felt there was an urgent need to call the election earlier. Because they took into consideration that it was to their advantage to call the election earlier without reference or due consideration to the Opposition's position. That was very unfair to us - to have the election immediately after the boundaries were announced when Parliament was dissolved.

Mr Chiam just now cited the British constitutional law and British parliamentary practice. Maybe Mr Chia can take a lesson from Mr Chiam since they are both in the same party, the SDA, and he would have learned that under the British parliamentary system, the Prime Minister has the prerogative to call an election any time.

I think we have enough. Dr Ahmad Magad, are you withdrawing your amendment?

Sir, I would like to thank both the Minister for Defence and Minister for Home Affairs for their very comprehensive and penetrating

Amendment, by leave, withdrawn.

The sum of $151,115,490 for Head U ordered to stand part of the Main Estimates.

The sum of $58,580,300 for Head U ordered to stand part of the Development Estimates.

answers to the questions and clarifications requested by Members. On that note, I beg leave to withdraw the amendment.

Head M - Ministry of Finance. Dr Ahmad Magad.

Islamic Banking

Sir, I beg to move,

That the total sum to be allocated for Head M of the Estimates be reduced by $100.

Over the last several years, Islamic banking and finance is rapidly emerging as an alternative to conventional banking and finance. Its applicability is not just confined to Muslim countries. In the UK, the Financial Services Authority has recently given the go-ahead for the launch of the first totally Islamic British bank providing banking facilities to Britain's 1.8 million Muslims, in accordance with Islamic Syariah principles. In Malaysia, a significant number of non-Muslim customers access Islamic banking products and services.

In the light of its increasing popularity, I would like to propose that the Ministry of Finance and MAS consider the development of a full-fledged Islamic banking and financial system alongside our established conventional banking system in three phases:

First phase, Sir, to enable Islamic banking to operate and function smoothly, it requires the support of Islamic financial markets and a critical mass of players. The financial market is required to provide a broad variety of instruments and an inter-bank market that, in turn, will provide the matching mechanism between the deficit and surplus units in the Islamic banking system.

Typically, the Islamic money market comprises the trading of Islamic papers, the Mudharabah (or profit sharing) inter-bank investment and the Islamic clearing and settlement system. One approach is for the MAS, in collaboration with the Singapore Muslim Religious Council, or MUIS, to create this market by issuing Government Treasury Bills based on Islamic principles.

On the Islamic capital market front, more local and foreign companies could be encouraged to issue Islamic corporate securities out of Singapore. To support the Islamic equity market, Singapore's conventional stockbroking firms could be encouraged to offer Islamic stock-broking services and develop an Islamic index for listing of Syariah-approved counters.

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Sir, Phase 2 is the development of Islamic banking window. Islamic banking industry needs some renowned financial institutions to make it viable and operational. Towards this end, MAS could consider inviting reputable full-fledged Islamic banks from the Middle East and neighbouring countries to set up their banking operations in Singapore, in addition to encouraging existing financial institutions to offer banking services through an Islamic banking window using their existing infrastructure and branches.

Sir, Phase 3 is the development of an Islamic banking infrastructure. To provide

However, I believe Islamic banks could still operate within the existing Banking Act, as it has several provisions that empower the Minister for Finance to respond to the changing financial landscape. The Minister, under the existing Act, could grant approval and exemption to banks that wish to introduce unconventional banking products and services to the public. The granting of approval to OCBC to operate an Islamic banking window several years ago is a case in point. I would like to therefore propose that the MAS continue to exercise and extend flexibility in granting special exemptions in approving innovative Islamic banking products and services. Over time, as the Islamic banking industry develops the critical mass of players and customers, and as the banking environment becomes more complex, the MAS could consider the formulation of our own Islamic Banking Act.

