Debate on Annual Budget Statement

Ms Lee Li Lian (Punggol East): Mdm Speaker, Singapore has come a long way and, this year, we will be celebrating our nation's first 50 years as an independent country. Our history is important. It shapes, moulds and forms our country. Having said that, our future is equally critical, and this year's Budget takes major steps in four areas to focus on building Singapore's future. The Government investing more in our nation's most valuable assets, our people, is welcomed and, certainly, the right thing to do.

Today, I will focus my speech on the need to invest in skills of the future and empower every individual to learn and develop throughout their life.

On Skills Future credit, technology is constantly evolving and changing the way things are being done. Processes that we considered common and had gotten used to for years can be done today more efficiently and effectively with the help of technological advancements. Jobs can be replaced by technology, never to return. When we are no longer able to change a situation, we are challenged to change ourselves. And to remain competitive, it is important for people to constantly adapt and adjust to stay relevant in an era of rapid technological advances and environmental change. To charter this course of self-

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development, skills upgrading and training are essential.

One of the highlights of this year's Budget is that all Singaporeans above the age of 25 will receive an initial credit of $500 for work-related courses. That is to say, even at the age of 70, one can continue to upgrade themselves. In Chinese, we call this 活到老学到老. It is true that people must be interested in getting themselves trained. They have to see the value training can bring to them. If you are not willing to learn, no one can help you. But if you are determined to learn, no one can stop you.

However, at the same time, we can help enable the individual who is willing to take ownership of his or her life. Apart from providing a $500 credit for work-related courses, we will need to address factors that might hamper the development of a culture of continued self-development.

One reason why employees may not be going for the required skills upgrade could be the resistance they are getting from their respective companies. Training presents a prime opportunity to expand the knowledge base of all employees, but many employers find the development opportunities costly. Employees may need to be absent from work to attend a course or training, which may delay the completion of projects and scheduled work. Employers may also not be willing to bear some of the costs of training fees.

In my previous job, I was very fortunate to be in a company that valued skills and regularly sent staff for skills upgrading for both hard and soft skills. Despite the potential drawbacks, training and development provide both the company as a whole and the individual employees with benefits that make the cost and time a worthwhile investment.

Training provides a series of planned learning experiences for individuals and builds their technical skills and business competencies. Training also helps to improve efficiency and can motivate employees to do well. This helps to make positive changes to the way in which they work and make decisions. It also helps individuals to use the training to meet their individual needs and ambitions. Hopefully, with the Government formalising skills upgrading, we can change employers' mindset.

This leads me to the cost of taking up courses and whether $500 is sufficient for PMETs to adequately upgrade themselves. Many valuable courses may well exceed $500. I understand from the Minister for Manpower yesterday in this House that these credits are to be used to pay the net value of courses that are heavily funded. Will there be a sufficient and robust list of approved courses for individuals to choose from that can be covered by the $500?

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While I acknowledge that self-development and upgrading must be rooted in personal self-interest and that, for some, no amount is really enough, we must also acknowledge the cost-of-living issues that many Singaporeans face today. Many working individuals will have to make tough decisions on whether to fork out a sum of money to invest in themselves or to save that money or use it for family expenses.

I noted from the Deputy Prime Minister and Minister for Finance's speech that the credits can be accumulated and there will be top-ups to pay for more expensive courses. I would like to find out how much and how often these top-ups are scheduled to be, since people may be less willing to commit to longer courses if they do not know how much they will end up having to fork out on their own.

There is still the supply of relevant and accreditable courses that the Budget did not address. Are individuals free to choose training providers? Will there be enough relevant courses for people to take? Will there be job counsellors to guide and advise interested parties when it comes to choosing courses, especially the elderly or those re-entering the workforce after some time? Will there be a minimum standard that trainers involved in these courses need to fulfil? An example will be, should these trainers be at least Advanced Certificate in Training and Assessment (ACTA)-certified? More clarity should be provided on these questions.

One group of Singaporeans who would benefit greatly from these credits is homemakers. Home-makers may find themselves out of touch with the requirements of their respective work industries after staying at home to look after their young children during their growing-up years. Whether they have the confidence or ability to move back into the workforce may depend on whether they can get adequate training to refresh and upgrade their skills.

Apart from going back to the workforce after their children have grown up, homemakers can also make use of these credits to pick up skills that allow them to work from home or be employed in companies that adopt flexible work practices. However, this group of Singaporeans would also not have as much cash in hand, given their lack of income and, often, their families would already be finding it a challenge to manage on a single income. Can family members transfer credits to one another since there is no expiry on credits and it could benefit the family as well?

Madam, I move on to the next part of my speech, which is on internship enhancements. In my speech on the Motion on Applied Study in Polytechnics and Institute of Technical Education Review (ASPIRE), I had shared my internship experience, listed the advantages and

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pointed out the challenges of implementing internship and apprenticeship programmes.

To recap, there should be consistency in terms of what students can expect to gain during their internships. There should be some formal programme structure that ensures beneficial outcomes for both students and employers. There are situations where employers see interns as cheap labour and are herded from one department to another to fill gaps in any manpower crunches without any focus on their development.

While we do not want to over-formalise practical training either, there must be some guidelines to ensure that students do gain from their experiences, are monitored and get significant work-ready skills. This should include having company orientations, regular mentorship and evaluation sessions and, of course, clearer goals, timelines and outcomes, for both students and the company.

There must be adequate consultation between education institutions and companies from identified industries to ensure that programmes help students further develop their skills and learning, while also being in line with the needs and expectations of industries today.

Lastly, Madam, enhanced subsidies for mid-career Singaporeans. Subsidies of up to 90% will be handed out to all Singaporeans aged 40 and above. These training courses have to be funded by the Ministry of Education (MOE) and Workforce Development Agency (WDA), that is to say, if one chooses a course not funded by MOE and WDA, they will not be eligible for subsidies. There are well-developed professional courses in the market that have been proven to be useful. It will be good if the range of courses can be expanded so that every Singaporean can be given a choice to consider and benefit from the subsidies.

The Government should also look at lowering the eligible age to facilitate mid-career changes, which was the objective of this programme. By doing so, Singaporeans have the opportunity to build up their expertise earlier and, thus, better contribute to the workforce. This is especially useful for women who become mothers and wish to change their career paths in order to spend more time with their children.

The median age of mothers at first birth was about 30.4 years and 30.5 years in 2012 and 2013 respectively. So, it would be reasonable to lower the eligible age to 35 years so that the scheme can benefit more Singaporeans who would be looking to make that mid-career shift.

In conclusion, Madam, I am glad that we are investing in our people through lifelong learning. Regardless of background, age, income or chosen industry, they should all be given

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the chance to enhance their skills and experiences to empower them to take charge of their own career paths and direction in life. As the Government invests more in this area, there is much more we can do to facilitate how the culture of self-development is developed successfully.

Investment in people will pay off, especially when paired with the right resources, a long-term strategy and commitment that both the Government and its people must work towards.

Mdm Speaker, I join the chorus of Members who have expressed their appreciation and support for a very well-rounded debate on this Budget. The Budget has been described by some as a bit to the left, a bit to the right, but I think what is most important is that this Budget must improve Singaporeans' lives and move everybody up. So, this should be an "uplifting" Budget, rather than a "left" or a "right" Budget.

This Budget is one that is sympathetic to the disadvantaged in our society while, at the same time, encouraging collective responsibility from everyone. The provision of incentives for learning and honing skills and knowledge will go a long way. If everyone makes use of these incentives for self-betterment, doors will open for more opportunities, better wages as well as more fulfilling careers and lives. This way, the quality of life will improve and income gaps will be narrowed.

The Finance Minister is right in his clarification that this is not a "Robin Hood" Budget. A "Robin Hood" Budget is one that would be taking from the rich, the well-off, and giving it to the poor directly. I am seeing a lot more focus on self-improvement with assistance from the Government, with the goal of promoting self-sufficiency. This Budget is not about giving fish to our Singaporeans but it is one that promotes and encourages Singaporeans to learn how to fish or improve their fishing skills. It is a wise and prudent move to ensure that Singaporeans would not be burdened with a huge budget to support social welfare in future.

Although it is a Budget that has cast its net wide, covering the young, middle-aged and elderly, there are a few areas which are worth a relook and I hope the Government can consider them in future Budgets, if not for this one.

There are a few areas. First, is on early childhood education; second is on more support for families with young children as well as the elderly; and, third, a greener budget.

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First, on early childhood education. I hope that the words "early childhood education" could be used to replace the word "preschool". When we talk about "preschool", people will think that this is before school and something that is not important. It deserves much greater support from the Government. Although our Government has an ambitious plan to expand early childhood education and childcare with MOE-operated kindergartens introduced last year and also the addition of the Partner operator scheme on top of the current Anchor operator scheme, but we are a long way from a universal, high-quality and accessible early childhood education for all Singaporean children. There are a number of challenges.

One of them is the shortage of passionate and skilled educators. I note that this is a problem not just facing our country but also the United Kingdom (UK) where the low salary for these teachers has kept people away from taking up this profession. I hope we can show the way and build up recognition for these teachers to attract the best to the profession as early childhood educators.

Unfortunately, the industry lacks the appeal and a professional image. There are plenty of ignorance and misconception about the roles of early childhood educators. Because many of the early childhood centres are located at Housing and Development Board (HDB) blocks, there is also a misconception that early childhood educators are "void deck teachers".

