(CONTINUED):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 2000

RESTORATION OF CPF CUT, AND SPECIAL CPF TOP-UP

20 Mr Low Thia Khiang has argued that the Government was benefiting at the expense of workers with their CPF cut, and hence Government policy has resulted in a win-win situation for the Government, and a lose-lose situation for the people.

21 Mr Speaker, Sir, I think Mr Low Thia Khiang has got the cause and effect all mixed up. The CPF rate was reduced during the crisis to lower our business cost, improve our competitiveness and help to save jobs. This was its primary objective. Every company that decides to relocate out of Singapore because other countries in the region have become significantly cheaper due to the weakening of their currencies relative to the Singapore dollar during the economic crisis, would represent a permanent loss of jobs for Singapore. The CPF cut was the single most important measure necessary to improve our cost competitiveness and to retain jobs. Without the CPF cuts, more workers would have suffered as companies retrenched or closed down. The cost cutting package played a critical role in helping us get out of the crisis quickly. The higher tax collection is a direct result of the strong economic rebound and the timely measures taken by the Government. The higher income tax collection could only come from higher profits and wages, generated by our people having real jobs producing real goods and services which the world finds worth buying. It is therefore contorted and invidious logic to suggest that the CPF cut is an exercise aimed at transferring monies from the people to the Government's pocket. Ultimately, we should remember that the accumulated reserves belong to the people of Singapore and not to the Government.

22 Mr Ong Ah Heng, Mr Peh Chin Hua and Mr Chiam See Tong have urged that the CPF rate cut should be restored faster. The 10% CPF cut which took effect from 1 January 1999, was originally planned to stay for two years. This period would allow the economy to regain its cost competitiveness. Once the economy had recovered, the cut will be progressively reduced. Given the faster than expected rebound, restoration of the CPF cut was brought forward to April 2000 instead of after 2 years. However, in order not to prematurely derail our business competitiveness and the economic recovery, the pace and quantum of the restoration has to be gradual. It took us 5 years and 4 months to restore the CPF cut in the 1985 recession, with the first step taken only after 28 months. We are now taking our first step this time after just 15 months.

23 Dr Teo Ho Pin and Mr Peh Chin Hua have asked why the CPF top-up could not have been made bigger. I should point out that the Special CPF Top-up is not meant to fully or significantly compensate for the CPF cuts, as doing so would defeat the purpose of the cuts in the first place. Instead, it is given to recognise the sacrifice of the workers in accepting CPF and wage cuts to help lift the economy out of the recession. The quantum of the top-up is in line with top-ups given by Government in earlier years.

24 Dr Vasoo has asked that retirees and retrenched workers should be given a grace period to make their one CPF contribution so as to receive the $250 special CPF top-up. I should point out that the Special CPF Top-up is targeted at those who have been directly affected by the wage and CPF cuts and by retrenchments. It is both reasonable and appropriate that the Special CPF Top-up should be extended to the Singaporeans who had worked, and therefore contributed to CPF, anytime in the 1998 and 1999 period. This will cover those who had been retrenched or retired during this period. Allowing Singaporeans to top up their CPF accounts in order to qualify for the Special CPF Top-up will detract from the purpose of the exercise.

CIVIL SERVICE PAY

25 Mr Simon Tay and Mr Low Thia Khiang have expressed concern over civil service pay. Mr Tay asked why, when the CPF cut has not yet been fully reinstated, the civil service should be reinstating its full cut. Mr Speaker, Sir, the civil service is only restoring the pay cut made on 1 Jan last year, when the civil service took the lead in implementing pay cuts. The CPF cut for civil servants is still in place, just like all other Singaporean workers. I also want to point out that contrary to what Mr Tay believes, civil service pay has not been fully restored. Cuts to the monthly salaries of civil servants made on 1 Jan 1999 (up to 5 percent) were restored on 1 Jan 2000, but the total annual package has yet to be fully restored. This is because the Annual Variable Component (AVC), which was cut from 2 months to 0.75 month in 1998 was only built up to 1 month in 1999. If we include the 0.25 month Special Bonus that was paid to civil servants last year, the total annual package (14.25 months - including 1 month Annual Wage Supplement, 1 month AVC and 0.25 month Special Bonus) for 1998, is still 0.75 months less than the 15-month package paid in 1997.