Creation of a central Syariah board. As Islamic Banking is governed by Islamic Law, the role of MUIS is critical. I would like to propose that MUIS establish a National Syariah Advisory Council that will be empowered as the sole authority to issue opinions and decisions in Islamic Banking and Finance. Although the Islamic Bank and the non-interest bearing banks may also appoint their Syariah advisers to advise them on day-to-day operations, they should be required to refer to MUIS through MAS on policy-related Syariah issues. This Council can also advise MAS on Syariah issues pertaining to Islamic banking.

adequate infrastructure for the development of a robust Islamic banking system, Singapore needs to consider the introduction of an Islamic Banking Act in the long run, to govern the operations of Islamic banks and financial institutions. Models already in existence in the UK and Malaysia could be used as a basis for us to develop our own Act.

Fund Management

Mr Chairman, in Singapore's push towards establishing ourselves as a pre-eminent financial centre, I am happy to note that we have been making good progress.

I need to declare that I am employed in the private banking industry, and although my cut is on fund management, I must state that, in the course of my work, I do employ the services and products of fund managers.

Mr Chairman, investing in funds requires some knowledge in different areas of risks, like volatility, concentration risks, sector-specific or industry-specific risks and sovereign risks that the funds are invested in. In building up the fund management industry in Singapore, fund managers will naturally have among its first clients not just individuals but local corporations and institutions.

Many in the fund management industry have fed back that, too often, local institutions are too focused in the fees and expense ratios. It is not that these are not important. As a matter of fact, they are very important. But the tilt should be towards understanding how the performances are derived, eg, in the kind of investment modes and strategies that the fund managers employ. I understand that the Wealth Management Institute has begun its classes and is receiving much positive response in so far as its role is concerned, that is, to provide industry professionals and want-to-be private bankers value-added training and competence. Can the WMI perhaps also consider educating institutions and local corporations, specifically in evaluating and assessing funds to be managed by fund managers?

Your time is up, Mr Fong.

Financing for SMEs

Sir, owing to excessive prudence by our local banks, which do not number too many, to lend to our SMEs, I would like the MOF to consider being more liberal in terms of opening up the banking sector to allow foreign banks to provide financing for SMEs. This will spur more competition among banks and, therefore, enable the SMEs to benefit from lower borrowing rates and more efficient banking services. Local banks have provided excellent services to our SME community for many years. However, with the consolidation and merger exercise these banks underwent in the late 1990s, our SMEs are finding it harder to obtain financing due to a limited number of banks they can go to.

I believe foreign banks can step in to fill this void. However, it is my understanding that foreign banks are restricted in their product offerings, even if they have a full-fledged service licence to operate here. Many are eager to expand their local operations and want to extend a wider range of services to the business community here. I am confident that they will bring with them more innovative products and services that will ultimately benefit more businesses. Foreign banks could also help SMEs expand into overseas markets where they already have an established presence.

Fund Raising

Sir, in every discussion I have with entrepreneurs, small businesses and industry associations, the question of access to financing always comes out without fail. As I mentioned during my Budget speech, I am happy with the progress that we have made in the last two years or so, and we have seen many new financing instruments available for businesses and

But of particular concern lately has been the difficulty faced by companies that are in the rapid growth phase of their life cycle. The main source of financing for them still remains the debt type of financing. They are, therefore, limited in their growth because of the availability of financing that is available to them, and I would like to suggest three areas.

Debt financing. First of all, the same subject that Dr Ahmad Magad brought up. Let us be more liberal about our banking licensing. While we want big banks, we can also have small banks in Singapore. In that respect, I think we have some finance companies that could transform themselves into banks, and I hope that the Minister will look into this.

