Debate on Annual Budget Statement

Mdm Speaker, I rise in support of this year's Budget. In Mandarin, please.

(In Mandarin): [Please refer to Vernacular Speech.] Last year, I was fortunate to have the opportunity to go to Qufu in Shandong province with a group of senior Singaporean management executives studying a postgraduate course.

We all know Qufu is the home town of Confucius. In Qufu, I was rethinking a famous quote from Confucius which goes: "At age 15, I was determined to learn; at 30, I stood on my own; at 40, I had no confusion; at 50, I knew what fate was; at 60, nothing can offend me; at 70, I could do as I wished without violating the rules."

When I was listening to Deputy Prime Minister Tharman's Budget 2013 speech, this line from Confucius emerged in my mind. We will soon celebrate Singapore's 48th birthday. In terms of human life, Singapore would have reached middle age and would have felt how quickly time had gone by and started to relook at the value of life.

Since Independence, Singapore have worked hard in its younger days and achieved much at the age of 30, gaining a presence in the international arena. Going forward, we will be stepping into the golden age when current conditions are better than before. We should explore how to make Singapore even more vibrant and how social development can be more meaningful, more fulfilling and more valuable.

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Through Budget 2013, I can see how the Government is planning to transform Singapore and make her more attractive, creating more value for her people. Meanwhile, we should also explore how we can develop our middle-age workforce so that they can become a vital force in transforming Singapore into a smart economy with quality social development. Here I would like propose the four Ps – Purpose, Priorities, Potential and Passion. Allow me to continue in English.

(In English): Mdm Speaker, Singapore is at an inflexion point where the crossroads of review can redefine our purpose, realign our priorities and recapture potential and possibilities. Budget 2013 is a timely effort to restructure and shift our economy for Singapore to achieve quality and inclusive growth.

Today, I would like to explore how four Ps could help us move in this direction: Purpose, Priorities, Potential, and Passion.

The first one, purpose. Deputy Prime Minister Tharman shared that many Singaporeans hope for, and I quote, "A Singapore with a robust and vibrant economy, with good jobs that enable a more fulfilling pace of life." The inclusive Singapore that we all seek to build has gained much ground, especially in the recent years. Besides taking care of the disadvantaged and lower income Singaporeans and older workers, let us also look at how we can also be inclusive towards the technical and trade vocations. From aircraft engine mechanics to electricians, glassmakers and building maintenance workers, the one who fixed our problems, keep things going and ensure the normality of our daily lives, something that we often take for granted.

This year's Budget will, through the expansion of Workfare Income Supplement, help older and lower income Singaporean workers gain higher wages. Some of the craftsmen benefit from this if they fall under this category. The basic monthly wage for rank-and-file jobs under MOM's Craftsmen and Related Trade Workers category ranges from $900 for glassmaker to $2,200 for aircraft engine mechanic. Some of these craftsmen are self-employed, workers or sole proprietors of a small business. As this year's Budget rolls out plans to help SMEs with the schemes such as Productivity and Innovation Credit (PIC) and Partnerships for Capability Transformation (PACT), I urge that we also look at how our craftsmen' vocation tradesmen and sole proprietors be engaged to innovate, upgrade their skills and increase their productivity.

Take the ITE example. As we all know, ITE has been transformed into a very well respected educational institute today. Likewise, let us move upstream and

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lead the way for skilled craftsmen to shine in their vocation trade and for society to respect their technical and vocational jobs as valued occupations in Singapore. This will be a mark of a truly inclusive Singapore.

The Government or NTUC can set the ball rolling by working with trade associations to raise the professionalism of their vocations, skills and image. Better perceptions of such trade vocations can attract new entrants, create higher quality apprenticeship, like in Germany, and re-invigorate sectors straining under manpower shortages.

To realise our vision of an inclusive Singapore where we help each other achieve a better life, we need to make job redesign a key priority, the second P. During last year's Budget debate, I spoke about how redesigning jobs can future-proof our workforce. This year, I would like to highlight it again as I wish to stress the urgency to institute job redesign as a permanent feature or function in organisations and businesses. We not only need to make job redesign a key priority, we need to make it pervasive, across different sectors and industries. Job redesign helps companies adjust to the slowing flow of foreign labour and also better cope with the tight labour situation. As we restructure our economy and workforce, we need job redesign to become an integral part of businesses and organisations. As we all know, due to technology and the increasing speed of change in the globalised economy, business cycles are getting shorter and job roles evolving faster than before. Workers are being made redundant faster and businesses have a shorter response time for workforce re-deployment.

Some economists have highlighted how technology has hollowed out the jobs of middle-class workers. An Associated Press analysis of employment data from 20 countries found that millions of mid-skill, mid-pay jobs have already disappeared over the past five years. Economists are wondering whether middle-class jobs will ever return when the global economy rebounds to health, or whether they have been lost forever. The "jobless recovery" in the US has been a headache for its government struggling to improve the labour market.

While we do not have such a problem in Singapore right now, we cannot afford to rest on our laurels. We need to re-prioritise the training needs of our workforce and institute job redesign as part of an organisation or company's growth to effectively compete in today's dynamic world. In the larger scheme of things, let us explore how job redesign can be instituted at various levels of the workforce. We want to avoid the scenario of high middle-class unemployment, social discord, falling living standards and unmet aspirations

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as we can see in Europe and US.

Job redesign has so far proven to benefit companies and employees. It has helped older Singaporeans and also women to stay and re-enter the workforce through schemes such as ADVANTAGE! or Flexi-Works!. The lessons from such job redesign schemes should be quickly expanded to other segments of the workers, especially those in mid-skilled jobs. Not only can job redesign improve productivity, it can also help maximise resources and improve employability of the workforce. Labour market shortages could be eased by efforts to adapt or redesigning the skills of workers in declining industries to meet the needs of growing sectors.

