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PART I: OUTLOOK AND RESPONSE

Mr Speaker, Sir

I beg to move that this Parliament approves the financial policy of the Government for the financial year 1st April 2003 to 31st March 2004.

In 2001, our GDP shrank by 2.4% in our worst-ever recession since Independence. Last year began promisingly. Despite the uncertainties of the war against terrorism and the conflicts in the Middle East, initially the recovery of the United States (US) economy boosted our growth prospects. But as the year progressed, a wave of corporate scandals and the WorldCom and Enron collapses shook the confidence of investors and consumers. This slowed down the US economy. The European Union (EU) and Japanese economies also lost steam. However, the East Asian economies did well. Our exports to China grew strongly, but this was not enough to make up for the fall in external demand elsewhere.

Despite the unfavourable conditions, our economy grew by 2.2% in 2002. Unemployment peaked at 4.6%, but improved slightly to 4.2% by the end of the year. Manufacturing grew by 8.3% driven largely by the small, but fast-expanding, biomedical science cluster. Exports remained resilient, growing by 1.9%.

Singapore continued to attract investments. We garnered over $9 billion of fixed-asset investments in manufacturing. Foreign manufacturing fixed-asset investments rose from $6.6 billion in 2001 to $7 billion, while committed foreign business spending grew by 35% to $1.5 billion. The electronics cluster continued to attract the largest share of investments followed by the chemicals cluster. Investments in biomedical projects generated the second highest value-added for the economy. All these investments are expected to create 21,000 jobs.

Despite some public concern about the cost of living, the Consumer Price Index (CPI) last year fell by 0.4%. Healthcare and education costs rose, but housing and car prices fell. Lower electricity tariffs, cheaper accommodation and household durables combined to reduce housing costs by 2.2%. Cheaper petrol and a lower road tax reduced transport and communication costs by 1%. Basic food items like rice, cooking oil, meat, seafood and vegetables all cost less.

The Government implemented a slate of measures to help Singaporeans cope with the downturn and adapt to the economic restructuring. Last year, our training and upgrading programmes helped 36,000 workers learn new skills to match the jobs that are available or being created. The Off-Budget package helped all Singaporeans, especially the lower-income and unemployed. 800,000 HDB households received 10 months of utilities rebates worth a total of $226 million. A further $110 million went towards helping Singaporeans through rebates on rental and service and conservancy (S&C) charges.

Immediate Outlook
Global

At present, the major uncertainty hanging over the world economy is the prospect of war in Iraq. Consumers are holding back their spending, and companies are delaying investment plans. Within a few weeks we will know whether war is going to break out. Within a few months we will know how things have turned out.

One significant worry is oil prices. After a war, they could fall back to normal and give a boost to growth, or they may stay high and slow down the recovery process. The crisis in Venezuela, which has significantly reduced world supplies of oil, makes it more likely that oil prices will stay high.

Growth in Europe and Japan this year is expected to remain sluggish. In the US, the consumer confidence index in January reached its lowest level since 1993. The present projection remains for a pickup in the second half of the year, bringing growth close to 3%, slightly better than 2002.

Regional
In East Asia, sustained domestic consumption should maintain growth at rates similar to last year, despite tensions in the Korean peninsula. Exports from the Southeast Asian region should stay robust, as stronger demand from China should partially compensate for the weaker demand from the developed economies. China is a large and rapidly growing market that offers many opportunities to nimble entrepreneurs and companies. India's economy too has much potential. It is showing a new dynamism and a more outward orientation, especially in the southern states.

Economic cooperation among the ASEAN countries is gradually deepening, for example through the ASEAN Free Trade Area (AFTA). ASEAN is also launching Free Trade Agreement (FTA) negotiations with China and Japan, and preparing to benefit from an FTA with India and the Enterprise ASEAN Initiative with the US. Terrorism is still a problem in Southeast Asia, but after the Bali bombing, ASEAN countries are cooperating more closely to combat this threat.

Singapore
Given the external conditions, I expect Singapore's economy to continue to grow slowly in the first half of the year. In the second half, if the US economy and the global electronics industry strengthen as we hope, Singapore should also recover more strongly, and our unemployment should start to decline. For 2003 as a whole, MTI expects GDP growth to be between 2% and 5%, although it is less likely to be at the high end of the range. Like in 2002, growth is likely to be narrow and uneven across the different sectors. A broader-based recovery is not expected until 2004.