I feel that more support and recognition should be given to kindergarten and childcare centre educators.

There is a need for a formal pay structure in place like that for mainstream school teachers that all early childhood educational institutions, regardless of whether they are public or private, will have to abide by. Early childhood educators have a challenging job that involves multitasking, not unlike that of mainstream school teachers.

The Early Childhood Development Agency (ECDA) must analyse the challenges of this career and devise a wage scheme that gives due motivation and recognition. Perhaps, another Mediacorp series on early childhood educators, similar to the one on nurses now, should be screened soon.

The second challenge is space. I look forward to early childhood schools and childcare centres to be allocated land and space just like our primary and secondary schools in any of the towns. They should be planned from the initial stage of a new precinct or town. This will avoid the current acute childcare shortages that we are witnessing in some of our new towns, including in Sembawang.

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We could look into setting up kindergartens as a standard feature in all primary schools in future. With infrastructure, such as canteen, bookshop, school field, already in place in these schools, the facilities on these premises will be better used. This can also be a gradual step forward for kindergarten teachers to become part of the overall teaching profession in Singapore.

On this note, I welcome the recent announcement by MOE to set up more kindergartens, including one going to be set up in Northoaks Primary School in Sembawang. There will be better opportunities for interaction between kindergarten and lower primary school teachers to exchange ideas and to address professional issues.

I also note that, in this Budget, the Government is very generous in allocating a donation of $20,000 to all the schools to identify a cause that is found worthy by the school. I feel that if we want our students to imbibe such values, we should start them young, even when they are in kindergarten. The early childhood years are a crucial stage of learning. Early childhood education essentially sets the cornerstone for development and we should ensure that this sector is given the resources it needs to groom our young. I suggest the Government should also allocate some resources to the early childhood education centres, too, for this purpose.

The Government should work closely with early childhood centre operator to launch a national campaign to recruit early childhood teachers. This can be initiated in the secondary schools and pre-university institutions to provide students with a more viable career option to explore. Talks, exhibitions, sharing of experiences by early childhood educators can help to drive interest and improve the image of this sector. With the current acute manpower shortage, I hope the Government can relax the current student-to-teacher ratio so that the existing childcare centres and kindergartens can temporarily increase their intakes to cope with the shortage of manpower. This ratio can be later adjusted or improved once adequate manpower is trained.

In the long run, the Government should really look at nationalising early childhood education and childcare, similar to what many other countries have done. Unfortunately, I know that nationalisation is not a nice word to hear. The current early childhood education scene is heterogeneous, fragmentated, with varying standards. The only way I can see it, going forward, is to think of an overall national scheme. This will ensure we have a universal high-quality and accessible early childhood education to maximise all Singaporeans' potential. We need to do this because human resource is the only true resource that Singapore has.

Second, on the support for the family. Yes, I note that we have the SG50 Jubilee Baby package this year, but the cost of bringing up a child is very high. A study from Liverpool shows that in the UK, the cost of bringing up a child from birth all the way to 21 years old is

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about ₤220,000. If you convert this to Singapore dollars, it is about S$465,000, or about half a million dollars. But if you include all the tuition fees that the parents are investing now in all our children, it will definitely exceed half a million dollars.

I hope that the Government can consider enhancing our parenthood tax rebate scheme for parents with children so that they can receive more relief. When was our child, parent or grandparent tax relief last reviewed and adjusted? Has it been adjusted for inflation? In the UK, tax credit, on top of child benefit, is available for children under 16. This can be extended to under 20 if the child is still in approved education institution or training. The beneficiary may not be working and even homemakers and freelancers would be able to get the benefit from the scheme. I hope the Government can increase the child, parent and grandparent tax reliefs as this is a clear and strong signal that this Government supports the family.

For families with young children, a car may not be a luxury. It may practically be a necessity for family outings as well as for ferrying the children to and from schools. The cost of car ownership is very high with the high Certificates of Entitlement (COEs) and, worse still, now with the increase in terms of fuel duties. There is a suggestion for better distribution of COEs to families and to those who need a car more. There are many variations. Some suggested limiting it to one car per family, imposing a levy on the second car in the family and so on.

I note that it will be very difficult to implement and may not be practical at all. There will be ways to circumvent all these rules. One suggestion that I have picked up is that of introducing a special family COE rebate. These are for families with school-going children or an elderly or a handicapped child who need transport. The one-time COE rebate will help to offset all transport costs for the family.

Third, on the green Budget. Every year, I speak about the green Budget. Finally, I would like to move on to appeal for more incentives to promote a greener Singapore. I am glad to hear about the extension of the Carbon Emission-based Vehicle Scheme to 30 June 2017. The question is: what is our long-term strategy for green transport? We started with a green car rebate which was changed to a carbon emission-based vehicle scheme.

Will the Government consider changing the categorisation of COE by engine volume to one purely by carbon emission instead? By allocating more COEs to carbon emission economy vehicles, we would transform the mindset of Singaporeans and achieve a firmer target for green transport on the roads quickly and definitely. I think there is no need for a two-system vehicle classification, both by engine volume and by carbon emission. So, my proposal is to merge them into one and just allocate COE by carbon emission.

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We need to do more to incentivise companies and employers to think of more environmentally-friendly ways of doing business. We already have a few grants and funding schemes for building and construction, water and the environment. This is good, but I think we should be looking into making schools and all public buildings green buildings as well because our children and a whole new generation of Singaporeans who grow up in environmentally-friendly buildings would have been imbued with the culture to be green from the start.

In the field of transport, there is the Carbon Emissions-based Vehicle Scheme, which applies to taxis and cars. Can we set an example with a greener public transportation system? In Scotland, the Scottish Green Bus Fund is designed to help bus companies purchase eco-friendly low-carbon buses. I hope all buses under our Bus Services Enhancement Programme (BSEP) can be eco-friendly green buses as well.

And we should do more than just provide incentives. We will have to work on changing mindsets, investing in education and mentorships to guide companies towards green innovation. The 3P Partnership Fund and iLead are all good initiatives for improving capabilities in this area. I hope the Minister may shed some light on the take-up rate. I believe public awareness of the scheme is not as widespread as we want it to be. Some companies do not understand the relevance of green technology and would rather focus on other means to be more productive and profitable.

It is important that we change this mentality through education and close partnerships with Government agencies, helping the smaller companies by making relevant resources and guidance easily accessible. In Australia, the Green Skills Agreement commits the Australian, the state as well as the territory governments to working with training organisations and businesses to ensure skills for sustainability. It is an integral component for their nationwide vocational education and training programme. Instructors and teachers are specifically trained to impart the knowledge, skills and principles on green technology.

Next, I would like to make a few comments regarding our fiscal position. While I welcome the Government's Silver Support Scheme to provide periodic monetary payouts to our elderly who belong to the lowest 20% of the economic group, I am concerned, like many Members of this House, how sustainable this scheme is as our population ages and this group grows larger.

The expenditure on the Silver Support Scheme will grow. The big question is: the current lower 20% of our poor elderly, are they the same group as 20 years ago? Will they be in the same group 20 years later? If they are the same group 20 years later, I will be very sad, which

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means that there is no improvement at all.

As the country progresses, I expect the real income of even the poor to increase. So, by setting the target at 20%, I am not sure whether it is a good measure. Instead, the Government should set a more concrete measure, such as retirement adequacy, to see that whoever falls below this retirement adequacy should receive the Silver Support Scheme. And what is this retirement adequacy amount? That is up to the Government to decide as well as to ascertain what would be the required amount for a minimum life income, in order for them to sustain their living in Singapore.

As the Government increases social spending, our revenue also needs to increase to balance the Budget. The increase in personal income tax of the 5% higher income earners and the inclusion of Temasek's earnings in the Net Investment Income – those are welcomed. The increase in personal income tax will affect high-wage earners more but will not have a significant impact on the ultra-rich whose wealth is not derived from wages all. Their wealth is mainly derived from dividends, investments, properties and their businesses. They should shoulder more taxes to be commensurate with their wealth and also to make sure that they shoulder more responsibility. Taxes, such as capital gains tax, property tax increases – these may be better ways of taxing them.

Another point I wish to make is the lack of any increase in "sin" taxes this year, surprisingly. The casinos and our gaming sector are all still reporting huge profits. Why did the Government not consider increasing gambling duty tax, liquor duty tax as well as cigarette duty tax this year to offset some of our increases in expenses in healthcare and social causes? Is increasing gambling, liquor and cigarette duty tax not a better option, compared to increasing petrol duty tax? With that, I support the Motion.

Mdm Speaker, let me first, thank Members of the House for the thoughtful and valuable views that everyone has made over the course of the last two days. Members have spoken about each of the major thrusts in the Budget, both by providing perspectives of how we should go about things, underlining the values that should underpin our efforts and making many specific suggestions on how we should implement our schemes – how we should learn as we go along and improve as we implement our schemes. So, it has been a very useful debate. Many of the specific issues, as usual, will be taken up during the Committee of Supply (COS) by the respective Ministers.

I will focus on three main issues today.

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First, quite briefly, I will respond to some of the perspectives provided during the debate on economic restructuring and, in particular, how we have got to help uplift our SMEs, so that the future – when we talk about the next frontier of our economy – is not just a future of technology and skills but a future that contains a vibrant SME sector as part of our society.

Secondly, I will talk about our approach towards building a fair and inclusive society.