I understand so far the ADVANTAGE! scheme has benefited more than 25,000 mature workers and provided $24 million in funding to companies for job redesign. My question is: could MOM and MOF examine if job redesign can be included as part of the PIC scheme? Second question: would MOF consider increasing the amount of resources and funding for job redesign to be instituted in broad majority of businesses and organisations?

Government agencies like SPRING and WDA can also assist by: (a) beefing up the HR sector's capabilities and expertise in job redesign; (b) review how SMEs can be made much more aware of the benefits of job redesign and what it can do for their business; and (c) expand job redesign specifically into sectors with a high demand for workers, such as healthcare and early childhood education.

Another key priority that is getting the much-deserved attention is the area of early childhood education. I am greatly heartened by the Deputy Prime Minister's recent Budget announcement on how the Government will dedicate a significant sum of $3 billion over the next five years to the development of our young children. In Budget 2012, I raised the need for more resources and expertise to be invested in early childhood education. And as the Government increases its investment and resources in this important area, I would like to suggest an area of consideration that could help us to unlock the potential, which is the third P, and passion, the last P, in every child and teacher.

As we seek to unlock the potential of the early childhood years, research can play an important role in improving the quality and delivery of early childhood education. While there is a wealth of research available from all parts of the world, we need to boost the repository of our own local research that can deal with the conditions that are unique to Singapore. For example, many of

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our childcare centres are located in common void decks and some are housed in private estates.

The 2013 Budget outlined plans to expand capacity and have more pre-school centres located closer to homes and workplace. This makes it even more important for us to examine the impact of tight space constraints, adapted facilities and limited play areas on our children's development.

Research could also reveal how we can overcome the challenges and barriers posed by locations such as HDB void decks and office compounds in a dense and urban environment. What other ways to maximise our physical environment to nurture our children's passion for learning? That is the key question.

To this end, researchers from Australia have developed the Early Childhood Physical Environment Rating Scale that is designed to assess the quality of the physical environment of early childhood centres in relation to their potential for children's development and learning. The quality of the child's physical environment has been linked to positive learning. Other research findings from Australia suggest that children's exposure to natural and green settings can improve social interactions and motor skills, as well as alleviate stress for our children. When we talk of stress, research can also help us confirm what are the top stress contributors on our young children in highly urban Singapore. And how can we tap on our experience of building a garden city to benefit the future of early childhood education?

As MOE sets up a few kindergartens to develop best practices, I hope one of them will showcase how physical environment can be maximised for optimal early childhood learning in Singapore.

Understanding and applying research findings from early education to classroom practice is an important step in achieving effective outcomes for our children. Educational research findings can improve classroom practice and form the foundation for quality early childhood programmes. In an article on the success of the Finnish model of education, the newspaper TODAY noted – two days ago − the view of the Finnish National Board of Education's Head of Professional Development, Ms Anneli. She attributed research-based teacher education as the factor that accounts for the high quality of teaching in Finland. As the world's speed of change is accelerating all the time, research in learning would keep us at the forefront of the acquisition of knowledge.

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The way we learn is no longer constant. Previously, it was thought that our educational foundation could last us our whole lifetime. We all know that this is no longer true. In today's hyper-connected world, the speed with which every job and industry changes has trebled or quadrupled. Technology and super computing power is making the knowledge, skills and tools we use obsolete faster.

As Thomas Friedman of The New York Times wrote, and I quote, "The winners tomorrow won't just be those with higher IQ. It will also be those with more PQ" – not our PQ, but passion quotient – "and CQ", or curiosity quotient, "to leverage all the new digital tools to not only find a job, but to invent one or reinvent one, and not just to learn but to unlearn and relearn for an entire lifetime."

Being "middle age" at this point in history can be advantageous for us. The urge to do something different, to learn a new skill or sport a fresh look is something that is quite welcome in today's hyper-connected world. This is the time for reinvention and for redesigning the work we are doing, for researching new ways to improve early childhood education, and for adopting a new perspective as we restructure our economy for a better Singapore. On this note, I support the Motion.

Mdm Speaker, thank you for allowing me to join in the debate.

It is heartening to know that the Government's direction in this year's Budget has striven to build a better Singapore through quality growth and building an inclusive society. Deputy Prime Minister Tharman has clearly set out the various visions of Singapore that Singaporeans want and I am also glad to see that the Singapore that we are building takes its point of reference from "Our Singapore Conversation" platform. It is only through the active engagement of the various segments of society that we can truly derive a common vision of Singapore for Singaporeans.

Mdm Speaker, this is indeed a progressive and inclusive Budget. However, I do believe that there are several areas that we can do better. As Deputy Prime Minister Tharman rightly points out, there are segments of the society that have been disadvantaged and, thus, need more assistance. I would like to turn our attention to these subaltern or marginalised groups in Singapore. The reason is simple. We, in Singapore, have pledged to build a democratic society based on justice and equality. Through our parliamentary and judiciary systems, we have achieved the first two. While we have endeavoured to meet their needs in this year's Budget, I am particularly concerned that inequalities still persist in our society. I will highlight specific groups of people whom I think we, as a society, can do more to help improve their lives.

Mdm Speaker, I shall first touch on the needs of persons with disabilities. I am glad to note that this year's Budget has announced that the Foreign Domestic Worker Levy Concession will be further reduced from $170 to $120 for families caring for children, elderly and persons with disabilities, in addition to the $120 caregiver grant announced previously. There is also a renewed focus on the disabled with the setting up of a new social agency to look into their needs.

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I also applaud the Government in leading the way with the two Enabling Masterplans. However, in areas of employment, education and transportation, there remain challenges for persons with disabilities. How can we make society more understanding in the employment of persons with disabilities, in seeing them as equal members of the society, and remunerating them fairly? In transportation, can we also look into providing transport concessions for people with disabilities? What is the progress on the provision of more wheelchair-accessible buses on the roads? Have we done enough in ensuring barrier-free accessibility in our public places?