Sir, second is the emergence of mezzanine funds that I think is lacking in Singapore. This is quite common in many markets around the world, particularly in places like the US, Europe and Taiwan. Just as we spurred the emergence of a venture capital market with incentives and by providing Government funds, I suggest that we do the same for mezzanine-type funds. There is a very good example that we can follow and we do not really have to reinvent the wheel here, and this is called the Small Business Investment Company (SBIC) programme that is administered by the Small Business Administration (SBA). This SBA is actually a government statutory board in the US that looks after small businesses. With their own capital and funds borrowed at very favourable rates from the federal

Sir, finally, the area of equity financing. Lately, we have seen a few cases of Singapore companies that have failed to get approval to list on the Singapore Stock Exchange. But these same companies get approval to list in other reputable exchanges, like NASDAQ in USA, ASX in Australia, and the Hong Kong Stock Exchange. I suspect that MAS has certain restrictions on SGX that cause this to happen. I hope that the Government will look into refining the requirements so that these companies can tap the local stock exchange instead of going to other exchanges. At the same time, I am encouraged that the OTC is about to be formed because of legislative changes. I hope that we will not lose momentum on this.

for entrepreneurs to apply. I would like to thank the Government for the support that it has given for these initiatives that we have tried to put in place. I hope that we will not lose momentum, as I said, and I look forward to the same type of support and enthusiasm from the Government as we continue our work. government, SBICs are able to provide venture capital, either in the form of debt or equity, to small independent businesses, both new companies as well as established companies that are in the growth phase. The Government provides leverage of up to three times, which means that, for every dollar that the SBIC provides, the Government provides $3 of funding. I think it is about time that we looked into this area in addition to VC financing.

Miss Penny Low. You have two cuts. Take them together. Total of three minutes.

Financial Services

Sir, allow me to raise two issues.

First, cash-back schemes. There are many cash-back schemes in the market for big ticket non-cash upfront purchases, eg, HDB, single-premium ILPs purchased under CPF, renovation loans, car purchases, and even hire purchases, have short-term-gain-long-term-pain type of cash-back schemes. The question is: other than the HDB scheme, has anything

Second, ILPs. There is a need for transparency and fair practice. Some companies tax clients twice by converting cash premiums, first into unit trusts, before converting them back to pay for administrative and mortality charges. Clients effectively pay an extra 5%, which is the bid offer spread of the charges. This is unfair practice. On the mortality schedules, would MAS also help to ensure that the mortality tables that are used under insurance are reviewed and updated in accordance with the changes in the life expectancy of Singaporeans.

MoneySense Programme

Let me move on to my next cut, which is on the MoneySense programme.

Sir, I observe that many of the MoneySense programmes are run by financial service industry operators associated with vested interests. As a result, some of them focus more on the investment tools rather than on cultivating good habits and values in people. Part of the reason is in its 50% deficit funding principle. I am especially concerned that the elderly, less educated and lower-income group who are more difficult to reach out to may not benefit from existing programmes. One way to overcome this is through the help of organisations with similar clientele. Will MoneySense programme consider building capacity within these existing organisations, which could be VWOs, social enterprises, NGOs, and even grassroots organisations, to

been done to curb the cash-back transactions? Obviously, MAS does not seem to be able to catch up with the variety. Does that signal a need to relook at the various laws governing loans and hire purchases? Are there any regulations that prohibit the middlemen, like financial advisers or car dealers, agents, etc, from engaging in such deals? What about the rebates that are currently allowed? reach out to these specific groups? VWOs have fed back to me that one-off programmes have limited impact, but follow-up sessions with clients over a sustained period of time can effectively build good habits. Would MoneySense consider fully funding such programmes, which could run over a longer term and at a higher cost than a one-off programme? In addition, what are MoneySense's funding principles, and how has it changed over the last one year or so?

Mr Chairman, on behalf of the Senior Minister. I will take first the questions raised by Dr Ahmad Magad and Mr Inderjit Singh on financing issues, particularly for SMEs, and whether we should see a larger role for specialised SME banks and finance companies.

Our approach to SME financing is basically to allow for a competitive market. Each of the local banks is, in fact, quite active in the SME market. I understand that about a quarter or so of their corporate loans portfolio is really in the SME segment of the market. The foreign banks are free to offer financing to SME customers. There are no restrictions on the types of customers that foreign banks with a qualified full bank licence or wholesale banking licence can offer and deal with. In fact, even our offshore banks are free to deal in Singapore dollar loans up to quite a generous cap. So, it is quite a competitive market, if you put together the local banks and the foreign banks. A few foreign banks in fact specialise in SME lending. We also have credit and leasing companies which are not regulated by MAS but they are active in the financing market.

