Round-Up Speech For The Debate On The Financial Year 2000 Budget Delivered By Dr Richard Hu, Minister For Finance, At Parliament House On 7 Mar 200007 Mar 2000
Mr Speaker, Sir, first, let me thank all the Members of the House who have spoken on the Budget yesterday and today. In view of the time constraint, I can only focus on major issues raised and leave matters of detail to the Committee of Supply.
2. Members such as Mr Ang Mong Seng, Mr Heng Chiang Meng, Mdm Claire Chiang, Mr Kenneth Chen, and Mr Chiam See Tong have commented that the Government had been too quick to scale down the tax cuts given during the economic crisis. There is disappointment that the 10 percent corporate tax rebate will be discontinued, and that the personal tax rebate and the property tax rebate for commercial and industrial properties are cut back from 10 percent to 5 percent and 55 percent to 25 percent respectively.
3. Mr Speaker, Sir, when I presented the Fiscal Year 99 Budget last year, the outlook for our economy was very uncertain, with GDP growth for year 1999 forecasted at between -1 to 1 percent. The Government had taken decisive action in introducing the $10.5 billion cost-cutting package in Nov following a $2 billion off-Budget package in June 1998. We would have been prepared to do more if this was necessary. As events turned out, the timely restoration of our cost competitiveness had kept businesses intact, while an improvement in external demand paved the way for a recovery which gained momentum and became broad-based in the second half of 1999. Most sectors, barring construction in particular, are out of the woods. Retrenchments have gone down drastically. In 1998, 29,100 workers were retrenched. This year this fell sharply by 50 percent to 14,600 retrenched workers in 1999. Based on CPF records, the average monthly earnings of the workforce in fact grew by 2.7percent in 1999, reflecting higher wage adjustments and overtime payments.
4. With the recession largely behind us, we have to focus our attention to repositioning our economy in response to the challenges of globalisation and technology, while easing our way out of the special cost-cutting measures. We must not forget that the cost-cutting packages were meant to be temporary measures to help companies and individuals during the economic crisis. They were not meant to be the norm.
5. The tax measures should not be seen in isolation. We have not totally withdrawn the cost-cutting package. Reductions in foreign workers' levy have been left unchanged for another year, till the end of year 2000. JTC and HDB will also maintain the rental concessions for another year to the end of this year. The property tax concession, which was already extended for one year earlier, continues for another year, though at the lower rate of 25 percent instead of 55 percent. Even at 25 percent, the rebate is still significant, amounting to an effective cut in the property tax rate by 3 percentage points. The GST offset for individuals, and utilities rate revision offset for households, continue. We will also continue with assistance schemes under the HDB as well as the CPF bridging loan scheme and use of CPF Special Account to help home buyers meet shortfalls in mortgage repayment caused by the CPF cut.
6 The 10 percent corporate tax rebate was meant to help companies during the crisis. There is no need to carry on with this crisis measure. However, we should position ourselves for strategic international competitiveness in tax. The corporate tax cut of 0.5 percent is a cautious next move to maintain our tax competitiveness.
7 The 10 percent personal income tax rebate last year was given as a measure of relief. The pressure for relief has diminished. The 5 percent personal tax rebate this year takes into account the modest Fiscal Year 2000 Budget surplus of $2.5 billion, which is significantly less than the budget surpluses before the economic crisis.
8 Let me stress that the Government fully recognises that our workers had lived with the difficult years of 1998 and 1999, when some were retrenched and all had to take a CPF cut under the cost-cutting package. We are particularly grateful to the trade union for their solidarity and support for the CPF cut. The Special CPF Top-up announced in the Budget does not make up for all they had foregone in CPF contributions but is a gesture of appreciation and recognition. This top up will amount to $385 million. The unexpected Fiscal Year 99 budget surplus has made it possible for Government to make this Top-up. Government will also make transfers of $100 million and $200 million into the Medifund and ElderCare fund respectively to help the poor and the aged with their medical expenses. After taking into account the top up and the transfer, the Fiscal Year 99 budget surplus is expected to be $2.5 billion.
9 Mr Speaker, Sir, as the economy recovers, we should revert to a prudent fiscal stance. The Asian crisis has taught us an important lesson. Other countries can turn to their assured large domestic economic hinterland and natural resources for livelihood in times of hardship. Singapore only has its financial reserves to fall back upon. We need to build up our financial reserves when we can, to make sure that when hard times hit, we have the wherewithal to deal with and get ourselves out of the economic crisis quickly.
10 I will now proceed to address the other major issues.
11. Mr Chiam See Tong claimed that the budget surplus was not based on the total revenue received by Government and that the budget balance should include investment income and proceeds from land sales. Mr Speaker, Sir our Budget Surplus is indeed defined as Operating Revenue net of Operating and Development Expenditure, and excludes specifically investment income and proceeds from land sales. The Budget Surplus is defined in this manner to ensure that Government lives within its means, and does not live off the past. Trying to live off investment income and proceeds from land sales is both unwise and unsustainable. We have a limited amount of land in land-scarce Singapore, and investment income is needed to preserve the real value of our reserves. Using up all the investment income, will, over time, result in the diminution of the value of our reserves. Reliance on land sales as a source of current revenue is a two-edged sword, as Hong Kong's experience has shown. To ensure the sustainability of Government's budget, Government's expenditure each year must be supported by the operating revenue collected, barring recessionary conditions. No amount of reserves will be enough to sustain a Government that perpetually lives off the past.