Thirdly, very importantly, I will talk about our ability to sustain what we are doing: how do we sustain a fair and inclusive system well beyond the current generation of Singaporeans?

Let me start with restructuring. The issues that came up in the debate are not new. If you look at the debates of the last few years, you will find similar issues coming up and they illustrate inherent tensions in restructuring our economy, inherent tensions in moving from one state of economy to a new state of economy, with a transition in between that is an inherently difficult transition.

Mr Inderjit Singh spoke about high business costs. Mr Yeo Guat Kwang, Mr Gan Thiam Poh and several Members highlighted this constant problem of business cost increases at a time when revenues are not growing very rapidly. It is a real problem. The fundamental reason for business costs being high lies in demand and supply. That is the fundamental reason. We are a supply-constrained economy. But demand by businesses for land, labour and all sorts of resources remains high. There is some positive in that; there is some positive in an environment where businesses are still trying to do business, trying to expand, need more workers, space and resources. It is not an economy in crisis.

Over the last five years, the number of new firms formed each year minus those that exited – net new firm formation – was 20,000 per year. Twenty thousand firms formed each year, minus those that exited. That is more than twice the preceding five years. During these five years – when we had sought to restructure our economy and were grappling with the shortages we face in manpower and the increasing constraints of land – we have seen a significant increase in the number of firms being formed across every sector.

Even in sectors like the food services sector, hotel services sector, we have seen the same phenomenon. In the food and accommodation sector, the average number of new firms, minus those that exited, was nearly 1,000 per year, 50% higher than in the preceding five years.

But revenues, overall, are not growing more rapidly. They are not growing by 50% at all. We all know that. So, it is a question of revenue growth not being unusually buoyant but demand for resources is growing. And in that situation of demand and supply, business costs

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go up. That is a fundamental reason.

We, therefore, have two basic approaches that we can take in attempting to move from one state of the economy to the next state. Two basic approaches that we can take in transition. One is to find a way to subsidise business costs across the board. Subsidise rental cost, subsidise labour cost, subsidise business cost across the board, because, actually, it is an across-the-board situation. It is a fundamental constraint in resources pitched against increasing demand for resources. It is not about one firm or the other, or one sector against another. So, find a way in which the Government uses taxpayers' money to subsidise across the board to reduce business cost. That is one way.

The other way, as Assoc Prof Randolph Tan and a few others mentioned, is to withdraw support and accelerate the process of restructuring by letting market forces take charge, letting the market sort out more quickly winners from losers. That is another way. And it is not a crazy idea to accelerate restructuring by letting market forces take charge.

We have not chosen either approach. We have chosen an approach that is the middle path. As Mr Ong Teng Koon and others have pointed out, a phased tightening of our foreign worker policies, starting in 2010, year by year, always giving lead time for workers, and it has been quite a gradual phasing in. If we look at it over the five years as a whole, it is a significant tightening, but it has been phased in. And very importantly, we have not just collected high foreign worker levies but we have flowed it back to companies. Flowed it back to companies that are taking some initiatives to upgrade, invest, improve processes so that they are prepared for higher productivity in the future.

As Assoc Prof Randolph Tan and others know, the process takes time. It takes time to reengineer a business, some time to switch to an entirely new business model and to train up our people. It takes time, but that is the approach we have taken. Gradual tightening so as to allow the market to work, but very strong support for firms that want to upgrade and do something about it. And we have more than flowed back to the business sector the additional foreign worker levies that we collected.

The reason why we have taken this approach and not the harsher approach of simply allowing market forces to work in the face of a very tight labour market is because shock treatment does not just weed out the weakest players. It does not just weed out unviable businesses. It has a way of weeding out good businesses as well. It happens in every crisis, in every economy. When you go through a deep crisis, you lose many good businesses, including very promising entrepreneurs. So, we have taken this phased approach because we are not an economy in crisis, we can afford to take this phased approach.

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Secondly, we have not wanted to impose a large cost on our workers. That is the second reason why we have taken this phased approach. Indeed, in the last few years, you have seen a very significant increase in labour force participation amongst older workers as well as people returning to the workforce, particularly women returning to the workforce. As Ms Foo Mee Har noted, I think quite thoughtfully, when workers who have been out of the workforce for some time or who have lower skills enter the workforce, it does not immediately help productivity. It takes time to train our people. And that is another reason why productivity growth has been hampered. Because we have, as part of our social objectives, to try and make it as friendly as possible an economic environment for anyone who wants to join the workforce and contribute to the family. And I think that is the right balance that we have taken.

But we do have to ensure that our SME sector, five and 10 years from now, is a vibrant one. We will not be able to keep all our SMEs, but we want to have a critical mass of SMEs in every sector of the economy. That is Singaporeans – they are part of our society, not just our economy – we want them to be there in the future Singapore economy. Innovative SMEs, expanding abroad and even where, in the domestic market, finding a new way of doing business or bringing in new ideas to the market. And it can be done. We have seen leaders already amongst our SMEs in every field that are breaking the mould. It can be done.

We are sparing no resources in helping our SMEs. And although we have concerns about how many agencies we have, how many schemes we have, frankly, these are second order issues. It just depends on the entrepreneurs. If they are willing to take advantage of schemes, the schemes are there. They are more generous than in any other economy I know of, when you add up all our schemes – tax incentives, focused as well as broad-based, like the Productivity and Innovation Credit (PIC); grant schemes through Standards, Productivity and Innovation Board (SPRING), Infocomm Development Authority (IDA), Media Development Authority (MDA); and the other schemes. When you add them all up together, it is a very generous set of supports. Please come and take advantage of them. And the Government will work as closely as possible with our trade associations and chambers to help more companies take advantage of our schemes. Entrepreneurs have to rise to the occasion.

Mr Thomas Chua asked about the numbers. Small numbers have been taking advantage of these schemes. If you look at our Innovation and Capability Vouchers which help small companies to take incremental but significant steps, since 2012, we had about 16,000 vouchers awarded, 90% of which going to very small businesses. If you look at IDA's iSPRINT scheme, since 2012, about 7,000 SMEs have been implementing new IT solutions. IDA has also been promoting sectoral platforms and we have 46 sectoral platforms taking root and which will yield positive results in time to come, I am sure.

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SPRING's Capability Development Scheme, which is one step up, higher than the Innovation and Capability Vouchers – we have 2,000 projects supported in the past three years. Again, it will take time for it to move the needle at a broader level. And as I announced in the Budget, we are now introducing a lower tier of support that will be granted much more easily so that we multiply the 2,000 figure.

So, we are making some shifts in our approach towards focusing our innovation and breakthroughs whilst retaining a base level of support for all companies to get onto the basic level of productivity initiatives. We are shifting emphasis, and I am glad that everyone who spoke supported that shift. But very importantly, we have got to help our small and medium enterprises (SMEs) take advantage of SkillsFuture. This is an opportunity for our trade associations and chambers, or TACs, to strengthen themselves and work with their members. And the Government will work very closely with our TACs on this.

SkillsFuture is a real opportunity. Industry by industry, sub-industry by sub-industry, we will work with TACs and clusters of companies to develop Singaporeans to develop talent. Develop courses that really suit the needs of the industry – short courses, modular courses, helping workers take advantage of new technologies – and develop training options that are meaningful to the individuals, meaningful to Singapore. And a very important part of this initiative of helping SMEs will be to develop a pool of mentors who work with specific industries and firms to help them. Because, as we noted, SMEs, on their own, will find it difficult to train up their people and take full advantage of SkillsFuture. So, TACs and a pool of mentors will help our SMEs.

There are already examples of how this can be done. The furniture industry is one of them. The Singapore Furniture Industry Council has collaborated with NTUC's e2i and WDA to launch the Creative Craftsmen Entrepreneurship Programme, combining on-the-job training with training at the Institute to develop a local pool of skilled local craftsmen. Good example. It is when some TACs take the lead that I think others will begin to move and they will know that you provide very strong support as the Government for the TACs to take the initiative.

SkillsFuture was supported by everyone who spoke. I am glad that the Workers' Party, too, joined in support of this whole initiative. There were useful suggestions on how we should go about it and, in particular, I would like to highlight the suggestions that several Members made – Ms Jessica Tan, Ms Irene Ng, Mr Patrick Tay, Dr Intan, Mr David Ong, Mr Ang Hin Kee, Er Dr Lee Bee Wah. I am sure I missed out some other names.

In particular, the suggestion that we should not just develop a landscape of offerings, but should actually work with groups of Singaporeans to develop offerings that meet their needs. So, it is not just about the landscape of offerings on the one side and firms on the

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other. You have got to help groups of Singaporeans to meet their needs – mid-career PMEs, our homemakers, our low-income workers, Singaporeans aspiring for leadership positions. Singaporeans who really need, in some cases, hand-holding; in some cases, some customisation within this landscape. And I think that is a very exciting opportunity to develop intermediaries and mentors, use our trade associations and have individuals who are also passionate about this to come forward and work with the groups of people, including our homemakers, as was emphasised, who do want to return to work for some period of time, part-time or full-time.

We will place great emphasis on developing quality offerings. This has been emphasised by everyone, in particular, by Ms Denise Phua and Ms Foo Mee Har. We studied the experience in some other countries. The UK did experiment with individual learning accounts more than a decade ago. They faced problems because of a lack of quality assurance and they did not place enough emphasis on developing the supply side, developing the training landscape that was relevant to the needs of employers and individuals. It is no point just creating an account where you put money into people's account.