26 The decision to restore civil service pay cuts took into account the recovery in the economy, the need to attract and retain talent and to maintain the high quality of our public service and government. Based on CPF records, the average monthly earnings of the entire workforce, including civil servants whose wages fell, grew by 2.7 percent in 1999, reflecting higher wage adjustments and overtime payments. In fact, in the last quarter of 1999, the average monthly earnings of the workforce were 5.9 percent higher than the same period one year ago.

27 The increase in manpower expenditure for Fiscal Year 2000 appears large at 10.8 percent because it is compared against a lower base of Fiscal Year 99 which included the CPF and salary cuts for civil servants and political appointments. The partial restoration of these cuts accounted for the bulk of the increase in manpower expenditure (more than 8 percentage points out of the 10.8 percent increase). Discounting the restorations, the increase in manpower expenditure is only 2 percent, which is lower than the projected GDP growth. This is mainly due to normal salary increments. Government is committed to keeping the Civil Service lean and trim, and over the years has farmed out non essential services to the private sector and harnessed IT to bring about added efficiencies. This will continue.

CORPORATE TAX RATE

28 Mr Tay Beng Chuan has asked why the corporate tax cut of 0.5 percent will be applied with effect from Year of Assessment 2001, rather than Year of Assessment 2000.

29 As I have explained earlier, the 0.5 percent corporate tax cut is not a replacement for the 10 percent corporate tax rebate granted during the crisis. The tax cut is intended to ensure that our tax rate remains competitive. The 0.5 percent tax cut will therefore take effect from the next Year of Assessment, which follows our normal practice when making adjustments to our tax rate.

30 As to whether we will be cutting the corporate tax rate further, I had announced in the Fiscal Year 93 Budget that Government's medium term target rate for corporate tax is 25 percent. We are now very close to this target. But I cannot say how low our corporate tax rates will be in future as it will also depend on what other countries do. What we do know is that we will have to do whatever is necessary to compete to attract investments and talent to locate and stay in Singapore.

GOVERNMENT'S ROLE IN THE NEW ECONOMY

31 Members have expressed disappointment that the Budget does not appear to address the transition to the new economy. Mr Speaker, Sir, I think that is a misperception. While there may not be many new initiatives announced in the Budget, this is because Government had recognised the need early and already launched many initiatives. We have, over the past years, put in place and are continuing to support many programmes covering education, training, and infrastructure and manpower development. These include the IT Masterplan in the schools, the Thinking Schools Learning Nation vision, the Manpower 21 and the Technoprenuership 21 initiatives.

32 Mr Chng Hee Kok has asked how Government intends to promote growth in the new economy. Mr Speaker, Sir, the new economy, as exemplified by the United States, is one in which productive investments, deregulation and the leveraging of technology raises productivity, and allow higher economic growth at low inflation. This is what our Government hopes to achieve by developing Singapore into a globally competitive knowledge economy. To this end, as mentioned in my Budget Statement, we will actively pursue the economic strategies mapped out by the Committee on Singapore's Competitiveness (CSC).

33 An important key to Singapore's success in the new economy is innovation and enterprise, creativity and entrepreneurism. What Government can and should do to promote innovation and enterprise is capability-building. This explains our heavy investments to educate and train our children and workers, and the continuous effort to finetune our education system and workers' training. This is so that they will have the ability and attitude to constantly learn and adapt in the new economy. We must never forget that the majority of our people will still be employees, and only a minority will strike out on their own as entrepeneurs. But, for Singapore to prosper, we need every Singaporean - not just entrepreneurs but employees as well - to be enterprising and innovative.

34 To encourage entrepeneurship, Government launched the Technopreneurship 21 or T21 initiative last year. Under T21, we aim to create a pro-enterprise environment, enhance venture investment and financing in Singapore, provide a conducive environment for talent to congregate, and infuse in the population a culture of innovation and enterprise. Thus far, we have, among others, introduced a Technopreneur Investment tax incentive and Qualified Employees Stock Options Scheme, allowed technopreneur home offices, set up a US$1 billion Technopreneurship Investment Fund (TIF) to draw more venture capital activities and talents into Singapore, and revised the Bankruptcy Law. NSTB and partnering agencies are in the process of working on the next wave of T21 implementation, and a second set of changes in rules and regulations will be forthcoming.