MAS welcomes initiatives by banks to provide new financing options for the SMEs. In fact, we have seen some recent initiatives to help SMEs tap the capital markets, which is I think a very

interesting initiative, because it allows SMEs who would not on their own be able to tap the capital market. By pooling risks together with a diversified pool of other SMEs, they are able to enter the market. SPRING Singapore has been working on this, and it is launching a scheme this year. It has selected DBS to

manage a $300 million SME loan securitisation programme. That's an example of an initiative that is bringing in more capital to SMEs and to the market than would normally be possible through banking channels.

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I agree with Dr Magad that there is a role for more specialist players in the SME financing market. MAS is open to admitting banks with specialist expertise and SME financing so long as they are financially sound and meet our prudential requirements. Some players in foreign markets who specialise in SME financing do not rely on deposits as a source of funds. Typically, they rely on the capital markets to fund themselves. And in such instances, they will not require a banking licence from the MAS. There are a few such players in Singapore already who are funded primarily by issuing debt and some equity. They are active in equipment leasing, factoring and working capital loan business to SMEs.

Mr Inderjit Singh has asked whether we should issue bank licences to finance companies. I would first say that our local banks and foreign banks will be the mainstay of corporate financing in Singapore, including for the SME market. All over the world, we find that scale is important. Banks are getting larger all over the world because scale brings efficiency, synergies, better management capabilities and better risk management. Banks are getting larger and for reasons that are driven by the market, not regulators.

But I agree that there is a role for smaller, specialised lenders in the domestic market. The finance companies are playing a useful role in servicing smaller corporate customers and retail customers. They do not have regional ambitions, but they complement the role played by our local and foreign banks. MAS has, in recent years, allowed the better-managed and financially stronger finance companies greater flexibility in servicing their SME customers, such as in unsecured lending and corporate finance advisory services. We are prepared to allow selected finance companies to further expand their scope of services on condition that they have adequate expertise, internal controls and risk management procedures.

Mr Inderjit Singh also raised the issue of listings on the SGX and whether SGX's criteria are too stringent. As Mr Inderjit Singh is aware, SGX revised its listing rules in September 1999 to allow a wider spectrum of companies, with different financial and operating characteristics, to list on the main board. Previously, it used to be three years of a solid profit record. The revised criteria allow companies with a shorter track record of profit to be listed. We also allow companies without a profit record, but with significant market capitalisation, $80 million or above, to be listed on the main board. The main board's criteria are a little less stringent than most foreign exchanges when it comes to the market capitalisation requirements, a little more stringent when it comes to the profitability criterion - more stringent, for instance, than Nasdaq.

But Sesdaq exists, and Sesdaq was set up for this purpose of providing an alternative channel for companies without a profit record, or even without a track record, to raise capital. What the applicants need to do is to demonstrate that they are engaged in a business that is expected to be viable and profitable, with prospects for future growth and

Neither SGX nor MAS requires a profit forecast to be issued by companies in their IPO prospectuses. But if companies wish to provide forecast, then of course, they need to comply with the regulations that are issued pursuant to the Securities and Futures Act.

The idea of a mezzanine fund along the lines of the SBIC in the US is an interesting one. I understand SPRING Singapore is studying that. They are working together with MAS and other agencies to see whether it is viable and whether it provides a useful complement to existing financing schemes.

Next, I move on to Dr Magad's question on Islamic banking, or Islamic finance more generally. Islamic finance is growing globally, at quite a fast clip. We expect that growth to be sustained. We are looking into how Singapore can service this market. But I should add that the larger opportunity for the financial industry in Singapore is the Middle Eastern market, of which Islamic finance is only a component. In fact, the feedback we get from financial players indicates that the bulk of Middle Eastern wealth is managed through conventional and traditional routes rather than Islamic financial instruments as such. So we are looking with a broader perspective into how we are able to service the Middle Eastern market.