Having said that, I do think we are building a more and more inclusive society. This is exemplified by the fact that just weeks ago, paralympian, Laurentia Tan, who is deaf and has cerebral palsy, won The Straits Times "Athlete of the Year" award for 2012, edging out three other nominees, namely, table tennis player Feng Tianwei, bowler Shayna Ng and footballer Shahril Ishak. It is heart-warming to see how Singapore and persons with disabilities have come so far in the journey to inclusion. Yet, while we build a more inclusive society for all, more can be done to meet the aspirations of the disabled and make Singapore a cosier home for them.

First of all, more attention can be paid to groom and develop persons with disabilities from a younger age to allow them to develop to their fullest potential. This would mean that society at large also needs to be more understanding of their needs. I do not want to take anything away from the achievements of Laurentia Tan, or belittle the things that our Voluntary Welfare Organisations are doing in Singapore today, but I wonder if she would have been given the same level of support, education and acceptance, as well as accomplish as much, had she remained in Singapore. She had after all, at the age of three, moved to London, remained there, where she received her education and was introduced to horse riding. The mindset in the United Kingdom towards disability is very different from that in Singapore after all. Can we, as a society, work towards acceptance of persons with disabilities, to build better schools, facilities and programmes which will enable them to feel that Singapore is their beloved home, too?

Mdm Speaker, the disabled today are gradually finding acceptance in our changing society. I believe most of us here have heard of Esme, the guide dog, and her owner Cassandra. Through their Facebook site, we have seen how they have highlighted aspects of society which have caused concern for them in their everyday lives. I am glad to see how society at large also speaks up for them, notably in the episode regarding a fashion retailer here. With this heightened awareness, more and more retail outlets in Singapore are becoming guide dog

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friendly.

On the contrary, I was aghast to hear of the case of Mr Kua Cheng Hock, whose guide dog was recently denied access on board an airliner. As Deputy Prime Minister Tharman has pointed out, we are a society in transition. This is the time to think about ensuring persons with disabilities get access to equal opportunities and treated fairly in all aspects of life. This should also go hand in hand with the building of infrastructure for the disabled.

Mdm Speaker, I am also glad to know that there are plans to review healthcare financing in Singapore, to reduce out-of-pocket costs to Singaporeans, broaden insurance coverage and the use of MediSave and Medifund. As Singaporeans grow older, there is a need to ensure that our healthcare sector remains relevant to the needs of Singaporeans and this is indeed a step in the right direction.

I came across an article last week which related how a 41-year-old man in America had to resort to crime and re-incarceration after being released from prison in order to receive the medical treatment he needed for his condition. This man was diagnosed with aneurysms in the artery of his liver while he was in prison, which required life-saving surgery. Fortunately or unfortunately, he was released from prison one week later. When he returned for his pre-operation visit, he was told that since he had been released from prison, he no longer had insurance to cover the surgery. When he asked the doctor what he should do, he was told to figure out how to get insurance instead. But not knowing what else to do, it occurred to him that the easiest way to get the care he needed would be to get back to prison.

The week after, he went to a department store and, making sure a security guard saw him, pocketed some moisturising cream. He looked at the guard, smiled and walked out. After he was arrested, he wrote a note to the judge saying that he needed to get back into prison for a year, to get an operation.

Absurd as it may sound, we must not fall into the same trap in terms of healthcare provision and finances. We must ensure that healthcare will not be denied to certain groups of people because of their inability to pay. Affordable and accessible healthcare must remain a basic right for all Singaporeans. In our review of the healthcare system, we must adhere to certain basic principles that have served us well.

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Mdm Speaker, while I am still on the topic of elderly and persons with disabilities, it is important that we acknowledge that there is a group of Singaporeans who have devoted much of their time to care for these people. We, as a society, have improved in the past years to meet the needs of informal caregivers. We have a caregiver training grant, respite care options and have gradually begun to change perceptions about caregiving. Yet, can we still seek to do more to assist them? Caregiving is never easy and the stress on the caregivers, financially and emotionally, can be enormous. I have raised this issue many times in the last six years and I would like to raise this again. Can the Government consider providing some form of caregiver allowance to these caregivers, just like what many countries, including Japan and Australia, have done? This could take the form of cash payouts or even MediSave or CPF top-ups.

Mdm Speaker, the recent changes to the economy are also a step in the right direction, as we seek to reduce our dependence on foreign labour, increase productivity and transit to a high value, knowledge-based economy. As the transition takes place, I applaud the Budget for helping our SMEs make the painful but necessary change, to become less dependent on foreign labour, and in helping our lower wage, lower skilled workers, through increasing the employer CPF contribution, and Workfare. These schemes will undoubtedly help to ensure that Singapore is more ready to deal with the changes ahead.

At the same time, I would like to caution that while we make changes to the economy, let us learn from the lessons of the past. In the late 1970s and early 1990s, we had restructured our economy from a labour intensive, low skilled, to a less labour intensive, higher skilled economy. At each stage, there were Singaporeans, especially the older and less educated ones, who were unable to adapt to the new mind and skill sets needed. As a result, they lost their jobs, and were unable to find new ones, as their skills were no longer relevant. Such structural unemployment is of particular concern. As we make the current changes, let us keep in mind how to minimise such problems and to provide a helping and guiding hand to these Singaporeans to overcome any challenges in the course of this transformation.