You need to ensure quality. You need to assure people of quality and you need to ensure relevance to jobs and individuals. And that is what our primary focus will be about. So, SkillsFuture, frankly, will itself be a learning journey. We are embarking on a major new phase in developing our people. It involves some experimentation. It involves learning as we go along, but let us do it with the right spirit. As Mr Lim Swee Say says, everyone plays a part in this. You just need the mindset of embracing the future. We all have to embrace the future. And I think this will, in time to come, prove to be a transformative force in our society.

Let me now move on to a second major theme, which is that of building a fair and inclusive society. We have embarked on major moves to build a more inclusive society and mitigate inequalities. It is not a recent shift; it is not a sudden shift. It started in a major way in 2007 and, since then, step by step, year by year, we have made enhancements in education, housing, healthcare and retirement. A deliberate tilt to support our lower- and middle-income groups, step by step. And if you look at each of our Budgets, if you look at the philosophy articulated in National Day Rally speeches by the Prime Minister, this is a shift that we have been working at progressively year by year over the last seven to eight years.

What it boils down to is that we are providing more active support for Singaporeans at each stage of life: when you are young, when you are in your working years, as you raise your family and when we all retire and get older. Very importantly, we are building a social compact that is not only about stronger collective responsibility, but which seeks to encourage personal and family responsibility. I will come back to this later. That is at the heart of it. We are building a social compact that is not just about stronger collective

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responsibility, but seeks to encourage personal and family responsibility.

Let me describe the major steps we are taking and how they add up to this new social compact. First, we are intervening earlier in life: investing more in our young so as to preserve and encourage social mobility because that has to be part of our Singapore identity. It is a challenge all over the world. Social mobility is the defining challenge in every advanced country today. The slowdown and the low level of social mobility, almost irrespective of which of these countries you look at, including the Scandinavian countries.

We are fortunate that Singapore has so far done relatively well. It is still a more fluid society than most. I can show Members a slide. [Please refer to Annex 1] What this slide looks at is people who start off with low-income family backgrounds, and we look at what happens to them once they have finished education, entered work and are well into their working lives. Where did they end up?

If everything was equal – in other words, if we all had equal abilities and if backgrounds and everything associated with our backgrounds played no role in what happens in life – then, the chance of you ending up in the bottom 20%, the next 20%, the middle 20% or the top 20%, will be equal. Wherever you start, 20% will end up in each quintile of society. Everything equal. But everything is not equal: there is the "lottery of birth" and, in every society, your background is associated not just with your abilities, but the culture around your background.

What has been seen in most advanced societies, for reasons that are not fully understood, is that in the last 20 years especially, people who are better off are not just giving more resources to their kids, they are also putting a lot more effort and time with their kids. Everyone else in society is trying to do as best for their kids, as they have always done, but, for some reason, those at the top are putting even more effort into helping their kids succeed – starting very early and through life.

Those are the natural workings of society. We cannot help those natural workings of society; they are true everywhere in the world. But we want to give the best chance for someone who starts off with a low-income background or middle-income background to move up and make sure this remains a fluid society.

Now, we will look at the data. If you look at the US, for those who start off from parents who were within the bottom 20%, only 7.5% of them – or about one in 14 – make it into the top 20%. If everything is equal, 20% of them will be in the top 20%. But, in fact, only 7.5% make it to the top 20% of their cohort. This is now widely acknowledged in the US. They used to think of themselves as a place with considerably more mobility than Europe, but actually,

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it has not been the case for decades. The UK is not very different, very little mobility. Poverty today is poverty tomorrow, it is entrenched.

The Scandinavian economies are somewhat better. About 10% to 12% of those who start off from parents in the lower- income group end up in the top quintile, the top 20%. Canada is doing much better than the US. They are located side by side, but Canada has got a different system, less entrenched social barriers and they are doing somewhat better.

In Singapore, for those who start off with parents in the bottom 20%, 14% of them end up in the top 20% of their peers. This is a relatively young group that I am showing – those in their mid-20s to early 30s. If I were to show you the older generation, we know the story – even more fluid. But even for this younger group, 14% end up in the top 20%. A relatively fluid society.

We know it will get more difficult. With each decade, it gets more difficult as society gets more settled. We will not evade the problems faced in the advanced societies; the natural workings of societies exist. So, we have to work harder at it, and that means, as Dr Lim Wee Kiak had emphasised, starting earlier. Finding every way to help every kid who has a weak start to gain confidence and to get a strong start.

We are investing very heavily in pre-school education for this reason and we are doing a lot in our primary school years. Preschool education – it is well-known. But let me remind Members that when we add up what we are doing for students with a weak start in primary school, we are now spending 2.5 times more in real terms, compared to just five years ago. That is, investment in teachers, programmes to help them develop stronger numeracy and literacy skills, starting in Primary 1 and 2, and working our way up.

A very significant initiative. We have to intervene earlier, intervene more strongly, but find the best and most creative ways to help children gain confidence and overcome early deficits.

We are also doing more for special needs students. Our spending on students in our special education (SPED) schools has increased over the last five years by 50%. It was already much higher than for students in a regular school and we have increased it further by 50% in real terms. We have been strengthening the SPED curriculum, helping to train up the teachers. MOE is funding professional development of the teachers in our SPED schools. We are intervening earlier and trying to intervene better.

Secondly, we have enhanced affordability across the system, from preschool all the way up to the tertiary level. We know about the kindergarten and childcare subsidies. For low-

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income families, they pay as little as $3 a month for childcare, and $1 a month for kindergarten. Across the system, we have also enhanced subsidies for the middle-income group. I spoke about this in the Budget. This is especially so in tertiary education. A significant shift that began a few years ago was to enhance bursaries and other forms of support for the middle-income group in tertiary education.

Thirdly, it is about the pathways. By creating more diverse pathways to cater to every talent and inclination, and even different learning styles, we are also trying to promote social mobility. People have different strengths, different interests and by providing more diverse pathways, we maximise our chances of social mobility. That has been true in the school system but especially true at the tertiary level. The strengthening of the applied pathway is a critical route to social mobility.

That is education – a major set of initiatives.

The second major initiative that we have taken is to promote home ownership, particularly, by helping the lower- and middle-income groups. I am not going into details because Members know the details.

Housing prices are not like what they were 40 or 50 years ago. That is, indeed, why the older generation today is sitting on substantial housing assets and equity in their homes. Prices are not like what they were even 30 years ago. What is critical is to help young couples today, once they are ready to set up a family, to own a home. On that front, we have spared no efforts, first, in trying to tame the cycle, which we are achieving by boosting supply of HDB flats and through our additional buyer's and seller's stamp duties. All the measures we have taken to tame the cycle are working and are working better than in Hong Kong or some other places.

More importantly, there have also been enhancements to housing grants – the HDB and Build-To-Order (BTO) grants. What we are able to achieve for young couples in Singapore today is unmatched by any other leading city in Asia. We know about Hong Kong, extremely high housing prices. Likewise, in Shanghai, Beijing, Seoul, Taipei, even Sydney and Melbourne – if you look at the income of the average young couple, compared to the price of a home that they want to move into, homes are more within the reach of our young than they are in any other leading Asian city. That is home ownership.

Thirdly, what we are doing for those in working age. I am listing this in a little bit of detail but it is worth reminding ourselves as to how our social programmes add up and how we have been making deliberate moves over the last seven to eight years: what we are doing

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for people in their working age.

SkillsFuture is a major investment and I have spoken about it. At its heart, it is not an economic programme. At its heart, it is about helping every individual push their potential through life. Not just what you do in school. Keep discovering and pushing your potential. Everyone has a strength, although we may not figure it out during our school years. Everyone has a strength and it is never too late in life to identify your strengths, identify your interest, and push your potential. It is never too late to learn. SkillsFuture is, itself, a major force of social mobility. It is not just an economic strategy.

Fourthly, we have also taken significant moves to temper inequality. Workfare was a major step, which started in 2006 as a temporary scheme, we made it permanent in 2007, and we enhanced it in 2010 and 2013. We will continue to review it in future so that even as wages go up over time, we would still want to use Workfare to redistribute and temper inequality. Workfare is not about alleviating absolute poverty; it is about mitigating inequality even as incomes rise. We have to mitigate inequality.

For the lowest-paid workers, the Progressive Wage Model is now working its way, first, through the cleaning industry, and we are moving on to the security industry. We focus on industries where outsourcing is prevalent and which are prone to cheap-sourcing as a result of outsourcing practices. That is what we are focused on.

We have also introduced a permanent Goods and Services Tax (GST) Voucher scheme. Again, it is a redistributive device: a permanent GST Voucher scheme to help lower-income households. So, that is the fourth set of initiatives – tempering the disparities in life.

Fifth, we are giving greater assurance in old age, so that our elderly can make the most of life. First, at work, we introduced a Special Employment Credit – quite a unique scheme by international standards – to help our older workers keep their jobs or find new jobs and to stay employed and continue to contribute and take pride in contributing, which is what Singaporeans want to do.

Beyond work, we have made very significant shifts in healthcare, first, by enhancing subsidies not just for the lower-income group but the middle-income group. Last year, through the Pioneer Generation Package; this year, through MediShield Life, which would be heavily subsidised for the lower- and middle-income group; and by the significant expansion of capacity which Members are familiar with – all around the island, primary care, acute care, step-down care; very significant expansion of capacity.