Starting Well
Mr Speaker, Sir.

We now live in a fundamentally changed world. Singapore is at a turning point. We face not just greater economic volatility, but also new political and security uncertainties. Competition is keener and changes are coming faster. To stay in the race and ahead of the pack, we must constantly adapt to the changes around us, and restructure our economy.

After many years of rapid growth and development, our people now enjoy a high per capita income and standard of living. But as our economy matures, it will be difficult for us to maintain the same high rates of growth that we experienced in the 1980s and 1990s. Structural unemployment will become a more serious problem. Older, less educated workers who fail to update and upgrade their skills will be particularly vulnerable. The Government's fiscal position will tighten as slower growth means less buoyant revenues, while an ageing population will lead to increased social spending. We must find new sources of growth or else stagnate and decline.

These challenges are formidable, but we can overcome them. Over the last 30 years we have built up our financial, physical and human resources through toil and teamwork. We have strengthened our social cohesion and institutions. We share ideals and values that help us to work harmoniously together for maximum results. These key advantages help us tackle difficult problems together, and restructure our economy for continued prosperity.

We have already begun the task of restructuring. In October 2001, the Government announced the establishment of the Economic Review Committee (ERC) to develop new strategies to take us forward. Last year, the Government accepted and implemented two major recommendations of the ERC.

Firstly, we decided to restructure our tax system. We are lowering corporate and top personal income tax rates substantially. This will help to retain and attract businesses and talent, and thus create good jobs for Singaporeans.

At the same time we are raising the GST rate. The Government provided a generous $4.1 billion offset package to help Singaporeans adjust to the GST increase, and ensure that no household will be worse off for at least five years. In addition, the Government is phasing in the GST increase over two years, instead of raising it to 5% in one step, as originally planned. This puts an additional $650 million in the pockets of Singaporeans.

Secondly, we restructured the CPF to focus on the basic retirement needs of Singaporeans and trim over-investment in housing. This will keep the burden of CPF contributions as low as possible, while meeting the essential needs of the majority of the population. To help older workers aged 50-55 stay employable, we also capped employers' contributions to their CPF at 16%.

Besides these ERC recommendations, we responded to the recession by moderating wage increases to maintain our competitiveness and retain jobs. Singaporeans have been guided by the National Wages Council's recommendation of wage restraint, which extends until June this year. Their willingness to accept these sacrifices reflects their pragmatism, as well as the close tripartite relationship between the unions, employers and the Government.

This clear response has distinguished us from other countries. Foreign investors and analysts have noted our decisive actions to restructure the economy and tackle the downturn, as well as our support for difficult but essential policies. This is a key reason why we have continued to attract investments, even as investment flows into other Southeast Asian countries have declined.

Moving Ahead
We have made a good start in restructuring the economy to secure our future. But this is a long process, and much more work lies ahead.

Earlier this month, the ERC completed its work and published a comprehensive report. It recommended immediate measures to help our economy recover fully from the recession, as well as longer term strategies to make Singapore a leading global city. These five strategies addressed our :

• External Ties

• Competitiveness and Flexibility

• Entrepreneurship and Singapore Companies

• Manufacturing and Services

• Human Capital

The Government accepts the recommendations in the ERC report. These recommendations reflect the inputs of over a thousand participants from the private sector, the labour movement, as well as the public sector. The Government thanks all of them for their efforts and contributions. Their proposals provided a sound basis for revitalising our economy, and for sustaining growth in the next phase of our economic development.

Let me first explain these five strategies before I give the Government's response to the immediate steps recommended by the ERC. Later, in Part III of the speech, I will announce specific measures to implement the ERC recommendations.

External Ties
Our first strategy is to expand our ties with economic partners globally and in Asia, especially Southeast Asia. The US, the EU and Japan will continue to be our main markets and sources of investments. But we must also seize opportunities in new markets, particularly China and India, by deepening our knowledge of their business conditions and expanding trade and investment ties with them. Singapore must make itself a hub for strategic and high value-added activities of companies that operate in our broader hinterland of greater China, India and Australia, which are within a seven-hour flight radius from us.

We must continue to deepen our economic integration with our ASEAN neighbours, and make ASEAN more attractive to foreign investors. By combining our complementary strengths, ASEAN countries can compete more effectively, and hold our own in manufacturing activities, even against China. This is what Singapore is doing together with Batam and Bintan.