This year's Budget has also sought to better promote social mobility in Singapore and to ensure better redistribution of wealth to lower- and middle-income Singaporeans. I applaud the Minister for Finance for adopting a more progressive version of taxation. At the same time, I also welcome the revamped assistance scheme, with the increase in the primary cash assistance rate, and introduction of two new tiers of assistance and the enhancement of Workfare to include more low-wage workers. This will help more low-income families

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cope with the higher costs of living in Singapore. More importantly, the initiatives taken to enhance the pre-school education scene and provide more support for disadvantaged students in school would ensure that social mobility is maintained. In many ways, this would allow us to maintain the ideals of meritocracy and equal opportunities and build a better Singapore.

Yet, when we speak about "meritocracy", which has been one of the cornerstone philosophies of our society, I would like to draw our attention to an article written by Donald Low in the IPS Commons. He argues that meritocracy in the education system in recent years has favoured certain types of people, because of our emphasis on sorting the best from the rest. He also argues that when that happens, people who are better off and well-to-do have a higher propensity to succeed because they have the means to access resources. While I do not agree with all of his argument, I think that there is a certain truth to it. After all, parents who are well-to-do have the means to send their children for such enrichment classes. In fact, popular tuition centres have also started to offer headstart classes, beginning as early at K2 level. Yet most of these are affordable only to parents of the upper middle-income group.

The emphasis in the Budget on levelling this playing field is commendable, but I do think we can do more to provide low-income Singaporean children the same access to enrich their children's abilities outside the mainstream education system. Can we not take a leaf from Edusave and to think about the possibility of a means tested central pool which will fund enrichment classes for those less well off?

Madam, besides the under-privileged families, elderly, disabled and their caregivers, I would also like to speak briefly about another group of people in society who are often left in the lurch. This group is the single parent, either male or female. The single parent faces many challenges in life as he or she takes care of the children. For one, the myriad of schemes and subsidies available to married Singaporeans with children are not available to them. Often than not, the single parent is faced with a double whammy of sorts. Apart from the lack of Government support, some are also cut off and "abandoned" by their families. Take, for instance, the Baby Bonus is only eligible, according to MSF guidelines, if the mother is lawfully wedded to the father. The case is the same for maternity leave, childcare leave and income tax relief, where marriage is one of the eligibility criteria. HDB BTO policies are also skewed against those who are single parents. I think we should relook the way we see parents who one way or another have to raise their children on their own. Let us remove our "biasness" and make avail to them all such schemes and subsidies that are available to married couples. We must remember that some of them are single

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not by choice and we should not further add to the problems they face in raising a child single-handedly.

A transiting economy is not the only transition that we need to manage today. Events in the past years have also shown that our society is undergoing significant changes. I think we can agree that there are segments of our society that have become more progressive, more vocal and who are more interested in liberal ideas than others. We have seen how Singaporeans have shown their passion on various issues, such as the death penalty, animal rights and Green Corridor, just to name a few. We should, in building a better and more inclusive Singapore, also provide the space to accommodate the views and aspirations of these Singaporeans.

In conclusion, I would like to take this moment to recall the lyrics of one of my favourite songs, "Home" by Kit Chan:

*"This is home truly,*

*where I know I must be,*

*where my dreams wait for me,*

*where the river always flow.*

*This is home truly, as my senses tell me, this is where I won't be alone,*

*for this is where I know its home" (proc text)]

"Home", as this familiar song goes, is defined not by the infrastructure, the wages or the jobs, but our senses, our feelings, our emotions. We are Singaporeans because we feel connected. It is truly inspirational in defining what "home" is. As we endeavour to build a better society, let us ensure that while we make the material changes to ensure fairness and inclusiveness, we also need to pay more attention to the intangible, the emotive. After all, it is the experience of being a Singaporean that counts the most. With that, I support the Budget.

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Mdm Speaker, first, let me thank Members for their very thoughtful comments and suggestions made in the debate over the past two and a half days. As usual, the comments covered not just the key thrusts and key policy initiatives in this Budget, they also covered a range of other issues that we will be discussing in the Committee of Supply (COS) and which will be taken up by the respective Ministries.

For instance, many Members spoke on the importance of pre-school and supported the initiatives that are being taken in this Budget, which MOE and MSF will be talking about in their COS. Mr Christopher de Souza, Dr Intan Azura Mokhtar, Mr Yee Jenn Jong, Miss Penny Low, Asst Prof Eugene Tan and many others spent a good part of their speeches on the pre-school sector.

Sports and arts – Mr Baey Yam Keng, Mr Nicholas Fang, Ms Janice Koh made useful points which will also be taken up.

Environment – Dr Lim Wee Kiak, Ms Faizah Jamal and others spoke about the environment and this too is increasingly important to us as we go forward, and which will feature in our COS as well.

I want to say this because I am not going to cover all the issues that have been raised in the debate, but will focus on some of the key policy initiatives in this Budget.

I will focus essentially on two main issues. First, why SMEs are at the heart of what we are trying to achieve in our shift to quality growth. Why SMEs are at the heart of what we are trying to achieve. Second, what is our approach towards progressivity and social spending. We know social spending will have to go up, but what is the right approach? "How far" and "how" is as important as "how much". So, what is the right approach?

In particular, how do we help low-income Singaporeans on a sustainable basis? How do we help the broader base of middle-income Singaporeans who are also at the core of what we are trying to achieve in a better Singapore?

Let me start with the first theme, which is on helping our SMEs make this transition – this difficult but important transition. Ms Jessica Tan, Dr Teo Ho Pin, Dr Lily Neo just awhile ago had spoken about the criticality of the SME sector

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and how we have got to make sure that they are able to make this transition. If they cannot make the transition, we will not achieve quality growth in Singapore.

I agree with them. We want our SMEs to succeed and not just for economic reasons; not just because they comprise roughly half our GDP. We also want them to succeed because they are part of the lifeblood of our society. They are part of Singapore and they contribute to the vibrancy of Singapore, as Mr Teo Siong Seng pointed out as well. So, we must transform and revitalise our SMEs in this next phase of our development as a country.