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Next, we will be rolling out the Silver Support Scheme to provide a further supplement to personal savings and family support. Silver Support, like Workfare, will be a way of tempering inequalities through life.

Finally, we are doing more to encourage the community to take responsibility and to step in. In Budget 2011, we had a major initiative – the Community Silver Trust Scheme. We put aside $1 billion, for dollar-for-dollar matching for voluntary contributions to voluntary welfare organisation (VWOs) providing intermediate and long-term care, which includes helping the disabled. It was a major scheme and, I should add, in relation to Dr Teo Ho Pin's question that the Community Silver Trust provides matching grants for the National Kidney Foundation (NKF) and for VWOs providing kidney dialysis.

More recently, we have launched the Care and Share SG50 movement. It was rolled out in 2013 and we have extended it this year. Again, it provides dollar-for-dollar matching for a whole range, a very broad spectrum, of social service sector VWOs.

We have enhanced our tax incentives for donations, which Members have welcomed. Mr Seah Kian Peng spoke about this. We introduced a 250% tax deduction in 2009 and had good results, which is why we have extended it for another three years, quite apart from this year having a 300% deduction.

Mr Seah, in fact, asked about the revenue implications of this tax deduction. This tax deduction, the 250% tax deduction, has meant a tax loss to the Government of about $120 million per year from 2010 to 2014. But it led to a gain for the charitable sector of about $870 million a year. The Government lost $120 million but it led to a gain for the charity sector of over $870 million per year.

If we take it all together, this has been a set of major moves – at every stage of life, strengthening our policies, providing greater assurance and opportunities – in education, at work, in healthcare, in retirement.

Let me show how it all adds up in our system. When you take all the taxes that people pay and all the benefits that they receive through our different schemes, how does it add up? It is basically a progressive system and one that has become more progressive. Where the higher-income households contribute the bulk of the taxes and the lower-income households receive the bulk of the benefits. It is also one where the middle-income receives more benefits than it used to.

Let me show that very briefly with the slide. We take the top 20% of households: they pay 55% of all taxes, when you add up income tax, property tax, GST, car taxes, maid levies

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and so on; they pay 55% of all taxes and they receive 12% of the benefits. If you look at the middle 20% of households, they pay 11% of all taxes and they receive 20% of all benefits. When I say, "middle 20%", I mean those between the 41st and 60th percentile. They pay 11% of all taxes and they receive 20% of all benefits. And the lowest 20% of households pay 9% of all taxes, mainly through the GST. Everyone contributes, and the low-income group contributes through the GST and a few indirect taxes, but mainly the GST. They pay 9% of all taxes, but they receive 27% of all benefits. It is a progressive system.

Then, I should add that we have also shifted significantly in the weight being placed on structural transfers, permanent schemes, as distinct from temporary schemes that we are able to afford when the Budget is in good shape. Ninety percent of our transfers in recent years comprised permanent schemes.

The system is not just about redistributing from the rich to the poor. It is also about the middle-income group, very importantly. The middle-income group in Singapore are net beneficiaries of our system. There has been a very significant increase in the amount of benefits that the middle-income group has got over the last 10 years. For every dollar of tax paid by the middle-income group, they now get $1.70 back. In fact, a bit more than $1.70 back. For every dollar of tax paid and you add up all their taxes – income tax, what those who happen to own a car would pay, add all the taxes, property tax and so on – for every dollar of tax they pay, they get $1.70 back in benefits. This is real data that refers to the middle 20% in our society, Singaporeans. It has gone up significantly over the last 10 years.

It is a fair system. The benefits that our middle-income group gets are not like what you see in the Scandinavian countries, the UK or many other advanced countries. Some of them have ‘free' healthcare, ‘free' tertiary education, "free" many things. But they are paying for it. It is not free. It is never free.

In most of these societies, with Scandinavian countries being the classic example, their tax systems are not typically progressive. They rely mainly on the value-added tax (VAT) and high income tax for everyone, to be able to flow back the benefits. Everyone is paying for the free benefits that they are getting. When you add it all up, the benefits they get for the dollar of tax the middle-income group pays are less than ours.

I will show Members another chart which compares us to some other countries. The US is the lowest tax country amongst the advanced countries, generally. Their effective income tax for the persons in the middle-income group is about 17%, relatively low, compared to many other advanced countries. In Singapore, it is close to zero for those in the middle. In the US, it is about 17% – lower than the Scandinavian countries.

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In the US, when you look at their sales taxes – they do not have a national GST, but they have sales taxes at the local level – they are about 4% to 11%. The US has somewhat lower taxes at the most. In the US, you get about $1.30 back for every dollar of tax you pay. Finland is about $1.30 as well. UK, slightly more. And in Singapore, it is about $1.70.

We are a low tax regime. We try to keep the burden of taxes of the middle-income group, in particular, low. We target our benefits in healthcare and education, in every area, to support the low-income group and the middle-income group. We target it. In general, everyone co-pays for what we are getting, so that we know that nothing is for free. We co-pay, we keep taxes low, and the net benefits are ones which the middle-income group gains from. So, that is worth highlighting.

Let me go on to explain what this adds up to in terms of our thinking, values and philosophy. We have tilted our system deliberately to help our lower- and middle-income groups. In the last five years, there has been a significant tilt. The Government is playing a more active role in redistribution.

But the key to building a strong society is not just in how much we are doing to redistribute. It is in how we strengthen the values that undergird and sustain a fair and inclusive society. It is not how much we are doing, but how we do it, and whether what we are doing helps to strengthen the values and the habits that sustain a fair and inclusive society.

At the heart of it all, we are seeking to build a stronger social compact for the future, a compact where personal and collective responsibilities go hand-in-hand. That is at the heart of what we are doing. We are seeking to build a stronger social compact, where personal and collective responsibilities reinforce each other and go hand-in-hand.

Our approach is quite different from the cradle-to-grave welfarism that was developed over 50 or 60 years in many of the advanced countries. Our approach is about empowering people and aspirations, and rewarding responsibility throughout life. That is our approach. It is quite different from cradle-to-grave welfarism. It is about encouraging and empowering people to learn at every age, to work, to take second or third chances and to make meaningful contributions through our careers, whichever the job; helping people to own a home and whether as a breadwinner or homemakers, to raise the next generation and helping everyone to make the most of life even in our senior years.

It is also about developing a broader culture of responsibility in our society. It is not just about everyone doing their part, rich or poor, but also about being able to count on one another. And those two things go together. We are able to count on one another, now and

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in the future, only if everyone plays their part, if everyone plays their responsible role.

Our whole approach, therefore, has been to avoid a zero-sum game between personal and collective responsibilities. Avoid a zero-sum game and get a compact where personal and collective responsibilities reinforce each other.

We have had a thoughtful debate on this issue. As Ms Chia Yong Yong said, if we lean too much to the left, we will not have much left. As Mr Karthikeyan said, if we lean too much to the right, too, then we may not be doing the right thing. There is truth in both views.

Mr Seah Kian Peng noted the polarisation of views in the US, the polarisation between "red" and "blue" views. Very serious problems, because they are looking at problems through red lens or blue lens alone. We have to avoid looking at problems through the lenses of the left or the right alone because there are truths on both the left and the right. These are the truths that we learned from 50 years of experience in social policies all over the world, particularly in more mature societies.

We cannot solve problems if we leave it entirely to the market or the natural workings of society. It would lead to widened income gaps that reflect not just people's different abilities and efforts, but also the advantages and disadvantages in the backgrounds they start with. It will sap the morale of our society if we just leave it to the market to sort things out.

Neither can we think that social policy interventions alone can create a fair and cohesive society, without a culture of personal responsibility in the family – in education, at work and in saving for our future. It will not create a fair and inclusive society, and it will sap the vim and energy of our society at every level.

We need some humility. In every society, we need some humility as to what works in social policy. Take truths from both the left and the right, but we must have some humility. Because one of the lessons we have learnt from the policy interventions in the more mature societies is that lasting improvements in society are not easy to achieve. It is certainly not just a matter of putting in more Government resources. Our real task is to find ways to help people, not just by providing them with more resources, but helping them to rebuild family lives, making sure they have got empathetic teachers, mentors, community volunteers, and helping them to build circles of friends and peers around them, people with a positive and aspiring outlook on life.

We have made our system more progressive, as part of our efforts to build a fair and inclusive society, but we should never forget that it rests on this compact of personal and collective responsibility. As Ms Jessica Tan put it, we must preserve our Singapore ethic of

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work, effort and responsibility, and collective responsibility for the community. I think that sums it up.

Let me now talk about a critical issue, which is sustainability. Fairness is not just about what we do today – how we distribute taxes and benefits, who takes what share today. It is not just about the current generation. We must build a fair and inclusive society for today's generation, our children's generation and generations in the future. That is the difficult task.

There are countries more progressive than us. There are countries that have achieved a very high degree of transfers and redistribution. It is worth watching them and how they changed over time. How their values changed and, also, whether they had been able to sustain what they are doing.

The whole experience of the UK, Europe and, to some extent, the US, has been one of building up unsustainable social welfare systems. The UK is a very good example. With each electoral term, each party and each government coming into power has increased social spending and increased spending particularly on the elderly. It is vote buying. But the system is now unsustainable and they are paying the price.

