Committee of Supply – Head M (Ministry of Finance)

[Deputy Speaker (Mr Seah Kian Peng) in the Chair]

Of course, in the midst of meeting all these challenges, the public sector still has to maintain and uphold the high public trust that the public has and expect of the service. I would like to find out how would the Government manage this manpower growth while meeting the demands for public services in the coming years?

Could the Government tap on the pool of retired public sector officers who are still active and proficient, whether by way of full-time employment or more flexible work arrangements?

The Government has been at the forefront of digitialising public services. E-services are now an important means for citizens to transact with the Government. What can the Government do to further improve e-services delivery to the citizens, and the process also helps the Government do more with less head count?

*Question proposed.*

Chairman, demands and expectations from the public have been on the rise. I do not know if this phenomenon is more so here than elsewhere in other cities. We have seen the Government moving from setting up new feedback channels to new Government agencies and to infrastructure enhancement projects all with one objective – to meet public demand. The net result is more manpower is required to man the new fronts. Services are to be delivered almost flawlessly often at short notice, and a fast and efficient communication flow is also expected.

We are currently facing the challenge of a tight labour market. Manufacturing and services sectors in particular were negatively affected by a manpower crunch. The public service is also not spared. Still, we have to roll out new projects, new upgrading works in order to keep our economy chugging ahead.

In January this year, a news report indicated that the public sector's workforce grew at an annual rate of about 2.5% in the past 10 years. Growth is expected to maintain roughly at the same pace over the next few years. The Minister had shared that the total staff strength of the Singapore Public Service was estimated at about 4% of our labour force, which is a lower ratio than countries like Australia where 16% of the workforce is in the public service and 11% in Germany. But this gives us little comfort as our talent pool is limited yet we need

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the numbers to satisfy the public demand on the public services.

We are often reminded of low productivity in the private sector. It will perhaps be good for the Government to push productivity in the public sector even more. I would like to know how will the Government manage its manpower growth to meet the demand for public services. The local talent and labour pool is finite. Any increase in public sector manpower will mean a decrease in the available pool for the private sector and vice versa.

Increasing productivity in the public sector will be an effective avenue in addressing the labour crunch and balancing the labour needs of both private and public sectors. It serves well for the Government to demonstrate a good example of increasing productivity. Can the Minister share with us what the public sector has done to improve productivity? How stringent is the control for recruitment of additional manpower in the civil service?

Sir, e-services provides a lot of convenience to many people, especially when it comes to dealing with Government agencies. Prior to availability of e-services such as the e-filing of income taxes, on 15 April, we will see many people snaking around Revenue House. This scenario has since been mitigated.

The convenience of e-services goes beyond filing of income taxes. Many people now use it for everyday life, such as accessing CPF, MOM and LTA websites. However, many of e-services are shut out to computer illeritiate and the computer-shy, especially old people, senior citizens. The efficacy of e-services is sometimes curtailed by the maze-like webpages of different agencies. So, I would like to ask what can the Government do to improve e-services delivery to the old people?

Sir, much has been discussed in recent years about income inequality and the steps that have been taken to reduce it. What is less discussed, but no less troubling, is wealth inequality. This refers to the unequal distribution of assets, including land, property, stocks and inheritances.

Wealth inequality can increase income inequality over the long term. The wealthy can increase their income from not just high salaries and bonuses, but also from their assets in the form of rent, dividends, interest, profits, capital gains or royalties. Those with less wealth depend almost exclusively on income from their own labour.

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According to the Credit Suisse Global Wealth Data Book, the top 1% of Singapore's wealthiest people hold 29% of the country's wealth, and the top 10% hold 60%. Wealth inequality in Singapore fell slightly during the Global Financial Crisis in 2008, but since the economic recovery, it has been showing an uptrend again.

Of course, complete equality of income and wealth are both unrealistic and undesirable. However, reputable studies have shown that in advanced economies, greater income inequality is associated with diminished social mobility and less equality of opportunity.

Does the Government share my concern about wealth inequality in Singapore and, if so, what are its strategies and plans to narrow this gap?

How are statistics on wealth inequality being tracked by the Government? The Department of Statistics has said it will continue to monitor international developments in the compilation of wealth statistics and review the feasibility of doing so in Singapore. Does MOF take the same approach, and if so, have there been any developments in compiling wealth statistics?