12 Dr Wang Kai Yuen, Mr Leong Horn Kee, Mr Iswaran, Mr Noris Ong and Mr Tay Beng Chuan have all asked why Government ended with a budget surplus in Fiscal Year 99. Mr Speaker, Sir, the Fiscal Year 99 budget was originally planned based on the circumstances at the beginning of 1999. The outlook then was quite pessimistic. As I said earlier, the Government's projected 1999 growth was between -1 to 1 percent and we were not alone in expecting a weak growth at that time. The Asia Pacific Consensus Forecast, which polls GDP forecast from various private sector sources, had in January 1999 forecasted a growth of -0.8 percent for Singapore for the year. Could we or should we have foreseen that the economy would register a steep V-shaped recovery by the 2nd quarter of 1999? The simple answer has to be no, and neither did anyone else. If Members believe that they have a magic formula for forecasting economic recoveries, I hope that they will share with us.
13 Mr Speaker, Sir, the Government did not set out to achieve a budget surplus and was prepared to spend much more as necessary to stimulate the economy. As I have said earlier, the Government introduced two off-budget support packages in June and in November 1998 as our economy slid into recession. The cost of the $2 billion package in June was entirely borne by the Government while the $10.5 billon package in November contained substantial cuts in Government taxes and levies. At the same time, a contingency package of additional public sector expenditure was put together to provide support for the economy if conditions worsened in the course of 1999 and additional jobs had to be created to provide employment for retrenched workers. It was this combination of an anticipated low revenue collections in a low-growth economy, coupled with substantial tax and levy cuts and increased provisions for contingency spending which led to the forecast of a budget deficit.
14 However, as it turned out, our economy grew by a respectable 5.4 percent in 1999 due to the upturn in global electronics demand and the strong rebound of the regional economies. This was a increase of more than 5 percent in GDP growth over our Fiscal Year 99 budget forecast. Our operating revenue, which is strongly correlated to the performance of the economy, turned out to be much higher than originally expected. This, coupled with the lower tender prices for major development projects and the non-acceleration of some lower-priority projects, led to the large swing in the budget position. No magic is involved.
15 Mr Speaker, Sir, the budget surplus outcome was something we could not have foreseen, but neither is it something that we need to be ashamed of. The budget surplus is a happy outcome as it is the result of a strong and speedy V-shaped recovery from the crisis. There was no reason for the Government to spend frivolously just to avoid showing this surplus. This would not be in the best interest of Singapore and Singaporeans.
GOVERNMENT EXPENDITURE ON DEFENCE, EDUCATION AND TRAINING
16 M J B Jeyaratnam said that we are spending more and more on defence. Mr Speaker, Sir, as I have explained to Mr Jeyaratnam last year, as Singapore's GDP increases over the years, in absolute dollars, we will then spend more on national defence naturally. The safety of our people and all that we have worked for and saved all these years will be at stake if we do not maintain a strong military defence capability.
17 Mr Jeyaratnam accused the Government of only training the workers when they are old, instead of when they are young. Mr Speaker, Sir, in FY2000, our budget for the Ministry of Education and the Ministry of Manpower will increase by 17 percent and 68 percent respectively. And this is not lip service. This Government has recognised right from the beginning the importance of investing in our children. We have been advocating meritocracy from the very beginning since our independence, so that no child will be deprived of the opportunity to go to schools and to develop to his or her very best potential just because he comes from poor families. We have long sounded the clarion call for our workers to train and re-train, and put in place a full range of supporting schemes.
GOVERNMENT EXPENDITURE ON INFRASTRUCTURE
18 Dr Wang Kai Yuen, Mr Simon Tay and Mr Tay Beng Chuan have urged that Government should bring forward construction projects to support the growth of the economy. Government had, at the beginning of Fiscal Year 1999, set aside funds for new projects that may be needed to help stimulate the economy during the course of the year. Such projects involve building enabling infrastructure earlier than they are needed and would not have been considered under normal circumstances. However, once it became clear in the course of 1999 that the economy was recovering strongly, it did not make sense to implement these projects as doing so will only incur costs for a marginal gain in the face of an economy which was already turning around. Members of this House may wish to note that for our economy, external demand makes up 75 percent of total demand. So stimulating domestic economic has quite a small effect on our GDP.
19 Dr Wang Kai Yuen and Mr Lew Syn Pau had commented that the $979 million set aside for new projects in FY2000 was unusual. I can assure him that there is nothing 'unusual' about a provision for new projects. There was a similar provision of about $1 billion in the Fiscal Year 99 budget. I should explain what is meant by new projects. New projects are projects that are already on the drawing board and for which some details have been drawn up. However, they have not yet been approved by the Development Planning Committee and are thus classified as new projects. When these projects are approved and initiated in the course of the year, funding has to be provided for them. Viewed in this perspective, the amount set aside for these new programmes is not large as it constitutes less than 8 percent of the total development budget for the fiscal year.
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