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Speech By Mr Raymond Lim, 2nd Minister For Finance At The Committee Of Supply Debate 2006 In Parliament, 1 March 2006 (cont'd)

01 Mar 2006

14. Mr Leow has also raised the issue of Government procurement rules. Our rules aim to achieve value for money in public expenditure through fair and open competition. We do not favour GLCs or SMEs ? fair and open competition. We do not give preference to or discriminate against any supplier, whether local or foreign, large or small, Government-owned or otherwise. Each supplier is assessed on its own merits. We believe this is the best way to grow a strong, resilient and competitive business. I believe that a vibrant SME sector is an important part of the economy. SMEs do face some inherent difficulties due to their size. They are small and so they have certain inherent disadvantages. Competition from bigger companies is inevitable. The way to help them is not to give them preferential treatment on Government contracts, but to enhance their capabilities and opportunities to better compete.

15. Sir, in response to Mr Leow's question as to what are some of the things we are trying to do to facilitate SMEs to better compete, what we have sought to do is to make it easier for them to participate in the Government procurement market. First, we have amended our rules so that we no longer require a track record for the purpose of registration as a Government supplier. New start-ups and SMEs can now register and bid for Government procurement tenders straight off. Second, SMEs can join forces by forming consortia to bid for high value tenders without forgoing their individual identities. To facilitate SMEs coming together to participate in such tenders, MOF has issued a new set of guidelines to recognise the combined strength of smaller companies. Third, on 1st April 2005, suppliers were given one free user account for GeBiz, the Government's e-procurement portal which all suppliers of products and services to the Government are expected to use. This helps cut business cost for the suppliers, especially SMEs. From 1st April 2005 to 1st December 2005, the number of suppliers registered with GeBiz as a trading partner has increased from 11,000 to 17,500, a 59% increase.

16. Now the good news is, and this is in reference to his point on whether GLCs get more contracts than SMEs, that our smaller enterprises, our SMEs, have fared well against the competition when it comes to Government tenders. Out of 374 Government tender contracts below $100,000, awarded between April and November last year, 70% went to companies with net assets below $250,000.

17. Next, let me touch on what Mr Wee Siew Kim brought up on public-private partnership or public finance initiatives, as he referred to them. This is another form of Government procurement. PPPs are long term partnering relationships where we bring together the expertise and resources of the public and private sectors to deliver services to the public at the best value for money. We have awarded four PPP tenders to-date. It will take time to fully evaluate the benefits. But the early results are encouraging. For instance, taking the PPP approach for the desalination and NeWater project has helped to lower the overall cost of water. By leaving the choice of desalination technology to the private sector, PUB was able to purchase desalinated water at a price which is highly competitive internationally. The PPP tender for the NeWater project also yielded very favourable tariffs. The guideline is that PPPs should be considered for all projects above $50 million in capital value. Given their scale, the PPP providers tend to be a consortium. SMEs can participate in the PPP consortium as partners, contractors or subcontractors. Our first PPP project to supply desalinated water to PUB was, in fact, awarded to Hyflux, a home-grown local enterprise. Hyflux's Chief Executive, Olivia Lum, said that the PPP scheme had actually made it easier for the SMEs to participate in such large scale projects. I asked her when we had the launch of the PPP scheme and she said it is because of the consortium arrangement where the main company is likely to outsource work to other smaller companies without these smaller companies having to go through a tendering process.

18. A final point I would like to make on Government procurement, as brought up by Mr Lawrence Leow, is how do we evaluate it? Evaluation of tenders and the decision on the award of tenders are kept separate. They are decided by different committees in the public sector agencies. This is to ensure both rigour and due process in Government procurement. It is neither appropriate nor desirable for an external party such as the Pro-Enterprise Panel to decide on a Government agency's procurement. What is critical is to have decisions made at the right level, with good checks in place, to ensure fairness and thoroughness in evaluation to make sure that we secure cost effective contracts.

Retirement Savings

19. The second thrust of our fiscal policy is to create an environment that is beneficial for citizens in providing them hope and progress for the future and the opportunity to be the best that they can be. We have over the years lowered the personal income tax rate and made changes to our tax system. At the same time, our tax treatment of savings aims to encourage Singaporeans to save for their long-term needs.

20. Dr Ahmad Magad has raised the issue of retirement saving plans. In Singapore, the CPF system provide the basic framework for retirement savings. Tax exemption is given for contributions in investment returns and withdrawals. Those who wish to set aside more for their retirement savings, over and above the mandatory CPF contributions, have several avenues today. I think it is useful just to outline them. First, Singaporeans and PRs can make voluntary CPF contributions to top up their mandatory CPF contributions up to a ceiling of $25,245 per year. These voluntary contributions enjoy the same interest rates as CPF monies although they do not qualify for tax relief. Second, they can also contribute to the supplementary retirement scheme, SRS, which I think he mentioned just now, which provides tax deferrable benefits. Contributions to SRS are eligible for tax relief and investment returns are not taxed at the time of accrual. Only 50% of the withdrawals are taxable at retirement. But, with proper streaming of the withdrawals after retirement, many people would pay little or no income tax on their SRS withdrawals.

21. The SRS contribution cap is linked to the CPF salary ceiling as the SRS is also meant for foreigners wanting to save for their retirement but who no longer enjoy tax relief for CPF contributions. The CPF salary ceiling is set at the 80th income percentile. Those who earn more than the 80th percentile should be able to save more if they want more for their retirement. They should not expect the Government to provide tax benefits for doing so. The SRS can be part of the extra savings but is tied to the CPF salary ceiling. Dr Magad has asked whether the SRS scheme can be enhanced. I think Members during the Budget debate have also raised the same issue. The Ministry of Finance is prepared to review the SRS contribution cap in the years to come. But such a review has to be done within the larger context of enhancing Singaporeans' retirement adequacy, including the question of how to improve the rate of return on CPF money as mentioned by Mr Inderjit Singh in the Budget debate.

22. Third, Dr Magad referred to section 5 of the Income Tax Act. Under section 5, employers can enjoy a tax deduction for making contributions for their employees to pension funds approved under the Act. But, there is a qualifier. All of these funds must be for retirement benefits and must be available to all staff. Dr Magad has suggested that we leave it to employers as to who shall benefit from this scheme. If we allow this, it will become a scheme which companies can use for attrac ting and retaining key personnel, mostly executives, rather than a scheme for supplementing the retirement benefits of all employees. This does not mean that we should, therefore, not allow it. It means that if we do allow it, it is for purposes of attracting talent rather than enhancing retirement adequacy of everyone. So this is something which my Ministry will have to study carefully.

23. With an ageing population, enhancing the retirement adequacy of Singaporeans is a major priority for the Government. We have several schemes in place, as I have outlined earlier. If Dr Magad or other Members of this House have specific proposals on how any of these schemes can be improved, I will certainly welcome them, with the assurance that they will be studied very seriously, because this is something where we share the same concerns.