Unfortunately, the ones who are paying the price are the young and the lower-income group. Spending in the UK in the last few years has been cut for children. Between 2009 and 2012 – I do not have the more recent data, but it has been intensified austerity – real spending per child in early education and childcare fell by 25%. Spending was also cut on programmes to subsidise early education and childcare for disadvantaged children – a significant cut, more than 30% cut.

It was not as if it was to help poor retirees, because the whole weakness of the system was in extending benefits to everyone, including the upper middle-income group and the rich. The rich get generous pensions, they get winter fuel allowances, free transport. Even the Conservative government today is committed to preserving those benefits for the elderly rich and the upper middle-income groups at the expense of the young and the poor. That is how inequitable it is.

We have got to sustain a fair and inclusive society for generations; not one election at a time.

The US faces the same situation. It has lower taxes than in many European countries, but it has the same basic flaw of looking at things short-term. What has happened in the US now – and the Obama Administration has recognised this – is that they are severely

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constrained in investing in their future.

The reasons are, first, the interest payments on the debts they have accumulated are going to grow as a share of their budget. Interest payments on debt are going to increase by almost 2% of GDP over the next 10 years. Second, the entitlements they have promised are also growing because people are getting older. If you add those two things together – the interest payments on debts and their entitlements which are a fixed item of their budget – it results in less being left over for the rest of spending. They have to cut back on spending on the future, on fostering opportunities. They have to cut back. And if we look at it at the state level, California and other states, a very significant cutback on education spending – inequitable.

This is true for most of the advanced countries. An OECD report stated, forthrightly, "governments will have to make tough choices of about how fair it is to ask current workers to pay taxes to support pension payments of a level that they themselves won't enjoy." Current workers have to make higher contributions for pension payments that they are not going to enjoy, but which current pensioners will enjoy, including pensioners who are not poor.

We have to avoid these basic political flaws. We have to avoid them. I am glad Members have raised caution and have asked the right questions which we have to keep asking as we move along. We have to make sure that, as Mr Liang Eng Hwa says, we never cross the red line of failing to balance our Budget within each term of Government. Mr Hri Kumar also spoke on this matter. Ensure sustainability, ensure we never run down our Reserves.

This is why we have written rules into our Constitution. We have gone further than most other countries – by writing the rules into the Constitution to prevent the Government from running a cumulative deficit within its term of Government. Except in crises, when we have to go to the President to get his permission to draw on Reserves. We have written it into the Constitution, so that it is enshrined in our political culture, no matter who is in government.

Mr Hri Kumar and Mr Arthur Fong also voiced concerns about the Budget deficits that we are running in recent years. Let me clarify that the Government Budget has been in a healthy position. For this year, as I have explained, the deficit is almost entirely due to funds being set aside for future investments. It is not a deficit due to spending exceeding revenues. It is a deficit because we are setting aside funds that we have earned in this term of Government, for the future. And until this year, during this term of Government, we have not recorded a deficit in any year before setting aside funds for the future. For example, the small deficit we ran last year would have been a significant surplus, had we not set aside

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money for the Pioneer Generation Package.

Essentially, what we have been doing is prudent budgeting. We have had a temporary surplus in revenues, particularly because of the revenue boost from the property cycle. And rather than spend those revenues in the current term, which is what some other governments do when they get a bonanza in revenues, they spend it, we have set it aside. And that should remain the way we go about fiscal planning in the future. When we have a temporary boost of revenues, and we know the cyclical reasons why our revenues exceed our spending, set it aside for the future; do not spend all of it immediately. That way, we avoid "feast and famine" in our spending.

Let me now go on to two major issues that arose in the debate that relate to sustainability. The first has to do with the Net Investment Returns (NIR) framework and the use of Reserves. The second is the CPF system as well as Silver Support.

Several Members raised questions about the sustainability of our system of drawing income from Reserves, and about making sure that we are not disadvantaging future generations. The NIR framework, in fact, underlines our commitment to preserve the value of our Reserves and to allow it to grow with the economy over the long term. It allows the Government to tap on part of the investment returns for current spending, and it strikes a fair balance between present needs and the interest of future generations.

We had put a lot of thought into it when we moved the constitutional amendment in 2008. It is about striking a fair balance between present needs and the interest of future generations. It ensures that we spend from our Reserves in a disciplined and sustainable way.

First, by spending at most 50% of expected long-term returns, which means at least 50% are kept in Reserves. Second, by spending based on real returns, not nominal returns, so that we preserve the international purchasing power of our Reserves. Otherwise, if we have high inflation globally, and you earn higher nominal investment returns and you spend more on that basis, what you are doing is reducing the real value of your Reserves for the future.

We have also provided stability in the NIR, by spending based on expected long-term returns, not actual returns. This recognises that actual returns will be more volatile than the long-term expected returns. And we smooth our asset base. This is an important point. There are two ways in which we achieve this stability over time: first, we are spending based on expected returns, rather than actual returns, which can be volatile; and secondly, we also smooth our asset base.

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For instance, there is a boom in asset markets, a boom in asset prices and the value of our Reserves go up, the value of the asset base goes up. We do not spend on the basis of that boom in asset prices. We smooth the asset base, so as to discount the latest changes in prices. If there is a boom in asset prices, it does not mean that you spend the same increase in NIR, because you do a smoothing of the asset base. These are rules we have written in that help ensure there is a fair balance between current and future generations.

There have also been some questions, understandably, in the media about whether bringing Temasek into the NIR framework will impact Temasek's investment strategy. The same question can be asked about GIC and the Monetary Authority of Singapore (MAS). Let me assure Members that this will not be the case for Temasek, just as it is not the case for GIC and MAS.

The NIR framework provides a formula to work out how much the Government can spend from Reserves. That is what the NIR framework is about. It is not based on actual returns, but on the expected long-term real rate that we expect our investment entities to earn within the framework. It is about the expected real rate of return from each of our investment entities, and not based on actual returns. It is not a dividend policy in disguise that determines how much cash Temasek has to pay the Government each year. If anything, by focusing on expected long-term returns, we ensure that in no time in the future does the Government put pressure on our investment entities to sell assets, realise capital gains, and pay more dividends. It keeps their investment strategies independent of the spending rule of the Government.

The natural question that arises, of course, is that if the Government is spending on the basis of expected returns which will not year-by-year be matched by actual returns, where then does the Government obtain the funds, the cash flow for NIR to go into the Budget? This is a liquidity management issue and not to do with the spending rule and not to do with the investment strategies of the investment entities. It is a liquidity management issue which I had addressed in Parliament when we first introduced the NIR framework. I will not go into the details again, but we have a variety of sources of liquidity and cash flows that will enable us to manage the Government's liquidity needs independent of the investment strategies of the three entities – Temasek, GIC and MAS. Let me assure Members that what we are doing does not change their investment strategies in the least.

I go on now to the second important issue related to sustainability, which is the CPF system and Silver Support. Let me first explain – and this is quite important – how the CPF system is different from the main systems that we see abroad, the commonly known systems abroad. In particular, how we have tried to avoid the major disadvantages of these other systems, whilst being able to take some of the advantages. It is a very important feature of the CPF system. We are actually a system that is quite different from the main systems that

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we see abroad.

There are, basically, two main types of retirement savings systems. The first are collective pension schemes, where everyone pays taxes or regular contributions into a common pool while working, in return for a promised regular payout in retirement. They are usually state-run, some are employer-run, but they are basically collective pension schemes. Everyone pays into the common pool and they are assured of a certain payout in retirement. That is one type of system.

The second type of system is individual retirement accounts, not collective. Individual retirement accounts where an individual puts his savings into an individual retirement plan and he or she draws on their own account in retirement. People have to choose how their monies are invested and they take the investment risk.

In the US, they call this the 401(k) schemes. In Hong Kong, the Mandatory Provident Fund (MPF) scheme is designed that way. It is purely individual retirement accounts, you choose your investments and you take your investment risk. The Australian Superannuation system is another example.

Within the industry, the first type of scheme that I have spoken about, the collective pension schemes, are often known as defined benefit schemes because the benefits are determined in advance and they are not linked strictly to your contribution. And the second type, the individual retirement accounts, are called defined contribution schemes, because the benefits are not known, they depend on investment returns, but your contributions are what are known in advance. Those are the two schemes. Both have their pluses and minuses.

The collective pension schemes promise individuals a regular payout throughout retirement without them bearing investment risk. They also involve redistribution, which is done in two ways. Typically, there is a minimum level of benefit which helps the low-income group. That involves a transfer within the state pension scheme – a transfer from the higher and middle-income groups to the lower-income group within the pension scheme.

Secondly, there is a transfer across generations, in particular, from the younger working population to the current elderly. These are pay-as-you-go schemes, where the benefits of today's elderly are funded by the contributions of today's working population.

There are some advantages to the collective pension schemes because they provide some certainty to the retiree and involve some necessary redistribution to the lower-income group. But there are major disadvantages in the way these schemes have been run, because the benefits have been made more generous over time and they can no longer be afforded

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by the current working population as I spoke about earlier. Countries are making major reforms, one after another, to cut back on the future benefits of today's working populations because of unsustainable benefits that have been promised previously. People who start work today have to contribute more, but will receive less benefits compared to current retirees.

As a result of this unsustainability, there is a shift in most countries away from the emphasis of collective pension schemes towards individual retirement accounts. But the individual retirement accounts still remain quite small, compared to the collective pension schemes. They are a small layer on top of what is really a system of collective pooling of contributions – mainly through the state and, sometimes, through the employer.