HELPING WORKERS ADAPT TO KNOWLEDGE-BASED ECONOMY

35 Members including Dr Tan Boon Wan, Dr Ong Chit Chung, Mr Hawazi Daipi, Mr Seng Han Thong and Mr Ong Ah Heng have asked for more measures to help especially the less educated or older workers cope with the demands of the knowledge-based economy. Mr Speaker, Sir, the Government accords high priority and has already put in place many assistance schemes to encourage the training and re-training of our workers. For the upgrading of the technical skills of workers, the Initiative for New Technology (INTECH) programme under the Economic Development Assistance Scheme (EDAS) has a total of $800 million. As part of the Manpower21 initiative, the Government has also launched a $200 million Manpower Development Assistance Scheme (MDAS) to promote skills upgrading for the lower-skilled workers. Under the MDAS, a budget of $110 million is allocated to Workforce Development Programme, comprising Skills Redevelopment Programme for unskilled and semi-skilled mid-career workers, and Strategic Manpower Conversion Programme for professionals. A budget of $40 million is earmarked for the development of the National Skills Recognition System to establish and train workers in clear standards of competency. The Government is also providing $50 million for MOM to develop learning infrastructure to assist and facilitate industries to build up their own capabilities to provide training for workers.

36 Given the abundance of schemes to help workers' training and retraining, there is no pressing need to give more tax incentives, such as double tax deduction, on training. A double tax deduction scheme will benefit primarily the profitable and bigger companies, and will provide only limited help to the loss-making and smaller companies. Larger companies, defined as those with more than 500employees, currently spend about 6.3 percent of payroll on training, whereas the figure for smaller companies with less than 50 employees is 2.3 percent. Hence, the challenge is to encourage SMEs to intensify their workers' retraining efforts. For these companies, tax incentive is not the most appropriate remedy.

37 Mr Chew Heng Ching, Mr Ong Ah Heng and Mr Leong Horn Kee have suggested tax relief or co-payment grants to every Singaporean or family to enrol in an IT course or to buy a computer. The Government is well aware that as we move towards a Knowledge-Based Economy and an Information Society, the risks of fault-lines developing between the IT-savvy and the non-IT savvy will increase. It is important that IT courses and PCs be made accessible to all Singaporeans. This is not a problem for the young, who are getting such exposure and access in schools and tertiary institutions. What we need is to address the needs of those who are not schooling and who have no access to PCs because they cannot afford them. For these people, the suggestion of tax relief or a co-payment scheme will not be the best solution. After all, 65 percent of taxpayers base currently do not pay taxes. A targeted effort will be more effective in helping Singaporeans who really need such assistance. IDA is setting aside $25 million over the next 3 years to work with self-help groups and grassroots organisations to offer used PCs bundled with free Internet access and basic training to some 30,000 low-income households. Free broadband access will be made available at community centres and clubs. Government also has in place various schemes to provide affordable IT training or to help defray part of the cost of IT courses. These include the ONE Learning Place, the IT Coach, the Critical IT Resource Programme, the Skills Development Fund and the Skills Redevelopment Programme.

DEVELOPING SMEs

38 Mr Inderjit Singh, Mr Kenneth Chen, Mr Gerard Ee and Mr Noris Ong have asked for more assistance, such as tax concessions, for SMEs to participate in the Knowledge-based economy. I should point out there are limitations in using the tax route to help SMEs develop. This is because SMEs do not pay much tax in the first place. Based on 1998 tax collection, companies with assessed income of $100,000 or below accounted for only 1.7 percent of the net corporate tax assessed. The Government has therefore chosen to assist SMEs comprehensively via grants, loans and technical assistance schemes.

39 Productivity and Standard Board released last year a 10-year strategic plan, SME21. Specifically, SME21 will groom innovative High-Growth SMEs so that, over time, a steady stream of SMEs can reach world-class status. The aim is to treble the number of local SMEs with sales turnover of $10 million and above, from 2,000 to 6,000 by year 2010. Secondly, SME21 aims to upgrade the low-productivity SME sectors, such as the retail and other domestic service sectors. Thirdly, SME21 aims to create a knowledge-based, pro-enterprise environment. For instance, e-commerce, if embraced and harnessed by SMEs, will open up vast opportunities and remove the traditional barriers to SME growth. The aim is to quadruple the number of SMEs with e-commerce transactions from 8,000 to 32,000 by the year 2010.

Please click here to read more.