As a small, open economy dependent on world trade, Singapore supports multilateral trade liberalisation within the World Trade Organisation (WTO) framework. However, we must complement this with bilateral FTAs with key trading partners to expand our economic ties and assure our access to their markets.

We have already signed FTAs with Australia, New Zealand, Japan and the European Free Trade Association (EFTA). The negotiations for the US-Singapore FTA were concluded in January. We look forward to signing and ratifying the agreement this year.

We are currently negotiating FTAs with Canada and Mexico. We will also launch a trilateral FTA with New Zealand and Chile. We are likely to launch FTA talks with India and South Korea this year. As part of ASEAN, we are negotiating an FTA with China and doing a study to launch an FTA with India.

These bilateral arrangements will save our exporters hundreds of millions of dollars in tariffs a year, create opportunities for our companies to expand overseas, and attract more investments here to take advantage of the FTAs. This will result in more jobs for Singaporeans.

Competitiveness and Flexibility
Our second strategy is to strengthen our competitiveness, and enhance the flexibility of the economy. Given our small land area and our dependence on imported energy, we cannot compete based on costs alone, against larger countries better endowed with natural resources. Instead, we must redouble our efforts to improve our microeconomic competitiveness and efficiency. We must offer a superior business environment and an internationally competitive cost structure.

The Government is committed to keeping taxes low, especially direct taxes on companies and individuals, in order to keep the burden of government light, encourage investments and reward enterprise. We believe that a 20% tax rate will be highly competitive, but we will continue to track international trends.

The CPF must stay focused on its core purposes of providing basic financial security in retirement, housing and healthcare for the majority of Singaporeans. To be sustainable over the long term, the CPF must not become a heavy imposition on employers that deters them from employing workers or growing their businesses.

Our labour market must be flexible, so that workers can move freely from one job to another, and companies can hire or shed workers when they need to. The more difficult and expensive it is for companies to downsize, the more reluctant they will be to employ people in the first place. This will raise unemployment, to the detriment of workers, as has happened in Germany. Work arrangements such as overtime practices must become more flexible to accommodate the ups and downs in business conditions. Our wages need to reflect the worth of the job and the contribution of the employee, instead of depending rigidly on the seniority of the person.

Finally, competitively priced infrastructure will help keep business costs low. We should not subsidise services below their true cost, but nor should we allow monopoly or cost-plus pricing to inflate costs for other businesses.

Land is one of the most important factors of production. To make optimum use of this resource, the land market must be efficient and flexible. This is especially so for industrial land, because MNC projects can go to any number of countries. Hence we must ensure an adequate supply of industrial land at a competitive price. We can do so, because we have reserved enough industrial land to meet the needs of a large manufacturing sector.

We must improve the quality and efficiency of infrastructure services like utilities and port services. NEWater is an economical, assured and high quality source of water which complements our other water sources. It will adequately meet the needs of both industries and households. In the electricity market, competition in a properly structured industry will ensure that electricity is produced and supplied as efficiently as possible. Since we started restructuring the electricity industry in 1995, productivity per worker has increased by 60%, and tariffs have come down.

In port services, PSA Corporation has cut tariffs and given $300 million worth of rebates to shippers, in order to provide better value to its customers. To meet growing competition, PSA must cut its costs and be as lean as possible. This is why PSA is retrenching its staff and rationalising its operations. These steps are painful, but unavoidable if PSA is to grow its market share, and remain the world’s port of call.

Entrepreneurship and Singapore Companies
Our third strategy is to encourage the spirit of entrepreneurship among Singaporeans. To thrive in a volatile and unpredictable environment, and to ride on the growth of emerging regional markets, Singaporeans must take risks, seize opportunities and create new possibilities for themselves. Every Singaporean must rely on his own wits and initiative, in order to respond quickly and supplely when conditions change. It is heartening that despite the slow economic growth, about 600 more new businesses were registered last year compared to the previous year.

Entrepreneurship is not just for the minority of Singaporeans who take the plunge and start up new businesses. It is a mindset that all of us should share. It must pervade all businesses, large and small, as well as the public sector. In Singapore, an entrepreneurial and innovative civil service bureaucracy must not be a contradiction in terms.

