MOF Committee of Supply Speech 2015

A. INTRODUCTION

A.1 Mr Chairman, I thank the honourable Members for their thoughtful comments and questions for the Ministry of Finance.

A.2 Let me start by addressing the questions on public sector manpower.

B. ENSURING SUSTAINABLE PUBLIC SECTOR MANPOWER GROWTH

B.1 Mr Liang Eng Hwa and Dr Lim Wee Kiak were astute in pointing out the need for public sector manpower growth to be disciplined and sustainable.

B.2 I should first emphasise that Singapore has a leaner public sector than most other countries^[1]. It has grown bigger in recent years as new programmes were introduced, but growth has been broadly in line with that of our resident labour force.

B.3 Going forward, we face a serious and increasing challenge. First, resident labour force is expected to grow at a slower rate, considerably slower in the coming years. The public sector needs to grow, but it cannot grow very much faster than our resident labour force growth without making things difficult for the private and community sectors. In any case, as a matter of good practice, the public sector should not grow in an unrestrained way.

B.4 Second, however, almost every new programme or service that the public welcomes also requires additional manpower, no matter how efficiently we operate. As Mr Liang mentioned, the Home Team requires 2,000 more officers over the next 5 years to meet emerging security challenges, even with greater use of technology. Nor is there any substitute to having case officers at our Social Service Offices with the human touch to help Singaporeans in need.

B.5 We have already started adjusting to the changing demographics of our population. The Government has taken the lead to offer re-employment beyond 65, so that older officers who are able to contribute can choose to continue working.

B.6 In addition, we must ensure that the public sector can be productive and impactful in serving the public and Singapore’s interests, even with our manpower constraints. Let me elaborate.

B.7 First, we have to seek synergies and better coordination between agencies wherever possible, and avoid duplication of resources and tasks. Organisational streamlining or restructuring must always be part of the range of options explored.

a. For example, MSF had previously been in charge of social care for the elderly, and MOH for their medical care. As the need for coordination and more holistic planning of services grew, we transferred social aged care policy functions from MSF to MOH in 2013, so that MOH now oversees the full spectrum of aged care.

b. However, in other instances such as complex and large scale programmes, a robust inter-agency framework may work better. Take the Changi East airport development project – MOT and CAAS are the lead agencies, but they have to coordinate very closely with LTA, URA, and PUB.

B.8 Second, we invest in training and capability-building, so that even with manpower constraints, we can make the most of the potential of our officers.

a. For instance, one in ten teachers today have been trained in Special Needs, including dyslexia, attention-deficit/hyperactivity disorder, and autism. This has enabled schools to tailor their learning approaches by making the most of the skills and interests of their teachers, enabling better educational outcomes.

b. In line with SkillsFuture, we will deepen professional development for public officers throughout their careers, and encourage them to take charge of gaining mastery in their work.

B.9 Third, we are leveraging technology to improve service delivery, and increase public sector productivity.

a. Both Mr Liang Eng Hwa and Mr Ong Teng Koon asked about the use of electronic services to transact with citizens, which have resulted in greater convenience to citizens and manpower savings for the public sector.

i. Through electronic tax-filing for example, IRAS has saved thousands of man-hours each year. They have taken this one step further, and piloted the use of online virtual assistants, which provide a human-like interface to answer simpler tax queries, saving tax-payers the need to search through several web-pages just to get the answers. This will also free up manpower to handle more complex questions. As we improve the effectiveness of such online virtual assistants, we will progressively introduce them for more e-services.

b. Mr Ong also asked about how the Government will help senior citizens access e-services. Based on an IDA survey, the number of senior citizens using e-services has in fact doubled in the past three years. We will do more to help Singaporeans access e-services. For example, there is a network of 26 Citizen Connect Centres (CCCs) island-wide, including one at IRAS, where trained staff help citizens access our e-services, giving them guidance, on the spot. In 2014, this network helped some 120,000 citizens, many of them elderly, to access our e-services. Imagine, these 120,000 citizens would otherwise have to call, or turn up at the counters to get help.

c. To make e-services easier to use, we will introduce a new feature on our eCitizen portal called “MyInfo”, where citizens will only need to provide their personal data once to the Government, instead of doing so repeatedly for every electronic transaction. Starting with e-services such as applications for HDB flats and the Baby Bonus Scheme, Singaporeans who choose to use the feature need not fill in personal information which the Government already has, such as date of birth, registered address, and marital status.

d. “Myinfo” will be ready in early 2016. And in the next phase, our Smart Nation initiatives will also open up new opportunities for further breakthroughs in public service delivery.

