Debated in Parliament on 6 Mar 2014.
Mr Chairman, can I take my two cuts together?
Yes, you can.
Mr Chairman, I beg to move, "That the total sum to be allocated for Head M of the Estimates be reduced by $100".
One of the fundamental ways that the Government is connected to citizens is through the public services it provides. How does the Government know if its citizens are happy with the quality and effectiveness of services provided? How are sentiments tracked? But more than that, how does it know that the services provided are reaching out to the people that most need it?
Today, the Government has done well to set up touch points, for example, counter services, hotlines, and even online access where citizens can connect
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and seek services for help.
Today's society is much more diverse. With the changes in our society, how is the Government keeping up with these changes and staying connected? How is the Government reaching out to citizens in need? With the pervasiveness of technology and adoption of social media, there is opportunity for the Government to enhance engagement, efficiency and timeliness of service delivery to citizens. With mobility and social media, there is opportunity to allow citizens to have a voice and for the Government to reach out. How will the Government leverage such new approaches? For example, the use of information on traffic conditions via data capture from cameras, and using data analytics allow the prediction of traffic conditions. This will allow the agency to proactively dispatch officers to the area, if required, to redirect traffic or lend support to motorists to address situations on the ground.
Let me now touch on the matter of procurement. With the past lapses in Government procurement, there has been focus to strengthen the procurement practices and compliance. What is the progress of this effort? How can the Government be assured that beyond process and compliance, the right and best decisions are made for effective solutions to deliver public services that meet the needs of our people?
If procurement practices are tightened to the extreme, it could be counter-productive as it would discourage any deviation or justification for procurement decisions, even if they are the right decisions, as they may be construed as procurement violations.
My next cut on inclusive growth. As we discuss the transformation of SMEs and capability building, one of the ways for local SMEs to develop is to use Government procurement as a strategy. Government procurement can play an important role by awarding contracts and providing recognition to SMEs. This will allow them to build the track record which is so often required as a pre-requisite in bids for larger projects, both locally and internationally.
Several countries have measures for SME access to government procurement. For example, the UK Efficiency and Reform Group (ERG), whose
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objective is to achieve efficient and effective buying and management of government goods and services, has set a goal for deliberate focus on ensuring that SMEs have access to government contract opportunities, making it easier for them to do business with government, and that 25% of government spend, either directly or in supply chains, goes to SMEs by 2015. This, as I understand it, from all the reports, is still seeing challenges in its implementation.
Other governments, like the New South Wales government, too, has a government procurement small and medium enterprise policy framework, which is a government procurement reform commitment that aims to maximise opportunities for SMEs to participate in government procurement.
SPRING, too, I have realised, has published a Government procurement guide to help SMEs better understand Government procurement rules, so that they can take part and bid for business opportunities and projects required by Government departments.
There is a perception, however, that SMEs in Singapore may not have equal opportunity in accessing Government procurement and tend to be disadvantaged in securing Government contracts. Are these concerns valid?
Mr Chairman, we should help our SMEs to do away with as much red tape as possible, so that they can focus on business transformation and increasing productivity. In view of the manpower constraints faced by SMEs and the much smaller resources and bandwidth that SMEs have compared with larger firms, can the Government do more to reduce the corporate regulatory and compliance burden on SMEs, for example, in the area of tax filing and auditing requirements or in the area of business registration and so on?
A study of 521 companies conducted by NTU's Nanyang Technopreneurship Center (NTC) and the Singapore Chinese Chamber of Commerce & Industry (SCCCI) in 2012 revealed that about 78% of the companies surveyed said that excessive documentation required during the application process for the various Government schemes was their greatest challenge. This survey was done two years ago. My sense is that things may not have changed too much at this point in time.
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Although corporate governance and compliance are an important aspect of good business practices, could we help the smaller companies more by making compliance with these various regulatory requirements easier?
Mr Yee Jenn Jong, you can take your two cuts together.
Sir, I refer the Minister to my Budget Debate speech. I had spoken quite extensively about encouraging M&A as it can raise our productivity and global competitiveness. The current M&A scheme has not been well-utilised and is meaningful mainly for the larger acquisitions.
I hope the Minister can review the provisions in the M&A Scheme to encourage more M&A activities among SMEs through targeted measures. It can allow, for example, higher allowances for smaller M&A transactions. It can also cover purchase of operations and businesses of SMEs rather than outright share sales, as some acquirers are wary of the potential liability associated with the acquired businesses. The acquirers who invest in automation of their acquired businesses to achieve greater productivity and to change old business models could, perhaps, also be rewarded with more generous PIC incentives or special grants.