Government policies will help to foster entrepreneurship. Low direct taxes will allow successful entrepreneurs to keep more of the fruits of their labour. Improvements to the education system will expose Singaporeans to business concepts from an early age. The public sector will continue to simplify its rules and procedures and cut red tape. Ministries and statutory boards will avoid crowding out the private sector by spawning companies to do things that the private sector can do.

Entrepreneurship requires talent. While we develop our own talent, we must also attract entrepreneurs from all over the world to launch ventures and develop ideas here. To do so, we must offer an environment in which good ideas stand the best chance to be nurtured and take off.

Producing entrepreneurs will also depend on our social values. A society that prizes self-reliance is more likely to produce winners. So is one in which winners are celebrated, while the unsuccessful are encouraged to learn from their mistakes and try again.

We must become such a society. Then we can produce a constant stream of dynamic start-up companies, some of which will grow into major players. Our established companies can also develop into internationally competitive firms. This will enable us to continually renew our economy, staying ahead of others through innovation and enterprise.

Manufacturing and Services
Fourthly, we must promote manufacturing and services as twin engines of growth. Manufacturing will remain a mainstay of our economy. Our strong manufacturing base generates 80% of our exports, sustains many domestic support industries and provides good jobs for Singaporeans. We must continue to strengthen and upgrade this key economic sector.

Other countries too are relying on manufacturing to spur their economic development. Competition is fierce, especially from emerging players like China. They do not just rely on their low costs. They are also upgrading their technical know-how, and moving into higher value-added activities. We have no choice but to upgrade our own manufacturing technology, or else see our manufacturing sector hollowed out.

To strengthen the manufacturing sector, we must acquire new technologies and capabilities. Research and development (R&D), coupled with enhanced protection for intellectual property, are critical elements. We must help Singaporeans to continually improve their skills and acquire new ones in order to push our manufacturing sector further up the value chain.

To diversify our economy, we must complement manufacturing with a robust services sector. Services already make up about two-thirds of our GDP and overall employment. However we must promote our services sector more actively. Exportable services offer good growth potential, because the growing middle classes in China and India will demand many services which we can provide.

We are already a key hub for seaport and airport services, logistics, trading, info-communications technology, financial services and tourism. We will continue to invest in these areas and use our strong position to meet the competition from other countries. At the same time, we will grow new services industries like healthcare, education and the creative industries.

Even in the services sector, the trend worldwide is to outsource semi-skilled jobs to countries with cheap and abundant labour. Many US MNCs have outsourced their back-end call centre operations to the Philippines and India, lured by low wages and an ample supply of English-speakers. Part of the training for call operators is to watch American TV serials, so that they can discuss the latest episodes in the proper American accents, and make the callers think they are talking to people in the US. So in services, as in manufacturing, we need to upgrade our workers’ skills for higher-value jobs, and train enough workers in the skills that these new services industries need. Ultimately, our human capital drives our competitiveness.

Human Capital
Our fifth strategy is therefore to invest in our people. This is a key prerequisite for the success of all our other strategies. We must continue to develop our talent to their maximum potential. Continuing education and training will help our workers update their skills and keep their jobs. The recent changes to our upper secondary education system and the planned expansion of tertiary education will have a far-reaching impact on the abilities and outlook of the next generation of Singaporeans. The new, broader-based educational system complements our traditional focus on numeracy and technical knowledge with a new emphasis on independent project work and creative thinking. It will enable Singaporeans to thrive in a knowledge-driven economy.

Around the world, dynamic cities like New York, London and Shanghai are competing for global talent. This is on top of the considerable talent inflow from their national hinterlands. Since Singapore lacks a domestic hinterland, it is even more vital for us to reinforce our own talent pool with global talent to sustain a sophisticated and globalised knowledge economy. Singapore welcomes anyone, whether entrepreneur, scientist, engineer, manager or artist, who can contribute to our growth and prosperity.

We should also strengthen our links with the community of overseas Singaporeans, numbering some 150,000-strong. Many of them have a deep sense of attachment to Singapore and want to offer their experience, expertise and network of contacts. As our economy globalises further, the number of overseas Singaporeans will grow. Our international network will help us to sense what is happening in all the major cities, and equip Singaporeans with the exposure and flexible attitudes to operate in a diverse world.