MAS is reviewing the appropriate regulatory framework for Islamic financial services and has been seeking the feedback of the industry. The initial feedback is that our regulatory framework does not impede the provision of Islamic

We also do not currently see the need for a national Syariah Council for the purpose of Islamic financial services. Most of the leading players in Islamic financial services have their own internal Syariah Councils or they refer to the Syariah Councils of their clients. Since most of their clients for Islamic financial services are likely to come from the Middle East or from the region around us, they are likely to refer to their domestic Syariah Councils.

This approach that we are taking is, in fact, broadly similar to what the UK has done, ie, accommodating both Islamic and conventional banking within the existing regulatory framework without establishing new infrastructure or a national Syariah Council. The UK's first fully fledged Islamic bank, Islamic Bank of Britain, is regulated under the same framework as conventional banks and operates under the guidance provided by the bank's internal Syariah committee. It has been a successful approach so far and many Middle Eastern financial players and Middle Eastern clients are quite comfortable using London as a financial centre.

As Dr Ahmad Magad rightly pointed out, whether it is conventional or Islamic financial services, whether it is one set or

Dr Ahmad also raised the issue of Islamic bonds or sukuks. I quite agree that more companies could be encouraged to issue Islamic bonds or sukuks. There is a growing pool of Islamic investment funds out there and a growing demand for Islamic products internationally. There is a good opportunity for non-Islamic issuers to tap on these funds to diversify their investor base. The German State of Saxony Anhalt, for example, has issued a sukuk. Debt teams within banks in Singapore can take the opportunity to encourage both local and foreign issuers to raise capital for sukuk. This is why in the recent Budget, the Government has given the same concessionary tax treatment to pay out from Islamic bonds as is currently granted to interest arising from conventional bonds. This incentive can help to make sukuks that are issued here more attractive to investors.

Next, I move on to Miss Penny Low's question on MoneySense. Miss Penny Low has raised a few questions. First, whether the role played by industry associations in the programme will compromise its objectivity. We work closely with industry to develop the financial education content in the MoneySense programme. But the programme is driven by the Financial Education Steering Committee which comprises various public sector agencies - MAS, CPF Board, MCYS and so on. It is a steering committee that oversees the programme as a whole, comprising public sector agencies, but we have to work with the industry to provide the content. This Steering Committee has put in place procedures to ensure that any programme endorsed by MoneySense remains

But I agree with Miss Penny Low that financial education can be most effective where it is tailored to the needs of specific target groups. We need a variety of approaches. There is some use in general public education aimed at ensuring that Singaporeans have the basic skills of budgeting and saving for the long-term and that they understand the basic risks involved in investment. But we also have to customise our programme for specific groups in the population, whether for school children, elderly folk or low income families. In fact, a lot of the MoneySense activities involve close collaboration with consumer organisations, such as CASE, the CDCs as well as Residents' Committees, to reach out to targeted groups with different needs. Last year alone, MoneySense partnered the CDCs to organise more than 80 talks and workshops for the public. Many were customised to the needs of specific groups of people. For example, workshops were organised for families on financial assistance schemes and for single parents. I think Miss Penny Low is familiar with that. We will do more of this in 2005. We are currently working with the CDCs and relevant community groups to develop customised financial education programmes and will start discussions with the VWOs as well.

For the MoneySense programme to be effective, it must be a long-term sustained effort involving collaboration between the

Co-funding is currently provided for up to 50% of net qualifying expenses. Miss Penny Low had asked whether we could provide a higher percentage for certain types of schemes, for instance, aimed at the low-income families. We are willing to consider that. Perhaps up to a certain dollar cap, we should be willing to provide a higher percentage of funding.

Next, I move on to Mr Arthur Fong's question on fund management, or about the fund management industry feeling that local corporations are obsessed with fees and expense ratios and not paying enough attention to investment strategies, and so on. Our attitude has to be to let the market work well, but ensure that there is adequate financial education. In case of retail investors, we have the MoneySense programme and we are ramping that up in steps. For institutional investors, we have to operate on the premise that they are sophisticated enough to know what their interests are and be able to scrutinise the information provided by fund managers, particularly with the improved disclosure regime that we have in place.