B.10 Mr Chairman, besides the approaches I have outlined, there is potential for improved service delivery through partnership with the community.

a. An example is the Pioneer Generation Ambassadors programme, which Mr Seng Han Thong has asked about. When the Pioneer Generation Package was introduced last year, there were many calls on the Government to tailor its engagement approach given the profile of our Pioneers and their preference for more personalised, face-to-face interactions.

b. The Government has piloted the Pioneer Generation (PG) Ambassadors programme, in which volunteers rather than public officers are the main touch-points for the Pioneers. The programme is now at varying stages of implementation in all constituencies. Around 1,500 volunteers have come forward to be trained as PG Ambassadors. And together, they have already reached out to more than 20,000 Pioneers.

c. Now unlike public officers, the PG Ambassadors tend to be members of the community where the Pioneers live, and many are familiar faces. Beyond sharing on the Pioneer benefits, the Ambassadors often strengthen relationships in the community, and have helped build a network of support for the Pioneers and their families.

i. For example, Mr Lim Teck Kian is a wheelchair-bound 91 year-old Pioneer living in Tampines. Being unfamiliar with the application process, Mr Lim was initially hesitant about getting help under the PG Disability Assistance Scheme. Touched by the sincerity and assurances of the PG Ambassadors, he was persuaded to go for disability assessment and the family now receives additional cash support each month to help with his care expenses.

d. The Government fully appreciates the contributions of the PG Ambassadors. Building on their reach, we will equip them further through continual training in areas of interest to our Pioneers, such as the MediShield Life scheme. We hope that their many heart-warming stories of precious moments with Singapore’s pioneering generation will inspire more passionate volunteers to come forward.

B.11 Mr Chairman, given the constraint of slower workforce growth, the Government will face significant challenges as it strives to serve the public effectively and efficiently. It will not be possible for the Government to fulfil every demand for services, and we will have to look at new ways to deliver services well. We may also need to shed services that are no longer critical, and carefully evaluate proposals for service expansions that are well-intentioned but manpower intensive.

C. GOVERNMENT-LED DEMAND FOR INNOVATION

C.1 Let me turn now to Ms Jessica Tan’s question, on whether government procurement allows for risk-taking to enable innovative SMEs and start-ups to win government tenders.

C.2 SMEs have been reasonably successful in securing Government projects under our open procurement system. Over the past two years, about 80% of all Government tenders were awarded to SMEs, accounting for around 55% of total tender contract value awarded. This is significantly higher than in other countries such as the UK.

a. For more sizeable contracts, such as construction contracts valued between $50-100 million, SMEs clinched about 60% of the tenders last year.

b. If we look at just the smaller SMEs (with annual turnover of less than $10m), more than one-third of all Government tenders have been awarded to them.

C.3 We will give more opportunities to SMEs to help them build track record, while tapping on them for innovative ideas that can benefit the public.

C.4 So, for example, IDA recently started a programme to accredit promising Singapore-based technology companies, to give them better chances at securing government projects. Government agencies will consider these accredited firms before sourcing for bids publicly.

a. IDA will accredit as many firms as are qualified and are keen to take this up, and expects around 20 companies to be accredited in the first year.

C.5 The Government has also introduced more avenues for companies with innovative solutions to secure government contracts. When calling for tenders, public agencies can specify their desired outcomes rather than prescribe the solution, and shortlist promising vendors to develop prototypes. The vendor providing the best proposal may also be awarded the contract without having to go through another tender. So this is quite a significant move.