Tackling Immediate Issues

Most of the measures in this year’s budget are directed at these five strategies. However, before I discuss them, let me address the ERC recommendations dealing with the immediate economic situation.

CPF Changes

CPF Restoration
The ERC recommended that the Government defer for two years any further restoration of the current CPF contribution rate of 36%. The rate would thereafter be restored progressively to the full 40%, although the pace and timing will depend on prevailing economic conditions. The ERC also proposed to proceed with the other changes to the CPF scheme, which had been linked to the full restoration.

The Government accepts these recommendations. The Singapore economy has not yet fully recovered from the 2001 recession. Moreover, the current slowdown is not just a cyclical downturn, but a reflection of a fundamentally changed environment. Even as we pursue longer term strategies to adapt to this new landscape, we must maintain Singapore’s competitive position and make sure the recovery is firmly on track.

Deferring any further CPF restoration for two years will ensure that we do not increase the burden on employers before the economy has fully recovered. It will send a strong signal to investors that Singaporeans understand what is at stake, and are determined to face up to the new challenges.

Some Singaporeans have expressed concern that delaying the CPF restoration will hurt workers’ savings. But the more urgent priority now is to help them keep their jobs. When companies are assured that their business costs are not going up, they are less likely to retrench workers or move out of Singapore. They may even be encouraged to hire more workers as soon as business picks up.

At the same time, we will proceed to phase in other changes to the CPF system that we had intended to do when we restored the CPF contribution rate. These are changes to restructure and improve the CPF scheme, and we should begin to implement them progressively, giving Singaporeans enough time to adjust.

The ERC recommended that the Government defer for two years any further restoration of the current CPF contribution rate of 36%. The rate would thereafter be restored progressively to the full 40%, although the pace and timing will depend on prevailing economic conditions. The ERC also proposed to proceed with the other changes to the CPF scheme, which had been linked to the full restoration.

The Government accepts these recommendations. The Singapore economy has not yet fully recovered from the 2001 recession. Moreover, the current slowdown is not just a cyclical downturn, but a reflection of a fundamentally changed environment. Even as we pursue longer term strategies to adapt to this new landscape, we must maintain Singapore’s competitive position and make sure the recovery is firmly on track.

Deferring any further CPF restoration for two years will ensure that we do not increase the burden on employers before the economy has fully recovered. It will send a strong signal to investors that Singaporeans understand what is at stake, and are determined to face up to the new challenges.

Some Singaporeans have expressed concern that delaying the CPF restoration will hurt workers’ savings. But the more urgent priority now is to help them keep their jobs. When companies are assured that their business costs are not going up, they are less likely to retrench workers or move out of Singapore. They may even be encouraged to hire more workers as soon as business picks up.

At the same time, we will proceed to phase in other changes to the CPF system that we had intended to do when we restored the CPF contribution rate. These are changes to restructure and improve the CPF scheme, and we should begin to implement them progressively, giving Singaporeans enough time to adjust.

CPF Salary Ceilings
Firstly, we will phase in the reduction in the CPF salary ceilings. The ceiling is currently $6,000 for private sector employees. This will be lowered to $5,500 in January 2004, and further to $5,000 in January 2005. The civil service will also rationalise the salary ceilings of the public sector to match that of the private sector, including the pensionable officers who have lower CPF contribution rates.

Table 1: Lower CPF Salary Ceilings for Employer Contributions

This change will refocus the CPF scheme on the basic needs of the majority of the population, rather than the higher income earners who are better able to plan and provide for their future financial needs. It is not, however, intended as a wage cut. As recommended by the ERC, I encourage employers to pass on part of their cost savings to deserving workers through the variable component of wages, such as bonuses or other variable payments. This will depend on the circumstances of each company and the contribution of each worker.

Employee Contribution Rates for Older Workers
Secondly, we will phase in the lowering of the employee contribution rate for older workers aged 50-55. The rate is currently 20%. It will be lowered to 18% in January 2004, and further to 16% in January 2005. These changes will enable older workers to take home more of their pay, and will help them when their companies phase out seniority based wage structures.

Table 2: Lower CPF Contribution Rates for Workers Aged 50-55

Contribution Rates for Special and Medisave Accounts
Thirdly, we will phase in higher contributions to the Special and Medisave Accounts for all Singaporeans. This is to strengthen savings for old age and healthcare. These changes will be phased in gradually over three years, starting from January 2004.