But it is something which we can consider, whether the Investment Management Association of Singapore (IMAS), working together with the Wealth Management Institute (WMI), can organise seminars for institutional investors to help them evaluate fund

Finally, I move on to Miss Penny Low's question on cash-back schemes, particularly for renovation and car loans. This is different from cash-back in the case of HDB purchases. In the case of HDB purchases, cash-back concerns the CPF Board because individuals are taking their money out of their CPF. The CPF Board has taken action to prevent premature withdrawal of retirement funds. In the case of renovation and car loans, you cannot use CPF funds. The concern is a more general one about making sure that Singaporeans are able to service their loans.

Whether for car loans or renovation loans, MAS expects financial institutions to adopt prudent lending practices and to use fair valuations when granting loans.

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Further, whether it is for HDB property purchases or renovations or car purchases, Singaporeans should also be aware that making false declarations of the purchase price to obtain a bank loan, may constitute a cheating offence. Middlemen who instigate or aid in such practices may also be guilty of the offence.

As far as insurance policies are concerned, cash rebates are not prohibited by MAS in the sale of insurance policies. However, MAS has market conduct requirements under the Financial Advisers Act that governs this. Financial advisers and their representatives must make recommendations that are reasonable and appropriate to the needs of their clients. They should not use cash rebates as a basis for their recommendations in the sale of investment products, including life insurance policies. The CPF Board requires insurers to return any cash rebates given to CPF members for the purchase of insurance policies under the CPF Investment Scheme to the member's CPF account.

On investment-linked policies (ILPs), MAS does not set charges for investment-linked insurance policies or for any other financial products. These are commercial decisions that are best left to the market. But we do require insurers to disclose clearly all charges and the underlying charging mechanism. These include the mortality charges, the use of the offer price for creating units owned by the person purchasing the policy and the bid price for unit cancellation, so that policy holders could make informed decisions. In practice, insurers include the mortality tables and the product summary in the policy contract.

Miss Penny Low had, I believe, also asked about mortality tables used in ILPs and other insurance products. The common market practice is for such mortality tables to take account of local mortality experience. This means that they factor in changes in local population life expectancy, as well as the mortality experience of insurers' own portfolio when they review their mortality tables. The insurers review their mortality tables from time to time. But it takes several years. It takes several years for insurers,

The bottomline is that consumers should buy financial products that suit their needs. If they are unsure about their policies they should seek professional help from a financial advisor, especially when considering complex products such as ILPs. A competent advisor should be able to help consumers to analyse their needs and explain the ILPs' features and risks and analyse whether an existing ILP is suitable for the consumer.

expansion. Sesdaq is the growth market. And it has not done too badly. In the last two years, it had 60 listings, almost all local companies. That is almost the same number as the number of local companies listing on the main board in the last two years.financial services. In fact, Islamic financial products, such as Islamic deposits, Islamic funds and takaful insurance are already offered in Singapore under our existing regulatory regime. MAS is quite open to admitting reputable Islamic banks which meet our prudential and licensing criteria to set up in Singapore or, for that matter, other reputable banks offering an Islamic window. But our basic approach is to make refinements to our regulations, rather than fundamental change or to set up a separate or new regulatory framework specifically for Islamic banking. separate sets of regulatory frameworks, the same prudential principles will apply - solvency, liquidity, prudent credit practices and corporate governance. The same principles in these areas will apply. objective and does not serve to promote specific commercial interests. We do not provide funding for programmes that aim to endorse or promote any specific financial institution or prop up membership schemes. In fact, 75% of the funding that we have given over the last year has been for basic financial education, what we call Tier 1 basic money management, or Tier 2 basic financial planning, rather than education on specific investment tools and techniques. public, private and people sectors. The $3 million that we have set aside to co-fund MoneySense programmes for the first three years is really seed money to kick-start the national financial education programme. We keep our eye out especially for schemes that help to build lasting capabilities within the community, for instance, schemes that "train the trainers", or schemes that involve follow-on sessions that Miss Penny Low has mentioned. These are things that we keep an eye out for. managers, ie, how you go about selecting a fund manager. In the process, they will probably get a greater depth of understanding of what risk management entails, why fund managers need to go through the full work of evaluating risks and charging fees for various processes and be able to distinguish good fund managers from fund managers that merely have a low fee. It is something that we can look into. I am not sure if the WMI is particularly well-suited for it because its principal purpose is to train fund managers - to develop a strong pool of trained professionals. But we could look into encouraging WMI to work together with IMAS to develop a seminar for institutional investors. not just here, but around the world, to gather sufficient information to update mortality tables, and given the relatively small population in Singapore, this is not something they would want to rush.