We are intensifying the restructuring of our economy. But that does not just mean intensifying the tightening our foreign worker policy. It is not just intensifying the pain. We are in fact intensifying our support, for our SME sector in particular, during this transition period. Put simply, of the $5.3 billion three-year Transition Support Programme, about two-thirds of the monies are expected to go to our SMEs. I will elaborate on this in a short while. About two-thirds, roughly in proportion to their share of employment.

The first issue which we have to think hard about is the pace of restructuring. Not moving too fast, but also not moving too slowly. Several Members spoke about this – Ms Jessica Tan, Mr Lim Biow Chuan, Mr Seng Han Thong, Er Dr Lee Bee Wah and Mr Inderjit Singh. Many were concerned about the pace with which we are tightening foreign worker policies and what the impact will be on our SMEs. Mrs Lina Chiam had another view – she was disappointed that we were not tightening more significantly and across all sectors.

It is an important issue. I agree with Mr Inderjit Singh, for instance, that restructuring is not something to be achieved in two or three years. But we are not starting from today. We started in 2010. We started in a very determined way in 2010, made clear our directions: that we are to grow on the basis of productivity and much less on the basis of manpower growth. We had to do it to sustain wage growth for Singaporeans and we also had to reduce our reliance on foreign manpower – to slow down the growth of foreign manpower.

We made clear our directions then and we also made clear that we were not going to turn back. And I made it a point, in fact, in Budget 2011, one year after we started this, to emphasise that we will not any longer – as we had done many years in the past – vary our foreign worker levies for cyclical reasons, that is, if we had a slowdown or a recession, we lower our foreign worker levies. We

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made it clear that the new direction was here to stay, and the direction was clear. We have to keep tightening and keep leaning on firms to do more to reduce manpower demand and to invest in productivity.

So, we started in 2010. This three-year Transition Support Package is for three years, after the three years that have already taken place – of significant tightening, in levies as well as reduction in dependency ratio ceilings.

As I mentioned in the Budget Speech, to be quite frank, we are making this next set of adjustments in full knowledge of the difficulties that businesses will face. But there is no choice. If we do not achieve momentum in the next three years, there is real risk that three years from now, we will be in exactly the same position. Both workers and businesses will in fact be worse off.

So, we have to gain momentum in the next three years. There is no choice. That means giving strong incentives for our businesses, large and small, to reduce dependence on manpower, both by tightening our foreign worker levies and selective cuts in the dependency ratio ceilings, as well as by providing enhanced support for every form of investment in productivity, including training up workers and developing new capabilities. So, that is what the Quality Growth Programme is about, with its three-year Transition Support Package, taken together, $5.9 billion over three years.

The question has come up: will SMEs benefit from this $5.9 billion Quality Growth Package? In fact, as I mentioned in the Budget Speech, we intend to flow back to the business sector all the additional revenues we are collecting from foreign worker levies. Specifically, if we take the increases in levies, starting from January this year, which actually was announced in 2011, and if we include the increases in levies that take place this year, next year, and the year after – the next three-year period of levy increases – we will flow back to the SME sector more than twice that amount of money. More than twice the cost of the increased levies will be flowed back to the SME sector – through the Transition Support Package as well as through the other measures in the Quality Growth Programme.

Let me explain this for each component in turn. Wage Credit Scheme. The question came up in the debate – I think a few Members asked if SMEs will benefit from the Wage Credit Scheme. There was another view that for the large companies that benefit, maybe we do not need to be supporting them because they would have paid their workers more anyway – so there is some deadweight

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cost in this. And those are good questions.

First, let me make clear that wages will have to be market-determined. They have been and they have to continue to be market-determined. But what is the market? It is not an unchanging labour market. We have tightened foreign labour policy. It is a tight market and as long as we keep Singapore competitive, it will remain a tight market. In that market, our businesses, and especially our SMEs, are going to face wage pressures. The wage pressures will be there in a tight labour market. That is why we want to help the SMEs see through this period of transition with the Wage Credit Scheme, and, at the same time, prevent inflationary pressures that will otherwise result from higher wage costs being passed through into higher consumer prices.

Mr Lim Swee Say spoke about this yesterday – what is the right approach? The right approach for businesses, to sustaining wage increases beyond the three years, is to take full advantage of all the Government schemes that are on the table to raise productivity. Take full advantage of them.

We are making them accessible. We are making them easy to apply for. We are even pushing some of them in front of firms. Take full advantage of all the schemes – Wage Credit Scheme, PIC Bonus, and, of course, the Corporate Income Tax rebates which come in automatically, and all the other enhanced productivity incentives. Incentives not just for investments locally, but also to expand abroad.

Taken holistically, SMEs will be the largest beneficiaries of the Quality Growth Programme, because we have designed it that way.

Wage Credit Scheme – two-thirds of Singaporean employees who earn gross monthly wages of less than $4,000 are, in fact, employed by our SMEs. So, that is where the core of the full workforce below $4,000 is. I looked at the data – we do not have data yet for 2012 that is disaggregated in detail, but for 2011 we have the data and it gives some indication. The SMEs are paying their share of wage increases.

In 2011, more than half of our SMEs gave wage increments and amongst those that gave wage increments to employees earning below $4,000, the median wage increment was over $200. That is for the very small SMEs, those with 50 employees or so. A median wage increment of $200 for that group of employees whose pay was below $4,000 and whose wage increased. So, they are already paying wage increases, and with a tightening labour market as I

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mentioned, the wage pressures will be there and may, in fact, rise. We can expect SMEs to have their full share of the Wage Credit Scheme.