Table 3: Increased Contribution Rates to Special and Medisave Accounts

CPF members need not worry that these changes will leave them with less savings in their CPF Ordinary Accounts to service their mortgage payments. We are implementing the changes over several years, during which we expect wages to increase. In addition, the Government will give those who purchased their properties before 1 January 2004 continued access to their Special Accounts to top up their CPF mortgage payments, to the extent that these payments are affected by the changes.

Business Costs
The ERC also recommended that we keep other components of business costs as low as possible. This the Government is doing, as I explained earlier. Besides wages, land, utilities and infrastructure services should all be competitively priced.

Several concessions which were introduced as part of the Off-Budget measures in 2001 were subsequently extended and are still in effect. They include the property tax rebate, rental rebates, and the reduction of the diesel tax on taxis and of petrol excise duties. These four measures are scheduled to expire on 30 June 2003. I have reviewed them and will extend or modify them as follows:

Property Tax Rebate
I have decided to give a new property tax rebate for commercial and industrial properties for the period of 1 July to 31 December 2003. The rebate will be $2,000 plus 15% of the balance property tax payable.

This rebate will cut costs for businesses, both large and small, who own their premises. It will give them greater certainty amidst the current business environment. The total property tax savings for the year will be $456 million, inclusive of the rebates given for the first half of the year.

Rental Rebates
Rebates on rental have been given to HDB's 18,000 tenants and lessees, JTC Corp’s 7,000 tenants, and the Singapore Land Authority's (SLA) commercial tenants. Some 2,900 stallholders in ENV, HDB and JTC hawker centres are also enjoying rental rebates. As business conditions remain weak, the Government will extend the rebates by another six months till the end of 2003. These will lower business costs for tenants by another $204 million, on top of the $200 million of rental rebates already given for the first six months of this year.

Diesel Tax for Taxis
The diesel tax for taxis was reduced from $5,100 to $4,700 in the 2001 Off-Budget package. I have decided to extend this reduction by another six months, till the end of 2003. This will cost the Government about $4 million.

Excise Duties on Petrol
Currently, excise duties on petrol are levied either at an ad valorem rate on final pump price before GST, or at a prescribed floor rate, whichever is higher. If petrol prices rise, the duties go up correspondingly. This adds to the burden on businesses and motorists. To address this, I have decided to impose excise duties on petrol at a specific rate instead, so that the duties no longer fluctuate with oil prices. This takes effect from today.

The new specific duty rates for various grades of petrol will be set at the current floor rates of the petrol excise duties, taking into account the Off-Budget reductions which are in force, so that there will be no increase in petrol duties after 30 June 2003.

This will cost the government about $60 million annually. Details of the changes are in Annex A.

Foreign Worker Policy
The ERC recommended that we keep our foreign worker policies flexible, so that companies can employ the professionals and workers they need, especially those companies which cannot find enough local workers.

Our policy to admit a controlled number of foreign workers will continue to be a major competitive advantage. These foreign workers help to keep our manufacturing sector viable and competitive, notably in shipbuilding and ship repair. They reduce overall business costs and do jobs which Singaporeans are unwilling or unable to take up. In a factory, without foreign workers manning the third shift, there would be no jobs in the first and second shifts for Singaporeans. In services too, foreign workers help many local companies to stay in business, especially SMEs, thereby creating more jobs for Singaporeans.

However, we need to strike an appropriate balance between meeting industry’s needs for affordable, skilled manpower and keeping Singaporean workers from being displaced. The best instrument for controlling the number of foreign workers is the foreign worker levy. This is a price mechanism which leaves maximum flexibility for the market to allocate the foreign workers to where they are most needed.

In 1999, when our economy was hit by the Asian Crisis, the Government sharply lowered the foreign worker levy to reduce business costs. Since then the levy rates have stayed at the same low level. Last December, we extended the levy reduction until June 2003.

The Government will extend the levy reduction for another six months, until the end of 2003. As foreign worker numbers have remained stable, there is no urgency to raise the levy back again. The only exception is the levy on skilled workers, which is now just $30. MOM will review the skilled worker levy this year to decide whether it is necessary to peg it at a more realistic level next year.