Sir, a clarification. The Minister in his response mentioned that the Singapore Stock Exchange does not require profit forecast as a requirement for approval. But I have come across two examples of this being a prerequisite for approval. So I am quite confused when the Minister is saying that it is not. In any case, perhaps, I would bring it up to his attention about the two cases and then we could get the answer to this question of how approvals are made.

The profit forecast is not a requirement for a prospectus, Sir. Where a company chooses to project a profit forecast, then there is a set of regulations governing what you could include. The issue manager has to certify that the directors have made the profit forecast on a reasonable basis, the auditor has to also certify that proper assumptions were used behind the profit forecast and so on. But it is not a requirement of a prospectus that you must put in a profit forecast.

I would be happy to get further information from Mr Inderjit.

I would take this off-line. Again, the example I have come

across is that this is a requirement by the Stock Exchange for the companies to put a profit forecast in the prospectus and they may be ruled by all those things that the Minister mentioned. So again, I would bring the examples up with him. He may not be aware, but perhaps this should be looked into.

Budgeting Approach

Sir, I am happy with the thought of cost control in Government. It is now quite prevalent in our Government agencies. I ask the Finance Minister, however, not to stop at cost control but to take another step and instead of thinking about control, let us talk about real cost reduction.

While we want to compensate our Government officers in the way that we compensate the private sector employees, we should not just think of the upside part of the high salaries, but should get closer to how people in the private sector are also measured. In tough times, they have to go into serious cost reduction efforts to get profits, or just to survive, and most of it happens through real cost reduction and also in permanent overhead reduction. So I, therefore, ask that it is time that we now get serious about cost reduction. While I am happy that we are putting in place a 3% cap on spending last year and a 5% cap this year, on how the budgets are allocated to the Ministries, I believe that these are still not real cost reduction in nature, simply because if you look at the real spending, the spending has gone up from year to year. I highlighted this last year that for the last five years, or even longer, the spending in Government continues to rise and, therefore, it would be better if it could set cost reduction goals compared to previous years' budgets to show some real cost reduction from year to year.

In the same light, on this issue about manpower reduction, while I welcome the

Sir, another issue that I raised last year, and I would also like to raise this year, is the work done by the Cut Waste Panel. While the achievements are laudable, I believe that more could be achieved. Again, if we look at real cost reduction effort by giving each Ministry or each Government agency cost reduction targets of saving costs, real costs in Government, instead of depending on feedback from the public to suggest to the Government how they could reduce cost.

Perhaps, one way to motivate Government officers to reduce cost is to share some of the cost savings that they have as part of their compensation. So if they could save more than what was targeted, let us share this with them so that they feel motivated that they would get a higher salary if they do a good job in cost reduction.

3% reduction of manpower or whatever targets that had been set, I also have come across practices where the numbers may have reduced but the cost of manpower may have gone up because of the type of people that we hire. So in a real factory example, we may have reduced 100 production operators earning about $1,000 but may have hired 50 engineers that earn about $3,000 or so, the overall cost actually increases. So I would like to ask the Minister to clarify whether the manpower reduction effort has resulted in real manpower cost in terms of payroll reduction.