D. EFFECTIVE TAXATION

D.1 Mr Chairman, Associate Professor Randolph Tan asked about the risk that the increase in Personal Income Tax rates will result in lower receipts, and what can be done to further mitigate such risks.

D.2 The main risk is that our economy loses its entrepreneurial dynamism. If that happens, it will be difficult to grow incomes not just for the top-end but also the broad majority of our population. That is why our income tax regime must remain competitive overall, to reward work and encourage entrepreneurship.

D.3 Another risk is that high income earners may set up companies essentially to avoid higher personal income taxes, and pay corporate income tax instead.

a. I should say this, and make it very clear – that we take the evasion of tax seriously, and IRAS will closely monitor corporatisation behaviour.

b. In cases where companies are being set up mainly to avoid personal income taxes, IRAS’ approach is to disregard the corporate structure and assess the income on the individuals.

D.4 With the impending personal income tax rate changes, IRAS will be monitoring for corporatisation trends and will step up its audit programmes to detect and deter tax avoidance and evasion.

E. WEALTH INEQUALITY

E.1 Turning now to the question Mr Gerald Giam has asked about wealth inequality – whether the Government monitors it and has policies to address it.

E.2 Mr Chairman, the Minister for Trade and Industry explained how we monitor wealth information in response to a similar Parliamentary Question in August 2014, and so I will not go through the points again for brevity.

E.3 And as DPM Tharman outlined when rounding up the Budget Debate, we have made major moves to mitigate inequality since 2007, with enhanced support for education, housing, healthcare, and retirement adequacy.

E.4 Furthermore, our system of taxes and benefits is a progressive one, where the higher-income households contribute the bulk of taxes, and the lower-income households receive the majority of benefits.

E.5 We have in fact improved the progressivity of our entire system over the years.

a. In Budget 2011, we reduced personal income taxes significantly for the middle-income. In this year’s Budget, we raised the personal income tax rates of our top income earners.

b. Wealth taxes in particular remain an important part of our tax system. Members may remember that when we abolished estate duty in 2008, we made it very clear that we were not doing away with wealth taxes. Estate duty was abolished as it was impacting the middle and upper-middle income groups disproportionately compared to the wealthy who could tax plan in a variety of ways. The Minister for Finance has reiterated in successive Budgets that wealth taxes, especially our property taxes, will remain important.

c. Property tax is an efficient tax. It cannot be tax-planned away easily. Further, it does not reduce incentives to work or engage in entrepreneurial activity, and has less impact on economic dynamism and competitiveness compared to income taxes.

i. Hence, we enhanced the property tax regime. In Budget 2010, we introduced a progressive property tax structure, so that those with more property wealth pay higher rates and a larger share of property tax;

ii. In Budget 2013, we further increased the progressivity of property taxes, and introduced higher rates on investment properties compared to owner-occupied properties.

E.6 As a result of these changes, the vast majority of homeowners in HDB flats pay less property tax than before, or no tax.

E.7 More importantly, the combination of our system of property taxes and housing grants forms a highly progressive system of wealth taxes and transfers. Let me elaborate briefly.

E.8 Singapore is quite unique in the way we help our citizens achieve home ownership. Besides the substantial subsidies built into the purchase price of new HDB flats, those who are less well-off have, since 2006, been provided with more housing grants. There is no parallel internationally for this situation - where the vast majority, even amongst lower-income families, are able to own a home and a valuable asset.

E.9 Put another way, just as the Workfare Income Supplements and the Silver Support Scheme amount to negative income taxes for the less well-off, the HDB housing grants are in effect a “negative wealth tax”. They constitute a significant capital grant from the Government, that has also given the less well-off the opportunity to build wealth through a housing asset whose value appreciates as the nation progresses.

E.10 What this amounts to is a system where both income inequality and wealth inequality are mitigated.