Sir, currently, taxpayers can claim tax relief on premiums paid for life insurance if their CPF contribution is less than $5,000. This $5,000 ceiling was last raised from $4,000 in 1979, 35 years ago. That increase was to ensure that the lower middle-income earners at that time continue to benefit from the concession.
Income levels have changed a lot in 35 years. Many working Singaporeans are not able to enjoy this concession while their foreign counterparts can because they do not contribute to CPF. I hope the Minister can review this scheme to raise the ceiling to a more appropriate level, so that the lower middle income earners of today can benefit and will be encouraged to save more for their old age.
Dr Chia Shi-Lu, not present. Ms Tan Su Shan.
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Thank you, Sir. Singapore embarked on a restructuring path since 2010. Our Deputy Prime Minister rightly called this a multi-year task. Many likened it to a marathon rather than a sprint. Without a doubt, the extension of the PIC schemes was welcomed, but allow me to comment on the take-up rate, the type of firms that benefited, the potential for abuse and the trade-offs between short-term cost-cutting versus long-term innovation. I will end with some suggestions on ways to relook the real measurements of productivity gains.
First, the take-up rate. Surveys done by SBF showed that 89% of respondents were aware of the PIC schemes; 68% used it. That is quite a high figure. Amongst the over 1,000 respondents, the largest part of these claims was on automating processes and staff training, though some companies found the claims onerous and did not use it.
Second, size matters. The size of the companies matters. The take-up rate for the PIC for smaller companies is low, compared to bigger ones. In 2012, the take-up rate for companies with a turnover of less than $1 million was 24%, those between $1 million and $10 million was 59%, and those above $100 million was 81%. But it is precisely these smaller companies, with fewer resources, that need the most help.
Third, administration of these claims. Some 44,000 SMEs tapped the PIC scheme. That is up 21% year-on-year. Most of these claims were for purchases of IT equipment and since IRAS depended on the checklist approach for some of these claims, these were quite easily approved. But claims for investments in mechanical automation are based on a case-by-case basis. These claims need to be wrapped up by a rather onerous set of information to prove that the new machinery does improve productivity. Some companies have found these claims too onerous and did not use it. One suggestion is to simplify the process, have an independent expert body set up to decide what claims can qualify.
Meanwhile, on the flipside, there is some evidence of abuse and cheating relating to inflating and falsification of such claims. IRAS has singled out consultants and vendors as culprits behind these fraudulent claims. One suggestion here is to have a list of accredited consultants, similar to a list maintained by SPRING Singapore, that can help SMEs make these claims in an
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honest and efficient manner.
Businesses also welcome the move to extend deduction on qualifying R&D expenditure for another 10 years. However, we must have some clarity on how many companies and in what sectors have benefited from such schemes. A*STAR's yearly survey reveals that growth in business expenditure on R&D remains low at 1.33% in 2012. IRAS' statistics also showed that such R&D tax claims accounted for less than 3% of such PIC claims last year.
Again, the experience of some companies in claiming these benefits has been less than satisfactory. Anecdotal feedback is that the qualification processes of such projects seem to be fairly opaque as are the approval processes. Indeed, it is not easy to verify if a new R&D project has novelty value or can become commercial. It is also difficult to understand fully the technical risks involved.
The outcome is never certain and some may fail, but if we do not try and we do not encourage them to try, we will never know. Hence, in order to encourage some take-up of these R&D schemes, an independent expert body can be set up to evaluate and approve such projects in a timely and efficient manner whilst acknowledging that, in many cases, it will be a bit of a bet. It is important to allow for an environment where decision-makers feel it is okay to make the wrong bets sometimes as long as it is not fraud. After all, when it comes to R&D, we have to make a few mistakes to get to where we want to get to.
Fourth, cost-cutting versus game-changing innovation. As most of the PIC claims so far were in training and computer acquisition or replacement, this may not lead to long-term productivity gains the way innovation does. A recent KPMG survey revealed that while 65% of businesses said these schemes did help, many or more than half said measures had no impact on innovation. So, where is the "I" or the "innovation" agenda in our PIC scheme? The fact is that most SMEs have gone for a low-hanging fruit of just getting help for cost-cutting.