Should we have designed the Scheme only for SMEs and left out large companies? It is a meaningful question. In principle, you would expect larger companies to have the means to improve productivity on their own and to share productivity gains with their workers. In practice, it is very hard to draw the line. How, for instance, do we distinguish between a company that is small with a small number of employees, but is in fact highly profitable, and has no problem sharing gains with its workers, compared to a larger enterprise which may be in a sector with very thin margins, for whom the Wage Credit Scheme can be very helpful in allowing them to free up resources to invest in productivity and also to share the gains with their workers? It is very hard, in practice, to say who deserves it more than someone else.

It is not simply small against large. It varies widely according to sector and even for companies of the same size, it varies widely. So, it is much better to be clean about this. Our basic motivation is to flow additional foreign worker levies back to the businesses, but flow it back in the right way and not flow it back indiscriminately. The right way means flowing it back in ways that support productivity and productivity gain-sharing with workers.

For other components of the Quality Growth Programme, SMEs were also foremost in our minds when we designed the measures. Corporate income tax rebate – the 30% corporate income tax rebate is higher than we have done before. We decided to do that but to impose a cap at $30,000. Because the higher the percentage rebate, the more the SMEs benefit. The higher the dollar cap, the more the large companies benefit. So, 30% per Year of Assessment for three years. SMEs will receive an estimated 90% of the total amount of the corporate income tax rebate.

PIC Bonus – I will not go through all the details, but, frankly, the $5,000 per year, or $15,000 over three years, is not a large sum for the large companies. But for the SMEs, including micro-SMEs, it is very meaningful. For this PIC Bonus, we estimate that the SMEs will receive about 95% of the PIC Bonus. It was not designed for large companies.

The other enhanced schemes – the $500 million worth of enhanced productivity schemes on top of what we are already doing. Again, they were designed for SMEs. For example, the industry collaborations linking up large firms, not just MNCs, but large local enterprises with SMEs up and down the

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supply chain – it is a very meaningful scheme to share expertise, develop best practices and even to have technology innovation in the SMEs. Developing or helping SMEs to strengthen their brands, helping them to expand abroad. That $500 million is a very meaningful scheme, which MTI will be talking about in the Committee of Supply (COS).

How can we help the SMEs recruit people – especially to recruit Singaporeans who have been economically inactive? This is a very important issue and there were useful suggestions from Members during the two-and-a-half days' debate. Ms Foo Mee Har and Ms Mary Liew mentioned the PAP Women's Wing's recent proposal to give a special Back-to-Work employment credit to help the employers hire women who are returning to the workforce. They gave the example of giving a credit for one year, but those are details. Mr Gerald Giam mentioned a New Hire Wage Credit Scheme, somewhat similar in concept – one-quarter of the first six months of salary of a new hire, for a longer period of the next three years. I think Mr Giam can become an honorary member of the PAP Women's Wing.

Ms Jessica Tan had another very interesting proposal on training subsidies for PMEs – a very important group, not economically active but some of them may have lost their jobs or been dislocated temporarily. We must help them to come back in. Every form of training subsidy, including helping them get jobs in Singapore with companies that can use them abroad in their operations because companies are very short of Singaporeans abroad.

Mr Liang Eng Hwa had another suggestion to help PMEs, which goes back to what we did during the crisis in 2009, where through an EDB and MAS scheme, we helped the companies pay for the salaries of re-skilled PME workers.

These are all ideas which we can consider. Some, in fact, had been tried before. We introduced the People for Jobs Traineeship Programme in 2001, more than 10 years ago, to encourage employers to hire older workers. We terminated it. I will explain why. First, the programme provided wage support to employers for hiring unemployed mature workers. In fact, it is somewhat similar to the New Hire scheme and the other proposals that were mentioned. We discontinued it after three years because there were very low retention rates of the workers that had been hired on the basis of this initial wage subsidy. It does not mean it will not work again, but this has been a problem that many countries face, in what they call active labour market policy, when you provide a subsidy initially and you hope it works out and the person will stay, and the employer also wants the person to be part of the team. So, this is a concept that

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we tried out before, but which we will continue to study.

But we have other schemes that we have since introduced, which are quite significant. The Special Employment Credit, as you all know, is very significant – 8% of the pay of our older workers is paid for by the Government; a very strong incentive for employers to go out and look for older Singaporeans who can work part-time or full-time, and give them a meaningful and fulfilling job. The Place-and-Train Programme that the Workforce Development Agency (WDA) runs, which helps job seekers to re-skill themselves – first get hired by an employer, then go for structured training paid for by the Government. It is very heavily subsidised by the Government. This is another very useful scheme.

The ADVANTAGE! Scheme, which helps firms redesign jobs. There are some sectoral schemes too, like SPRING is working with the F&B industry to develop a part-time pool of manpower that they can tap on. Flexi-Works!, which many Members are aware of, gives employers 80% of the cost of putting in place flexible work arrangements. Some Members spoke very passionately about this, and I know Members like Ms Irene Ng have been talking about this since 2004, if I am not mistaken. Others made very strong points about this. If we want to attract the economically inactive, particularly people who have family responsibilities, we must have much more flexible work arrangements. We have to be very serious about this. MOM will be talking about how it is going to enhance a whole range of schemes. Many of the things are covered already. They are going to make some enhancements to help our companies, and especially our SMEs, attract and retain Singaporeans and to help Singaporeans to have meaningful jobs, part-time or full-time.

Productivity has been weak. Last year, it was miserable. Minus 2.6%. That was the preliminary data. One reason was cyclical – we were in a very unusual situation where we had very slow economic growth but a very tight labour market. It was quite an unusual situation. In such a situation, firms do not shed workers. They do not retrench workers. They would rather not lay off workers because they are not sure they would be able to get them back. So, firms keep workers despite a slowdown in the economy and that was part of the reason for the slippage in productivity, in both manufacturing and services.