The individual retirement accounts, too, have their pluses and minuses. The pluses are that they are financially sustainable because what payout you get depends on what you put in. It does not depend on intergenerational transfers.

The big disadvantage is that the investment risk is borne by the individual and this risk can be substantial. We have learnt, especially over the last 10 years, that the risk is substantial on the individual. I explained this in Parliament last year about how, in general, the investment returns in these individual retirement accounts in the UK and Europe have substantially under-performed the market averages. Firstly, because they do not time their investment well, they make wrong investment decisions or they are poorly advised. And, secondly, because of the timing of their retirement because of the luck of when they retire. If you retire during a crisis, you just have much lower retirement payouts for the rest of your life, compared to someone who retires during a boom.

The CPF is neither of these two approaches – collective pension scheme or individual retirement account. It is both individual and collective. It is, first and foremost, built on individual savings and responsibility. First and foremost. But there is a strong element of collective responsibility built into the CPF scheme. The Government provides support through the Budget to lower-income members and provides assurance to all. And through CPF LIFE, we are pooling risks to support one another in the face of life's uncertainties throughout retirement. There is a collective responsibility that is built into the CPF system, both through the Government and through members pooling risks in retirement through CPF LIFE.

The whole purpose of the CPF is to avoid the major disadvantages seen by the two schemes that I spoke about, whilst incorporating some of their advantages. It is progressive, like most of the collective pension schemes. But it is financially sustainable, unlike the collective pension schemes. It places no investment risk on the individual, unlike the defined

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contribution schemes of individual retirement accounts.

Let me emphasise this, that the reason why the CPF system is both progressive and sustainable, which is a rarity, is because the transfers that take place in the CPF are essentially from the Government Budget, not through transfers from one generation to the next, or promises made to the current generation which, eventually, have to be funded by the next generation. It is transfers that are achieved mainly through the Government Budget and the Government has an AAA rating. That is the strength of the CPF system. It is sustainable, it is progressive, but it achieves its progressivity through transfers from an AAA-rated Government. That is why we retain the whole system of fiscal discipline, prudence and planning for the future that keeps the CPF system both progressive and sustainable.

How do we inject this support? Through Workfare, which is a very significant infusion into the accounts of lower-income workers. Through housing grants for the lower- and middle-income member. Through MediSave top-ups which are now a permanent feature for the Pioneer Generation. MediSave top-ups throughout their retirement years. And through extra interest on smaller balances.

In each of these areas, in each of these elements' of progressivity, there has been an enhancement, a significant enhancement since 2007. To illustrate how significant the Government's role in this aspect of collective responsibility is in the CPF, if we consider a young worker today, taking advantage of all our schemes in the CPF, all the enhancements we have made, a young worker, someone who is at the 10th percentile of incomes today, by the time he retires at age 65, he would have received $200,000 of Government support in his CPF – through Workfare, through the Housing Grant. And I am not counting the interest earned on the Housing Grant; just the original Housing Grant, Workfare and extra interest, it is $200,000 over the course of his working career till 65. Not a small sum.

When Mr Gerald Giam described the CPF system as a defined contribution scheme – that is the way it is referred to sometimes theoretically. But it is, in fact, not just an individual savings scheme. It is a scheme that comprises the individual's savings and significant injections of Government support. It is individual and collective.

We have further enhanced the system by providing additional flexibility as recommended by the CPF Advisory Panel, while keeping its basic strengths. Keep it fair, keep it sustainable. The CPF Advisory Panel has recommended allowing for the flexibility of a 20% lump sum withdrawal of retirement savings at the payout eligibility age. Quite an important recommendation. We had to think very hard about this because we know there is a trade-off in retirement payouts. If you take out 20%, you get lower payouts for the rest of your life. But we decided that this was the right approach to provide a degree of flexibility. And, on top of this, in the Budget, we are enhancing interest for lower balance members, starting

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from age 55, to help them accumulate their balances in their retirement years.

It is not a perfect system. It avoids the big disadvantages of the major schemes that we see in the rest of the world, but it has some significant advantages. It is fair, it is sustainable and it takes the risk away from individuals who cannot bear that risk. Not a perfect system, but it is working quite well and it is internationally recognised by the experts as one of the better systems around.

The WP Members of Parliament have suggested further flexibility. In addition to the option of the 20% withdrawal at age 65, they suggested an option of earlier payouts starting from age 60. Looked at in isolation, any proposal for flexibility appears reasonable. When we look at each proposal in isolation, it appears reasonable to provide more choice and flexibility. However, there is a real risk in offering this flexibility that we have to be honest about. It is not a crazy idea, but it is an unwise one because there is a real risk when we offer this flexibility.

It has been tried in other countries. In fact, everywhere it has been tried, the result has been that those who take up this option of early payouts, end up less prepared for retirement. Less prepared because they stopped work earlier, or less prepared because they will have lower payouts through the rest of their lives. The upshot of it, or the real outcome, is that the rest of the society eventually has to take on a larger responsibility to support them, as Ms Chia Yong Yong had reminded us.

The countries that had tried introducing this option of early payouts are now reversing course. It had been tried. Denmark was an example. They introduced it very early on. In 1979, they introduced such a scheme. They called it the voluntary early retirement scheme. In fact, at that time, because they were having a bit of an unemployment crisis, the real aim was to persuade older workers to get out of the workforce and make way for younger workers. Then, the pressures of an ageing population began to take hold; it put great pressure on the pension system's financial sustainability. And the weaknesses of allowing for that early payout became known over time.

So, in 2006 and then 2011, they passed reforms to reverse course, aimed at phasing out this early retirement option with early payouts. It was supported by the opposition and the government at that time. They have had changes in the government and the new government that has come in has stuck to the reforms because the early option was the wrong move for the individual and the wrong move for the rest of society which would have had ended up paying a higher burden. That was what it amounted to. It was a wrong move for the individual and the wrong move for the rest of the society.

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The Finnish are another example, very similar example. They introduced it and they have had to reverse course. The French, more recently, just two years ago, 2012, made a concession for some workers to get an earlier payout from age 60. They went against the grain, but only for some workers – those who started work at 18 years old and had made a minimum contribution of almost 42 years into the system – a small group. Even for this group, they realised, just two years later, last year, that it was a mistake. They are going to face growing pension deficits and they realise that this was actually a mistake in helping individuals prepare for their retirement. They now have to take steps to reverse the decision and they are bringing the minimum contribution period up from 41.5 years or so back to 43 years. So, they are extending the minimum contribution period you need to 43 years, before you can have an early payout – which very few people would qualify for.

The UK has also gone against the grain, allowing retirees to take out their retirement savings early. Previously, they had mandated everyone to put their monies in an annuity – it is a bit like our CPF LIFE where you can choose your annuity. Now, they allow the retirees to take it out, partly because the annuities in the market were offering very poor returns, far poorer than what we offer on the CPF. It is probably a political gesture, largely a political gesture – they have allowed retirees to take their money out early and do what they want. And it has been viewed negatively by experts. The Organisation for Economic Cooperation and Development (OECD) has warned that this is detrimental to both retirement income adequacy and incentives to work, and has urged the UK to make a move back to the annuity system.

The reasons are the same all over the world. It is good to offer choice, but part of the human predicament all over the world is that we will all place greater priority on what happens today and the benefits that we can get today, rather than what we get well into the future. And we all underestimate how long we will live. It is true all over the world. It is true in Japan, it is true in Europe, it is true in UK. People place more priority on what they get today than well into the future and they underestimate how long they will live. That is the human predicament.

These countries face the same challenges of rising life expectancies like we do, except that, in our case, it is even longer life expectancy than most. And their whole priority has been to encourage people to work for as long as possible, to save more wherever possible and to defer drawing down on their pensions so that they have enough savings to last through their retirement years. That is the way in which the mature societies are moving – encouraging people to work more, to save more and to defer payouts where possible.

Indeed, in countries like the Netherlands and some of the Nordic countries, they have gone a step further than the norm. The norm is to link the pension age to the retirement age. But in those societies, they have gone a step further. They are now linking it automatically

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to life expectancy. So, as life expectancy goes up, the pension age and retirement age will automatically go up. They have agreed on a formula and it is now automatic. They have gone further.

We are not planning on that move ourselves, but these international trends illustrate the challenges that all maturing societies face. We should recognise the challenges honestly and not take positions for their populist appeal, when we know fully that putting such proposals into practice will merely set us back in tackling the larger challenge of ensuring adequate payouts throughout the retirement years.

But we do have to find every way of helping Singaporeans in their 50s and early 60s to get by and support their families, especially if their children are not yet in the working years. We do have to help them. Fortunately, the majority own their homes and have fully paid up their loans by the time they are 65.

In Singapore, 90% of our elderly households own their homes and even amongst our lower-income households, the vast majority own their homes; very different from other societies. In Germany and Denmark, it is barely 20% of those in the bottom quartile who own their homes. In our case, it is a vast majority, over 80%. In Hong Kong, less than 50% of those in the bottom 20% of income earners own their homes. We are in quite a unique situation and that is a real strength of our system.

Typically, someone living in a 3-room flat would have $300,000 in housing equity today. We have provided options and continue to make sure that the options are available to them, friendly to them, to help them unlock part of the equity in their homes if they wish to. Mr Mohd Ismail Hussein has asked for more to be done in this regard and Mr Vikram Nair has suggested what, in effect, amounts to a reverse mortgage scheme, which we have studied carefully and the Minister for National Development will address at the COS.

