Continued: Budget Debate 2002 (Round-Up Speech) by DPM and Minister for Finance Lee Hsien Loong at The Parliament, 14 May 2002

SMES

Enough done for SMEs? (Penny Low, Iswaran, Amy Khor, Leong Horn Kee and Chin Tet Yong)

Complaint that Budget has nothing for SMEs. But decrease in CIT benefits SMEs too, plus last year's offset package carries on - rental rebates, lower FWL - to be reviewed end of year when the state of the economy is clearer.

We must distinguish between 2 categories of SMEs: the existing ones in the retail sector, and newer SMEs in the technology line.

The existing SME retail sector faces a structural problem. There is an excess supply of shops and not enough business. In older housing estates, there is one shop per 70 flats, whereas with newer estates it is about one shop per 120. Some rationalisation is unavoidable. We cannot solve this problem overnight, but I hope that over time we can improve business conditions for SMEs.

New SMEs may face difficulty in securing funding, especially those not involved in technology. Govt not good at being venture capitalists, and should therefore stay out of it. We can only kick start the process and provide the infrastructure for the venture capital industry here. Normal that many SMEs don't get funding - in Silicon Valley, only 1 in 20 get funding.

Favouring SMEs in govt contracts would only result in inefficiency, e.g. in Japan and Germany. Better to have schemes to help SMEs get started and improve productivity and capability, e.g. LEFS, but we cannot keep them afloat if they are not competitive.

Future of economy does not lie in just having SMEs. We rationalise traditional SMEs, but also need new growth areas which will create new jobs for those who have lost their current ones.

GLCS

Are GLCs stifling entrepreneurship and crowding out local players? (Amy Khor) Should Govt simply divest GLCs? (Inderjit Singh)

Not the mission of Temasek or GLCs to crowd out SMEs. Some overlap is unavoidable, especially by statutory board companies in the process of being completely privatised. But our policy is there should be strictly an arm's length relationship between such companies and their statutory boards, and the two should be completely separated as soon as possible.

Wang Kai Yuen says we post senior civil servants to GLCs. Inderjit's critique - GLCs are run commercially, and not by senior civil servants posted there. If he knows actual cases of stifling of entrepre-neurship, crowding out local companies through unfair practices, or dominating and predatory practices compelling foreign companies to work with GLCs, he should let me have the evidence and I will be happy to investigate personally and put it right.

Competition is a fact of life - privatising GLCs not a solution for SMEs as SMEs will still face competition from other big entities, since GLCs will still be there though owned by someone else.

Broader question is, are GLCs competing fairly? If so, then they deserve to win even if due to their advantage of size. Are GLCs harming the economy?

CPF

Although Inderjit Singh argued for lower CPF contribution rate in the longer term, Othman Haron voiced the concern that workers might face difficulties with their housing commitments if CPF contribution rates were lowered.

Agree with Matthias Yao that: the fundamental objectives of the CPF should not be diluted. CPF is for retirement, housing and healthcare needs. Everthing else should be secondary. We should not use it as a macroeconomic tool to alter the money supply or disposable income.

Workers should be receptive to changes that might be necessary if they are not to be priced out of jobs. But any changes made will be phased in carefully. Give as much time as possible for Singaporeans to adjust.

MISCELLANEOUS

Medical benefits for female civil servants

Halimah Yacob led the charge in calling for female civil servants' dependents to be allowed to enjoy medical benefits. Sentiment echoed by Irene Ng, Amy Khor and Lim-Ho Geok Choo. Chin Tet Yung also voiced support.

Under the Medisave-cum-Subsidised Outpatient (MSO) Scheme, which officers in existing service can opt for at any time, the treatment in medical benefits between male and female officers has effectively been aligned by allowing the transfer of any unused balance in the annual cap of $350 to the officer?s Medisave account at the end of each year. But of course, for people on the old schemes, there is still a distinction.

HDB parking charges

Chin Tet Yung, Halimah Yacob, Lim-Ho Geok Choo and Chiam See Tong raised this. There is a basic 'user-pays' principle involved - car park costs have to be fully recovered from car owners. Unlike essentials like health, public housing and education, where Govt subsidises very heavily. But these points to be dealt with when the COS discusses MND's budget.

Older workers

Othman Haron, Hawazi Daipi, Amy Khor and Irene Ng asked for more help to be given to older workers to find jobs.

Older workers face a specific problem. The issue is not one of funding or availability of training programmes but the matching of such workers with existing job vacancies.

The People for Jobs Traineeship Programme (PJTP) attempts to facilitate this job matching process for unemployed mature workers. As at end Apr 2002, close to 2,000 unemployed workers and executives have found new jobs under this programme.

Some workers are still reluctant to take on certain jobs. As at end Apr 2002, there were about 1,200 unfilled job vacancies under the PJTP. 34% were in the areas of hotel customer service and housekeeping, sales and retail and waiters/waitresses.

Better to make initiatives like the PJTP work, than to introduce more permanent measures like subsidies and rebates.

Stragglers

MPs like Amy Khor and Yeo Guat Kwang called on the Government to take care of Singaporeans who are struggling to cope with the economic restructuring.

That is indeed the basis for the generous offset package for the GST. Special attention was given to ensure the lower income are not worse off.

CONCLUSION - COMPETITIVENESS

Have addressed the major points raised. Have not fulfilled all wish lists, but perhaps just as well. Inderjit Singh asked for a 30% reduction in prices of properties, halving of the petrol tax, ERP charges, foreign worker levies and property tax. Is he sure he wants this? He has given you his wishlist but he has not shown you the bill. Unlike Santa Claus, Govt has to foot this bill. If we do all this, we may need a much higher GST, maybe 10%.

Many MPs, such as Amy Khor, have claimed that this is not the complete response. ERC recommendations yet to come. We are working on it: sectoral policies, CPF, human resources, taking care of restructuring. Will take time to work these out and implement them. First step is fiscal reform, and that is what we have introduced.

Competitive pressures are increasing but we can rise up to the challenge. There are strong reasons to believe we can succeed:

• Our traditional strengths, e.g. political & social stability, market access to major economies, pro-market govt policies, ability to adapt to changes quickly.

• We are still competitive. World-class companies still find S'pore a compelling place for investments, e.g. $7 billion joint venture between Advanced Micro Devices and United Microelectronics Corporation to build S'pore's 15th wafer fab plant. Still attracting regional HQ activities from companies like Dupont, IBM and Toyota.

• We are actively building capabilities in eme rging growth areas - support for R&D activities, investment in higher education.

We are doing the right thing. We are still getting growth and investments. These tax changes will put us on a sound footing to enjoy economic growth beyond the near term.

Fully agree with Mrs Yu-Foo: Singaporeans must take heart and not be discouraged. With the Economic Restructuring package, Singaporeans will have good reason to face the future with hope and confidence.