It also reflects a broader point that there is a gestation period, as many acknowledged. There is a gestation period before productivity schemes can take off, before firms can customise the schemes that are available to their own needs, and think through what is in their business interests. There is a gestation. We have been tightening foreign labour policies and we have provided generous schemes, but there is a gestation which all countries face in the

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restructuring process. It takes a while before firms can respond. The pain has to be enough and the gain has to be quite clear. I think we now have both in place.

We had been careful not to disburse grants from the National Productivity Fund and the other sources too quickly, before firms are ready. These are tax monies and they have to be used well. We have taken pains to work with the industry to develop roadmaps for the future, industry by industry, conducting deep dives, with clear milestones as to what should be achieved and with funds to be disbursed at each milestone.

In the next few years, we are going to see a lot more traction, a lot more take-up, because many of the roadmaps have now been developed and they are ready to roll.

Take construction for example, which is raised by Er Dr Lee Bee Wah and Mr Gerald Giam. It is a good example because it has had poor productivity performance. We have been spending time with the industry to develop the roadmap going forward.

What does it involve? First, of course, the obvious parts on foreign worker policy, controlling the supply of foreign workers and also trying to manage the demand for foreign workers. Second, imposing new regulatory requirements. In this year's Budget, we are taking a significant move on mandatory requirements – buildability standards, constructability standards, which basically mandate manpower-saving techniques.

Thirdly, we are providing very strong incentives, not just disincentives, but incentives for companies to adopt technology and to develop manpower and capabilities, including scholarships schemes for locals to join the sector.

We have developed a set of targets. They vary depending on which component of the construction sector we are talking about. I will give you a few examples so that you know basically what working industry-by-industry involves.

Adoption of drywalls. Drywalls can be built about two and a half times faster than brick walls. Currently, adoption of drywalls in our local industry, if we take condominium projects, is relatively low by advanced country standards. About one-third to, at most, 40% of our local condominium projects involve drywalls. In Japan, it is the norm. By 2020, we expect at least 70% of our local condominium projects to be using drywalls. HDB, too, is piloting the use of

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drywalls in its new projects.

Another example is system formwork, which is a prefabricated mould used for wet concrete work. It is employed in just 25% of our projects today. In Japan, it is around 80%. Here, too, we expect adoption of system formwork to go up to 40% by 2016 and 80% by 2020.

We have set aside monies in the Construction Productivity and Capability Fund (CPCF) – the $250 million that has been mentioned. But we have not disbursed much yet. We have committed $85 million and there will be a lot more disbursed over the next few years as we start implementing the road map. It will take place as the tightening of the Man-Year Entitlement (MYE) quota kicks in, which Er Dr Lee Bee Wah spoke about. The 45% reduction in MYE – not much effect so far because it is only new projects that are affected. So, some tightening but much stronger support and mandated requirements.

By the end of this decade, we will see a different construction sector.

Let me now move on to the second major theme, which is our approach to progressivity and social spending.

The tone of the debate was one of supporting a move towards greater progressivity and many Members, like Mr Vikram Nair, Mr Christopher de Souza, Mr Ong Teng Koon, Mr Baey Yam Keng, Dr Amy Khor and Ms Denise Phua, had thoughtful things to say about this. They differed in their views as to how far and how quickly to go, but they felt this was an important issue for us at this stage as we make this transition in our evolution as a society and not just an economy.

We do have a highly progressive system of taxes and benefits. It is designed to be equitable as well as efficient. In other words, it has to support economic dynamism. Let me start by explaining. I will take Members through this briefly because it is very important to understand how the whole system adds up.

Firstly, income tax. We know that for the low- and middle-income group, most do not pay income tax because slightly over 55% of Singaporeans do not pay income tax. But the other important part of the income tax schedule that is worth emphasising is that it is not just a schedule that goes from zero to 20% marginal rates. It is also a schedule that extends backwards from zero to minus 30% because of Workfare. I am leaving out the other schemes, but Workfare is

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a negative income tax. If you work and you are in the lower income group, you get Workfare. It is a credit to you and a negative income tax. So, our true income tax schedule is actually from minus 30% to plus 20%. Minus 30% effective tax rate, to close to 19% or 20% effective rate for the very high income earners. That is what our true income tax schedule is – 50 percentage points. It is highly progressive.

Members could look at the charts on the proportion of personal income tax paid by the different income groups. [Please refer to Annex 1.]

I should mention that there were some figures that were mentioned in the debate, and that have been in the press, where there had been some misinterpretation of the IRAS data. It refers to individuals, but I think there was some mention of 11% of individuals paying for 80% of all taxes. Actually, it was income taxes, not all taxes. It also refers not to 11% of all income earners but 11% of people who pay personal income tax. But leave that aside. I am saying that because there were figures mentioned in the debate that I am now clarifying.

If we look at Singaporean households, the top 20% account for 80% of income tax. And that is the way it should be.

Secondly, how about other taxes – not just income taxes but GST? We have discussed GST extensively in previous Budgets. In itself regressive, but GST, together with everything that goes with, GST-Plus, is a highly progressive system when you add the whole system together. Let us add all the other taxes. Besides income tax, if we add all the taxes together – no benefits yet, just taxes – if we take maid levy, car taxes, GST, income taxes, add everything up, still a highly progressive system. The top 10% pays well over a third of total taxes, and the top 20% pays over half of our total taxes.

Then, add in the benefits. Because the true test of the progressivity of a fiscal system is not just about taxes, but taxes together with benefits. It is extremely important to understand that. We raised the GST together with an enhancement of benefits, and made clear the connection – that this was a fiscal strategy to raise revenues to support the lower- and middle-income groups.

So, who gets the benefits? Of course, it is the other way round. The bulk of the benefits are received by those in the lower deciles.

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I should explain a very interesting quirk in the data, which shows that those in the first decile get less benefits than those in the second decile. In fact, if we go back to the previous chart, you will also see that the first decile pays slightly more taxes than the second decile.