And it is not just about them being able to unlock equity in their homes, it is about saving on rental costs which are a major burden in retirement in most advanced societies. So, that is a starting advantage, a major advantage – home ownership.

But we want to provide maximum support for individuals to continue working while they can, at a different pace if they wish. We have facilitated employment of older workers through re-employment legislation and we are providing substantial support through Workfare and the Special Employment Credit. It is not often recognised how powerful that support is.

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For someone above the age of 65, or, let us say someone at 65, who is a low-wage worker earning, say, between $1,000 and $1,500, the Government is, effectively, paying 20% to 40% on top of what the employer is paying – through Workfare and the Special Employment Credit; the Special Employment Credit of 11.5% and Workfare of 10% to 30%, depending on his income. If it is a worker earning $1,000, basically, it is a 40% top-up that the Government is giving through Workfare and the Special Employment Credit – a very significant incentive to help them. That is why our re-employment rates are high and increasing.

For those who are unable to work due to medical conditions, we have to be sympathetic, and we already allow them to apply for early withdrawal of their CPF. That is important.

Thirdly, we must remain as supportive as possible through our schemes on the ground, through our Social Service Offices (SSOs), so that individuals and families in financial difficulty get help.

So, that is our approach: help people gain their rewards from home ownership; help them stay in the workforce by providing additional support, making sure that all of us give them the dignity they deserve when they remain at work; help people who are unable to work for medical reasons and, for them, there is a special scheme in CPF; but very importantly, help people on the ground through our social network and the various other Government transfer schemes.

Let me go on now to the Silver Support Scheme which, again, is not something that we are introducing just for now but must be sustainable to the future. There has been very good support from Members for the Silver Support Scheme and some have asked questions about how it is going to be funded, how sustainable it will be and so on.

Silver Support and Workfare are the fourth pillar of our social security system. They aim at supplementing incomes so as to mitigate inequalities. And I have to emphasise again that it is not about tackling absolute poverty. It is about mitigating inequality. So, even as wages go up in future, we will still have Workfare and we will still seek to redistribute incomes to the bottom 20% to 30%, even as wages go up. We have to temper inequalities.

Silver Support, likewise, will remain a permanent scheme even as living standards go up in retirement. It is not about tackling absolute poverty or helping those who are the neediest. For that, we have Public Assistance and we have, besides Public Assistance, our social network on the ground, or the SSOs. Silver Support is a redistributive scheme. So, it is not that 30% of our elderly has no other source of support. This is an attempt to temper the

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inequalities through life.

I was heartened by the fact that most Members reiterated the importance of the values of personal responsibility and family responsibility. We look after our children when we raise them and our children look after us in our older years. That is a critical part of the Singapore ethic. And Members emphasised that we have got to retain the ethic.

Amongst elderly HDB households with children, close to eight in 10, in fact, are able to rely on their children for regular financial support. This is what the survey showed. And a substantial proportion of those in the bottom 30%, in fact, get support from their children. They also get Government support. Outside of Silver Support, there is other Government support. Significant transfers, in fact. Amongst the bottom 30% of retiree HDB households – the bottom 30% that we are targeting for Silver Support – an individual retiree receives, on average, about $640 a month today from the Government in subsidies and transfers. This is through the GSTV, through CHAS, through the other Government subsidies in healthcare and other areas, and through ComCare.

The question of how Silver Support would be funded came up. Mr Ang Wei Neng and Mr Liang Eng Hwa asked this question.

First, let me clarify that this is unlike the Pioneer Generation Package. In the Pioneer Generation Package, we were setting aside funds for a special cohort of Singaporeans who built our country. It is defined by when you were born, not defined by how old you are now and in the future. This is a special cohort of Singaporeans. And it is a commitment made by today's Government. That is why we decided to set aside the funds today from the revenues that we have in this term of Government, to fund the entire cost of the Pioneer Generation Package.

The Silver Support Scheme is different. Like Workfare, it is a permanent scheme for today and tomorrow's retirees, for our future generations of retirees, and it will be funded out of our annual Budget. And that is why we have sized the Silver Support Scheme the right way, both in terms of coverage – avoiding the mistakes seen elsewhere where coverage is extended to everyone – and we have also sized it right in terms of the extent of benefits. Not just for fiscal reasons, but to ensure that we preserve the ethic of family support and community support.

We have built the Silver Support Scheme and its future funding requirements into our fiscal planning. The sums will grow over time as more Baby Boomers retire.

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But the far bigger driver of our social expenditures is that of healthcare spending. That is the big driver of future expenditures – besides transport expenditures which I spoke about, particularly over the next 10 years. The driver over the next 10 years and beyond is healthcare expenditures. And that is inevitable because our society is getting older.

But we have a real strength in our system. We are starting from a strong position. Because when our society was young and growing, we practised fiscal discipline. We kept our expenditures trim. Our social expenditures were basically, education, housing and healthcare. We kept social expenditures trim and built up fiscal savings in our first few decades whilst other countries did the opposite. The experience of the advanced countries was that when they were young and growing, they built up their social benefits, in fact, with unfunded commitments, and they are now paying the price.

Our position is exactly the reverse. In our young and growing years, we built up our Reserves which now give a lasting benefit for today's generation and future generations. We have a steady stream from our NIRC which will be sustainable well into the future, as I have explained. The rules on the Reserves ensure that the Reserves will not be depleted and will benefit both current and future generations.

We have prepared ourselves in advance and that must remain the way in which we plan for our Budgets in the decades to come. With the change to incorporate Temasek in the NIR framework and the other tax changes I have introduced, in particular, the increase in the personal income tax rate, we will be in a good position for at least the rest of this decade.

Mdm Speaker, let me now conclude. This Budget concludes the major initiatives of recent years to empower Singaporeans at each stage of their lives. I thank the Workers' Party for its support for all the major thrusts of the Budget. And I trust you will have the courage to take the same position and extend the same support during the elections. These are good programmes and they are important programmes for our future. We should be honest about it, join together and stick to the courage of the conviction that this is the right path for Singapore.

Mr Zaqy Mohamad spoke about the commitments we make in our National Pledge and how the Budget reinforces these commitments, not just this year's Budget, but what we have been doing in recent years – "to build a democratic society, based on justice and equality, so as to achieve happiness, prosperity and progress for our nation". These values and aspirations are what we started with, but achieving them is continuous work in a changing environment and with a changing society. They are the values we started with. But achieving them is continuous work and we have got to live up to these values with each new generation.

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The context in which we now strive to build our future is entirely different from what it was 50 years ago. Our competition is no longer regional but global, as Mr Low Thia Khiang himself acknowledged. It is no longer regional competition. If you read the first Budget speech – Mr Liang Eng Hwa mentioned Mr Lim Kim San's speech – he spoke about Indonesia, about Malaysia. It was about the region and how we earned our place in the region. The competition is now global, it is Asia-wide, it is emerging countries around the world and it is the most advanced countries. We can no longer prosper and progress through hard work alone. Our people have to master deep skills in every field and our enterprises have to bring new ideas to the market and, as Mr Lim Swee Say said, "fly east and chase sunrises".

Our society is also becoming more diverse in its aspirations and its needs. Important change. It is a more diverse society, with a greater need to temper disparities in life as our economy matures and as our people get older. So, our strategies, both economic and social, must evolve as the environment around us changes, as the competition changes and as our own society changes. But at the end of the day, it is not just about the economic and social strategies of the Government, it is not just about what we do from one Budget to the next. It is not just about seizing new economic opportunities and strengthening social security.

Most importantly, it is about how we relate to one another as people, the respect we extend to every citizen for the effort that they put in and the care that we extend to one another. As Mr Lee Kuan Yew said nearly two decades ago, "We cannot measure our happiness just by our GDP growth. It is how our families and friends care for each other, how we look after our old and nurture our young. They are what make for a closely-knit society, one we can be proud to belong to." Mdm Speaker, I thank you. [Applause.]

Mdm Speaker, I thank Mr Gerald Giam for that clarification. Let me say once again, and I did not mean this rhetorically, it is not a crazy idea. But it would be unwise to move in this direction, because we do have to learn from the experience of other countries that have introduced it.

There is something in human nature that none of us fully understands. We will always place more emphasis on what we can get early. We will take advantage of an option to get something early, even if it is at the expense of what we need later on. And that has been the experience in Denmark, Finland and in several other countries that have had to reverse course.

So, it is not a crazy idea. It is just that we have to be honest about the risks and find ways to help people address their needs, because I agree there is a need. Life is unpredictable, as the Member said. If you are medically unable to work, we will make sure that you are able to draw on your CPF. Find every way in which we can help people stay at work and save for longer, because the monumental challenge that we face in every maturing society, every ageing society, is helping retirement savings stretch throughout life. It is a huge challenge. And we are doing it through the CPF system as well as through the Government Budget, with the advantage of an AAA government that gives assurance that this will be continued.

That is the big challenge. So, the Member has not proposed a crazy idea at all. But as Ms Chia Yong Yong has said – what was the term – she has great unease about it.

I think basically, we have to take lessons from the rest of the world. And we only learn what happens many years after we have introduced schemes. In Denmark, it took 30 years before they reversed course, and with great political difficulty, but they are doing it with both opposition and government agreeing that they have to do it. So, when it comes to

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flexibility and choice, we should make haste slowly.