Help for Singaporeans
Finally, the ERC recommended that the Government help Singaporeans to cope with the current economic difficulties. These include employment-oriented measures, such as encouraging part-time work, augmenting MOM’s job bank, improving job-matching efforts, and counselling and retraining retrenched workers. They also include financial assistance for lower income households. The Government agrees with these proposals.

Economic Restructuring Shares
Apart from helping Singaporeans find jobs, the Government is also providing them substantial support by offsetting the GST increase through the Economic Restructuring Shares (ERS). In FY 2002, the Government set aside $1.2 billion for the first tranche of ERS. Most Singaporeans would by now have received their basic allocation of ERS worth $400. To date, almost two-thirds of the ERS have been cashed out. Some lower income Singaporeans in 1- and 2-room HDB flats and welfare homes failed to get their ERS because they did not top up their CPF accounts. We are giving them additional time to get their ERS. The grassroots organisations are contacting them individually, to extend financial assistance, if necessary. Those who apply by the deadline of 31 March will get their ERS on 1 May 2003.

Utilities Save Scheme
I have decided to extend the Utilities Save scheme by one year to help households, especially lower-income ones, cope with their utilities charges. Households in 1- and 2-room HDB flats will enjoy rebates for six months over the one year period from July 2003 to June 2004; those living in 3-room HDB flats will get four months; those living in 4-room HDB flats will get two months; and those living in 5-room HDB flats will get one month. The rebate will be $35 per month. This will cost $71 million.

Table 1: Lower CPF Salary Ceilings

Service & Conservancy Charges
Last year I announced that the Government would be giving rebates for two to five months of S&C charges in 2003 for Singaporeans living in all 1- to 5-room HDB flats. In addition, the 1-room, 2-room and 3-room flats would also be getting partial rebates on the remaining months of the year. This was part of the package of measures to offset the GST increase. To help families in this economic climate, I have decided to enhance this by granting one extra month of rebate on S&C charges for all 1- to 5-room HDB flats.

Table 5: Rebates for Service & Conservancy Charges

This will increase the total number of months of S&C charges waived to six months for 1-room flats, five months for 2- and 3-room flats, four months for 4-room flats, and three months for 5-room flats. This extra month of rebate will be granted in April, and will cost the Government an extra $31 million.

The new schedule of rebates for S&C charges for 2003 is at Annex C.

Pulling Together

The measures I have outlined will address the immediate economic difficulties and lay the foundation for the strategies to restructure our economy.

Looking ahead, we expect the Singapore economy to grow more slowly, even after the present slowdown, because we are now at a higher level of development, and external conditions are more difficult. We grew by an average of 7.3% per year over the last 15 years. For the next phase, the ERC estimates our medium-term growth potential to be 3% to 5%, comprising labour force growth of 1% to 2% and productivity growth of 2% to 3%.

Growth of 3% to 5% is lower than what we have become used to, but it is still an ambitious target. Few developed countries with per capita GDPs similar to ours have maintained such a high rate of growth. However, the major global cities in those countries, such as London or New York, which draw on wider hinterlands, have been able to grow faster and sustain higher per capita incomes than their national averages.

Singapore too should be able to achieve 3% to 5% growth, provided we too adopt the approach of these global cities. This is why we must stay flexible, adapt quickly to changing markets and technologies, continue to welcome global talent and keep on upgrading our capabilities. Then we can take advantage of the new opportunities, provide good jobs for our people, and raise our income and standard of living.

Not every Singaporean will find the going easy. The powerful forces of globalisation will widen our income gaps. A small number of citizens will need help to keep up. But every Singaporean can benefit from our country’s progress, provided he puts in the effort and is willing to adapt himself to the opportunities and jobs available.

The Government will concentrate its social safety nets on the minority of Singaporeans who need them most. This will ensure that the help reaches the neediest Singaporeans without undermining our work ethic and culture of self-reliance.

However, the task of caring for less successful Singaporeans cannot fall entirely on the Government. Singaporeans have a responsibility to look after others doing less well than themselves. The generous response of Singaporeans to charity drives is thus both heart-warming and reassuring. Concern for our fellow citizens and government assistance will help keep our society cohesive as we navigate an uncertain world.

No amount of aid to lower-income Singaporeans can substitute for job-creation through strong economic growth. Despite the uncertain outlook, we are well placed to seize the opportunities that only present themselves in uncertain times. If we stay the course, when the storm clouds clear, all Singaporeans will share in the fruits of success.