I believe more comprehensive wealth statistics will help the Government to better track its effect on social mobility, and plan future tax and redistribution policies.

Chairman, I strongly applaud the Government's use of a progressive tax system – including the innovations in negative taxation of low-wage workers – to confront inequality.

Effective taxation is an important aspect in measuring the success of a state. I share the feeling that increasing personal income taxes will have to occur if Singapore is to undertake more social support programmes. Personal income taxes are a sustainable means of building up reserves and, if one cannot impose effective taxation, then drawing on reserves becomes even more risky because the prospects of replenishing them would be limited.

The rise in tax rates for the top income brackets is a significant move and a welcome one. Although I agree with Deputy Prime Minister and Finance Minister's warning about not taking tax competitiveness for granted, I believe that Singapore's personal income tax regime remains competitive against other countries until you reach fairly high income levels.

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Even though the rise in the rates which have been announced will no doubt have an effect on high-income earners, it should not easily reverse the competitive advantage.

I have two questions. First, what are the risks that the announced increase in personal income tax rates will result in lower-than-expected receipts? Second, what can be done to further mitigate such risks in order to bolster the effectiveness of the tax regime?

Mr Chairman, while MOF needs to responsibly manage the size and growth of public procurement, what is the trend of SMEs and start-ups' participation in Government tenders? Has there been an increase in the award of Government contracts to SMEs? And have SMEs been able to compete effectively for these tenders? SMEs may be perceived to be disadvantaged in Government procurement due to the lack of size and, more importantly, track record. Their participation in Government procurement is a potential platform for SMEs to build recognition and credibility to scale. While it still has to be based on value and merit of the SME, is there any deliberate focus to enable an increase in participation?

Are there initiatives, like in other regimes, to help level the playing field to enable SMEs to effectively participate in Government procurement, as greater SME participation in Government tenders will help them build track record and credibility to participate not only in larger local but, more importantly, overseas markets? As SMEs provide 70% of the employment in Singapore, this would also enable the growth of job opportunities for Singaporeans.

Deputy Prime Minister Tharman has emphasised on personal and family responsibility. I agree with him. Homemakers, stay-at-home mums, singles looking after aged parents, low-income siblings and elderly may face retirement and medical savings inadequacy as they age.

Currently, Medisave top-ups are not tax deductible and the $7,000 tax deductible ceiling is too low. Can these be revised to encourage families to contribute to their parents', grandparents', siblings', homemakers' and caregivers' MediSave and Special Accounts?

I also declare my interest as a volunteer in the social enterprise sector. I think the Government should rethink charity in order to build a more pervasive culture of giving. Restricting incentives to IPC-registered charities only serve to direct funds to bigger charities, encourage cherry-picking, leaving equally worthy but smaller ground-up initiatives and non-IPC registered Non-Profit Organsiations (NPOs) high and dry.

Many smaller Non-Profit Organisations (NPOs) yield social dividends, but their financials do not justify them paying relatively huge sums to auditors. Others may be social enterprises that really want to be financially sustainable in the longer term, so did not register

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themselves as IPC.

Unlike private businesses and charities, the sources of funds for non-charity registered NPOs are extremely limited. The Government is duty-bound to ensure a level-playing field to recognise help that is given to all do-gooders and not just the bigger fish in the IPC-registered charities. The fear of moral hazards can be ring-fenced with guidelines. The signal must be that the start-up culture is also welcomed in the social sector.

Chairman, the target audience of the Pioneer Generation Engagement programme is the 450,000 Pioneer Singaporeans. This personalised outreach is both time consuming and labour intensive. It has started in Ang Mo Kio GRC, Nee Soon, East Coast and Tampines. How long will this Pioneer Generation Ambassadors' Engagement Programme take to cover all other constituencies?

As this programme is intended to be sustained and on-going, so that the pioneers will always have a contact point that they can approach if they have questions about the Pioneer Generation Package, what are the long-term plans in terms of manpower training and communications strategy?

Mr Chairman, I thank Members for their thoughtful comments and questions for MOF.

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

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. I should first emphasise that Singapore has a leaner public sector than most other countries. 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.

Going forward, we face a serious and increasing challenge. First, our resident labour force is expected to grow at a slower rate, considerably slower, in the coming years. The public sector needs 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 the community sectors. In any case, as a matter of good practice, the public sector should not grow in an unrestrained

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way.