Budget for Public Relations and Exercises

Sir, we are allocating $135 million for public relations and public exercises in FY 2005 for various Ministries and agencies. This is an increase of about $13 million or 15.8% from the previous year. I understand and support the need for better public

The next part of the question is how much of this $135 million is for buying media time and space. If it is substantial, then even more so we should aggregate the demand and purchase it together.

Finally, in terms of media time and space, if it is substantial, when the Government is granting permit for broadcasting or newspapers, I am sure it could reserve time and space for this sort of public service announcements and, thereby, reducing the strain on the budget.

communication to explain policies and educate people, especially in special times like SARS, or when anything untoward happens. And the work of MCYS, MOH and MHA requires this sort of communication more than others. However, in the interest of good and lean Government, may I ask how are we going to spend this $135 million? Are we getting all the bangs that we could for the $135 million? Should we not centralise all these PR exercises so that we could aggregate the purchases and also trap the expertise in public communication and messaging, retain them, so that the messaging gets better and better, just like what MINDEF has done with its central purchasing - saving money?

Offset Requirement of Defence Procurement

Sir, yesterday I released a table showing other countries got about $1 back into their economy for every dollar they spent on defence. They do so by requiring defence vendors to participate in compulsory offset programmes which are also known as counter-trade. Singapore, I fear, gets very little back in its defence expenditure. Sir, defence weapon procurement is an expensive consumption expenditure.

My question to the Minister is: why do we choose not to engage in offset programmes in our defence procurement, especially when we have structural unemployment, which we do not seem to be able to solve?

In 1999, Singapore procured Apache helicopters for around US$1.7 billion. Four years ago, Netherlands and the United Kingdom also purchased Apache helicopters for US$1 billion and US$2 billion, respectively. But, these two countries required formal offset programmes and, from the data provided, it seems to be that they were able to obtain close to $1 billion and $2 billion in offset into their economy, respectively.

We know that if it is done properly, the incremental cost is around 3% of the purchase price. So, if we had implemented the purchase programme effectively then, we would have a flowback of US$1.7 billion into our economy, at an incremental cost of close to US$50 million. I could safely say that we could have done with US$1 billion or two extra in our economy, even when we were entering into a downturn, starting in the year 2000.

Sir, on a long term basis, our Government is committed to allocating up to 5% of GDP in defence expenditure. Assuming weapon acquisition is around 20% of that number - actually I could not figure out how many percentage is going into long term defence expenditure on acquisition of this nature - then it would be around 10% of GDP. Thus, if we have offset requirement, the positive impact on our economy would be around 1% of GDP, which would be rather significant.

Sir, in doing my research for this cut, I searched the web and one of the items was the press release by the South African Government in 2000. Its analysts showed that with offset requirement, the expenditure on its weapon procurement would be matched by economic spin-off of the offset. The benefits come in three forms. First, in terms of defence related offset, it is about 20%. Second, by counter-purchase by the defence equipment supplier of South African goods, amounting to about 45%. The goods procured include automotive components, furniture, fabricated metal goods, including railway cars, wagons, electronic goods and so on, thereby creating jobs for the South African economy. And, in the third area, foreign investments in South Africa by a company associated with the equipment supplier, amounting to about 35%.

Sir, of course, this is a statement issued by the South African government. It understands the pitfalls, and the success of the entire procurement offset programme would depend on the mechanism that the Government puts in place to carry out this task and to carefully monitor the progress of the investment and counter-purchase project proposed also identified.

In its report, it is also asserted that this offset programme has been implemented for the past 20 years by many countries. Today, more than 130 countries make use of this offset programme. The report asserted that the offset programme has contributed to countries like Japan and South Korea in real improvement to their industrial development policies across a wider spectrum more than defence alone. So I would like the Minister to consider constituting a multi-agency committee taskforce to look into the virtue of counter-trade requirement in our defence procurement. I note that in other countries the offset requirement is not administered

Without offset or counter-trade programmes, very little of this expenditure would give our local economy any multiplier effects.by their Ministry of Defence. So I hope the Minister would look into my request.

Manpower Management Framework