E.11 Mr Giam mentioned the Credit Suisse Global Wealth Report.

a. In fact, the 2014 Credit Suisse report places Singapore’s wealth inequality in the “medium” band. It indicates that Singapore has lower wealth inequality than even the Nordic countries like Denmark, Norway, and Sweden, let alone Hong Kong, the US, and Switzerland.

b. Nevertheless, we should be mindful that such wealth studies are subject to significant data limitations. As the majority of countries do not collect wealth distribution data, the Credit Suisse report relies on estimates and imputations rather than observed data.

c. Hence, it is quite difficult to draw firm conclusions about wealth inequality across countries from the report.

F. TAX INCENTIVES AND RELIEFS

F.1 Mr Chairman, let me now turn to tax incentives and reliefs.

Corporate Retirement Plans

F.2 Mr Yee Jenn Jong suggested enhancing incentives to encourage more MNCs to introduce corporate retirement plans.

F.3 As I shared with the House in response to his Parliamentary Question in January, corporate retirement plans are more relevant for foreigners working here for whom the CPF is not applicable. Compared to many countries including Australia and Hong Kong, employers in Singapore are already contributing substantially to their local employees’ retirement savings through the CPF. Their contributions will increase when the CPF changes announced in Budget 2015 take effect.

F.4 Employers can further supplement the retirement savings of their Singaporean employees above the mandatory CPF contributions via the CPF Minimum Sum Topping-Up Scheme and the Supplementary Retirement Scheme (SRS).

F.5 These schemes have two significant advantages over corporate retirement plans, and I’d like to share them with Members.

a. First, for the employee, additional contributions to the CPF and SRS are fully portable unlike corporate retirement plans.

b. Second, for the employer, tapping on the CPF and SRS would save them the costs of hiring extra manpower or appointing agents to manage their own corporate retirement plans.

F.6 We therefore have no immediate plans to do more to promote corporate retirement plans.

Tax Incentives for MA/SA contributions

F.7 Ms Penny Low asked if the Government would increase tax incentives for top-ups to CPF Medisave or Special Accounts.

F.8 Mr Chairman, under the existing Minimum Sum Topping-up Scheme, the Government already provides tax reliefs of up to $7,000 for individuals topping up their parents’, grandparents’, spouses’, and siblings’ Special and Retirement Accounts. This also includes the parents and grandparents of their spouses. We review the tax reliefs from time to time.

F.9 In fact, more Singaporeans have been making cash top-ups over the years. Given the new Extra Interest for the first $30,000 of CPF balances for members aged 55 and above, there is added incentive for families to top-up the Retirement Accounts of their loved ones with lower balances.

F.10 As for Medisave, CPF members can already enjoy tax reliefs for voluntary top-ups to their own accounts. This scheme benefits one’s family members, as CPF members can use their Medisave Accounts to pay for their family members’ medical bills and insurance needs.

F.11 This is why there is no separate tax incentive to encourage top-ups to family members’ Medisave Accounts.

More Incentives for Non-Profit Organisations

F.12 Ms Low also suggested granting tax incentives to a larger group of non-profit organisations, beyond Institutions of a Public Character (IPCs).

F.13 Mr Chairman, the Government supports non-profit organisations in Singapore in different ways.

a. All charities and IPCs enjoy income tax exemptions, and can tap on the VWO-Charities Capability Fund to enhance their governance and management capabilities. As donors to IPCs also enjoy enhanced tax deductions, it is necessary for IPCs to be held to higher regulatory and governance standards under the Charities Regulations, to ensure public accountability.

b. Social enterprises too, enjoy support in other ways. Besides having access to the same grants and incentives as businesses, social enterprises can tap on additional funding support through the ComCare Enterprise Fund and the Tote Board’s Social Enterprise Hub if they meet the requirements.

F.14 A forthcoming one-stop centre for social enterprises will also seek to deliver a wider range of support for social enterprises. The Minister for Social and Family Development will elaborate on this in his Committee of Supply speech.

G. CONCLUSION

G.1 Mr Chairman, I thank all Members again for their comments and suggestions.

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^[1] Singapore’s public sector employment as a share of the total labour force is 4%. This is lower than other countries. For example, Australia (16%), Germany (11%), and South Korea (7%) (source: Government at a Glance 2013, OECD).