While the good news is that many SMEs are learning to rely less on foreign labour, the bad news is that most of them are not optimistic about growth. According to DP Information, nearly half expect no discernible growth. In another survey by KPMG, local firms were lamenting that the speed of restructuring was too fast. So, the question here is: are businesses still too preoccupied with survivability in the short term to think about long-term growth
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opportunities? According to SBF, we had the least number of growing companies amongst SMEs last year, and the credit-worthiness of these companies has gone towards the high risk side.
More access to education might help. It is interesting to note that while Singapore as a country is an overall global leader in adopting ICT, business usage of ICT is still weak. In the Network Readiness Index 2013, our lowest score was in the sub-index for business usage, with Singapore doing badly in the indicator for business-consumer Internet use, at number 13 in the world.
Here is an insight on why, and I have checked with A*STAR. According to a recent study, one in five Singapore SMEs have no current plans to adopt big data technologies. The big obstacles cited were budget and corporate culture. This tells us smaller firms need a better eco-system. On the cost front, the reality is that tools are available on cloud platforms. However, the analytical tools are not very easy to use unless one is an experienced data scientist. Thus, one solution is to provide SMEs access to a managed service resource where they can lease expertise to use these tools and access common industry insights, thereby removing any upfront costs in investing in such infrastructure.
Whilst the Budget's proposal to subsidise broadband subscription will help, business sector-specific infocomm solutions could be even more transformational. Put simply, some SMEs were just not aware of the plethora of good schemes available. For example, 40% said they were not aware of SPRING's intra-industry collaboration schemes to help SMEs grow, nor were they aware of A*STAR's programmes.
Lastly, as discussed, perhaps we should look at a better measurement for productivity gains. The headline news we read on productivity gains have not looked promising. According to the Department of Statistics, labour productivity shrank by 2.6% in 2012, but, as we all know, our measurement on productivity, which is defined by value-add of GDP per worker, is subject to global economic cycles and has little to do with efficiency of our workforce. One suggestion is to focus more on Total Factor Productivity. This is the part of output growth not accounted for by an increase in the input of capital or labour. This is where innovation and competitiveness are key. Unfortunately, this figure, too, has been low in Singapore, accounting for only 15.2% of growth here from 2000 to 2010.
Another example which I am happy to hear is that we are working now on a more sector-based approach to measuring productivity. Here, I think the
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industry groups could take the lead in developing their own productivity measures, perhaps, with some support from SBF, ACE or SPRING. Each sector can then strive to improve productivity relative to a sector-specific indicator with innovation.
In ending, Sir, I wish to commend Budget 2014 for giving out more carrots than sticks to businesses. Overall, as the Deputy Prime Minister says, "The Scheme favours the more dynamic and efficient players." But we should remember that many dynamic and successful enterprises began life as start-ups or SMEs. In this age of digital Darwinism, let us not forget that there are no businesses that are too big to fail or too small to succeed.
I would like to raise some points on our reserves, specifically on its use and also the rate of return.
Before 2009, the Government was allowed to spend only up to 50% of the Net Investment Income (NII) from our reserves for the Budget. The NII came from the assets managed by Temasek Holdings. Since then, this amount has been expanded to the Net Investment Return Contribution (NIRC) which comprises up to 50% of NII and up to 50% of return on assets managed by GIC and MAS.
Even though we have increased the principal source of these funds that can be used for the Budget, we have not reduced the proportion that we are withdrawing but are actually using more in absolute terms. I am concerned that we are digging too much into our reserves to fund big ticket Budget items like the Pioneer Generation Package. While I really want that to be funded, I am thinking about the long-term impact.
In fact, this year, of the $11 billion transfers that the Government budgeted, $8 billion came from the NIRC. If we continue with this, I am worried that we may be eroding the buffer for the future that we have been building for a long time.
On the rate of return – and this also leads to my next point – as the need for spending our reserves increases, would we then rely on better rate of return from the likes of Temasek, GIC and MAS so that our reserves would not decline so rapidly? What are the factors that will help to determine this?
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I would also like to take the opportunity to raise the point on whether our 2.5% interest rate paid out to the CPF Ordinary Account is a fair compensation for Singaporeans who have left their savings locked up for so long. I recently read that, in Malaysia, the EPF holders are paid 6% for their savings for a number of years, and this is much higher than the return we are paying to our CPF holders. If we can pay a higher return to the CPF holders, this may be a better approach than having to resort to Government transfers which may be unsustainable in the long term, and also disincentivise Singaporeans from working hard.
Perhaps, to help us better understand why our returns on the reserves are much lower than Malaysia's, can the Minister shed some light on what the returns of GIC, Temasek and MAS have been in the last five years, compared to that of Malaysia's?
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