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 five 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.

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. 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.

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. For example, the Ministry of Social and Family Development (MSF) had previously been in charge of social care for the elderly, and the Ministry of Health (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.

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.

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. For instance, one in 10 teachers today has 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.

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.

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

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.

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. These 120,000 citizens would otherwise have had to either call or turn up at the counters to get help.

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.

"Myinfo" will be ready in early 2016. In the next phase, our Smart Nation initiatives will also open up new opportunities for further breakthroughs in Public Service delivery.

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

The Government has piloted the Pioneer Generation (PG) Ambassadors programme, in which volunteers, rather than public officers, are the main touchpoints for the Pioneers. The

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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.

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.

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.

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 which are no longer critical and carefully evaluate proposals for service expansions that are well intentioned but manpower intensive.

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.

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. For more sizeable contracts, such as construction contracts valued between $50 million and $100 million, SMEs clinched about 60% of the tenders last year. If we look at just the smaller SMEs – and by that I am referring to SMEs with annual turnover of less than $10 million – more than one-third of all Government tenders have been awarded to them.

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. For example, the Infocomm Development Authority (IDA) recently started a programme to accredit promising Singapore-based technology companies to give them better chances at securing Government projects.

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Government agencies will consider these accredited firms before sourcing for bids publicly. 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.

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.

Mr Chairman, Assoc Prof 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.

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.

Another risk is that high-income earners may set up companies essentially to avoid higher personal income taxes and pay corporate income tax instead. This is another risk. I should say this and make it very clear – that we take the evasion of tax seriously, and IRAS will closely monitor corporatisation behaviour.

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. 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.

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

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. As Deputy Prime Minister Tharman had 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.

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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.

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

Wealth taxes, in particular, remain an important part of our tax system. And 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.

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. 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.

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

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

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.

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 in Singapore, are able to own a home and a valuable asset.

Put another way, just as the Workfare Income Supplement 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

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housing asset whose value appreciates as the nation progresses. What this amounts to is a system where both income inequality and wealth inequality are mitigated.

Mr Gerald Giam mentioned the Credit Suisse Global Wealth Report. 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.

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

Mr Chairman, let me now turn to tax incentives and reliefs. Mr Yee Jenn Jong suggested enhancing incentives to encourage more MNCs to introduce corporate retirement plans.

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.

Employers can further supplement the retirement savings of their Singaporean employees above the mandatory CPF contributions via the CPF Minimum Sum Top-Up Scheme and the Supplementary Retirement Scheme (SRS). These schemes have two significant advantages over corporate retirement plans and I would like to share them with Members.

First, for the employee, additional contributions to the CPF and SRS are fully portable unlike corporate retirement plans. 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. We therefore have no immediate plans to do more to promote corporate retirement plans.

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

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Accounts. This also includes the parents and grandparents of their spouses. We review the tax reliefs from time to time.

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.

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

Miss Low also suggested granting tax incentives to a larger group of non-profit organisations beyond Institutions of a Public Character (IPCs). Mr Chairman, the Government supports non-profit organisations in different ways. All charities and IPCs enjoy income tax exemptions and can tap on the Voluntary Welfare Organisation 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.

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 Tote Board's Social Enterprise Hub if they meet the requirements.

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.

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

Mr Chairman, on Miss Low's first question regarding the use of Medisave for payments of MediShield premiums for family members. Rightfully, the answer should be given by MOH. I do not purport to speak on their behalf.

Based on what I know, there is a limit in the amounts that can be withdrawn for various uses of Medisave balances. If I understand correctly, in fact, the withdrawal limits for the payment of premiums are sized for the individual. I would suggest that we could take this offline and provide an answer to you.

As for the question regarding smaller non-profit organisations (NPOs), I want to reassure Miss Low that it is very much in line with the Government's objectives to seek philanthropic activity. What it means is that you need a diversity of causes that people want to support. We fully recognise that for the smaller non-profit organisations, the ability to raise funds is sometimes difficult to build up.

It is not just a matter of there being tax incentives. When people give, they want to know that money is being put to good use and that there is proper governance for the donation amounts that they are contributing. We take note of her offer and we will be happy to follow up with her on where some of the gaps are and what could be done to meaningful address them.