This illustrates a point which I hope everyone will understand – these income deciles, that we publish regularly in our household income trends and so on, reflect income from work. But many people in the first decile, indeed in all the lower deciles, but especially the first decile, are not people who are poorly off.

They may have stopped work for some reason or the head of the household may have just retired, but 17% of our first decile live in private properties, 16% own cars, 10% employ a maid. So, they may not be very well off, but they are not poor.

The first decile has many people in there who are not poor, and this explains why they do not get as much benefits as those in the second decile, and they pay slightly more taxes. I say this because the statistics need to be interpreted with caution when you look at income by decile.

The basic picture is that the bulk of the taxes is paid for by the top two deciles and the top decile pays its fair share, and bulk of the benefits received at the bottom. That is the way it should be, and we are going to enhance the progressivity of our system further, as I indicated in the Budget Speech.

Ms Sylvia Lim cited an IMF discussion paper – a very interesting paper. I was familiar with it but I looked at it again since she mentioned it. It is a good study. In fact, it is what economists would call a heroic study, because it attempted to find a link between inequality and growth which has been a thorny issue in economic literature. It reached a tentative conclusion which Ms Sylvia Lim pointed out – this study of developing countries found that those that had better equality or less inequality were able to sustain growth for longer periods. And that explained partly why countries in Asia generally had been able to sustain growth for longer periods than Latin America, for example. That was one important conclusion.

But what Ms Lim did not mention was a second, equally important, conclusion of the study, also right there side-by-side in its executive summary, which I will read out because it is an important conclusion.

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The first conclusion was that less inequality tends to be associated with longer periods of growth. The second conclusion, however, is that, "The immediate role for policy, however, is less clear. Increased inequality may shorten growth duration, but poorly designed efforts to lower inequality could grossly distort incentives and thereby undermine growth, hurting even the poor. There nevertheless may be some ‘win-win' policies, such as better-targeted subsidies, improvements in economic opportunities for the poor and active labour market policies that promote employment."

This is, indeed, the type of thinking that instructs our approach. Not because it was an IMF staff discussion paper. This is, in fact, what we have been thinking about for some time. We study very carefully what is happening in other countries and we have learned from our own experience. It is the type of thinking that inspires our approach.

We are not going for progressivity, or re-distribution, for its own sake. We are designing and implementing policies that stand the best chance of sustaining economic dynamism and building a society that all Singaporeans can truly benefit from. That is the end objective and we have to keep that firmly in mind.

The litmus test is not how progressive a fiscal system looks. That is not the litmus test. The litmus test is whether it will truly help lower- and middle-income Singaporeans to have better lives. And that is not a question with straightforward answers in tax policy and spending policy, and we have to think very hard about those issues.

Let me, therefore, make four points that start from that premise.

First, when we think about the adjustments we have to make in taxes, we have to think hard about what they mean for equity and fairness. That is important. What do our taxes mean for equity and fairness? But we also have to think about what they mean for economic dynamism, dynamism that is needed to support our lower- and middle-income Singaporeans. That is my first point.

Likewise, secondly, on spending. It is not just about spending more, but spending better to achieve our objectives. It is not just about how much we spend but how we spend. How can we go about it in a way that helps people to stand on their own feet especially, and that targets benefits at those who need them the most? In our context, too, as I mentioned in the Budget Speech and

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which many Members have mentioned, we also have to pay special recognition to the situation of our older Singaporeans, the pioneer generation.

So, thinking about spending involves targeting. It involves also how we do and not just how much we do. That is the second point.

The third point: the Government has to work with the community. It is not just about what is in the Budget. We have to work with the community in a way that strengthens our VWOs and civic organisations not just to achieve many-helping-hands but to achieve stronger helping hands on the ground. One reason why Acting Minister Chan Chun Sing has introduced the initiative to have social service offices on the ground is to strengthen the helping hands on the ground, coordinate better, integrate better, work better across Government, but also work better amongst the Family Service Centres (FSCs) and the VWOs, which is a good point that Mr Muhamad Faisal Bin Abdul Manap made, that is, strengthen the FSCs.

Fourth point, we have to design policies that can be sustained, not just for one or two electoral terms, but for many years after. This is a fundamental point.

So, those are four points which start from that premise, that it is not progressivity for its own sake that we must aim for, but progressivity that will help to uplift lower- and middle-income Singaporeans on a sustainable basis. We think very hard about these issues.

We also study what is happening elsewhere. There are numerous examples of how you get paradoxical results. Many examples. I will just give you two examples. If you look at any of the advanced countries, a good example is the United States.

Since the 1970s, they have had very significantly enhanced income transfers to the poor, defined in different ways – single mothers, low-income families, sometimes neighbourhood support – many forms of enhanced transfers to the poor. But the poor neighbourhoods have not gotten better; they have gotten worse. Many more families are disintegrating. Not efficient and also not very fair.

Second, unfunded public pension fund liabilities and other unfunded commitments to their retirees. The US is a classic example; Europe is an even worse example. Not just a problem for budgets but actually highly regressive, highly inequitable. If you look at what is happening with the US state-level

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pension funds, public pension funds at the state level, highly regressive because they have provided, year after year, electoral term after electoral term, enhanced commitments and promises which they now have to keep to retirees, those who are now going to retire as well as those who have already retired. They cannot meet the budget, so current workers have to pay. They are cutting salaries, jobs and they are also cutting the future promises for current workers. Highly regressive because the current generation of retirees is generally, on average, better off than the current generation of workers. It is an example of what looked good, looked progressive, but actually was bad, not just from a financial sustainability point of view but unfair.

These are just two examples. Spending better is as important, and more important, than how much you spend, and whether we can do it with a view to fairness and with a view to efficiency. We will do more in social spending. We have indicated our priorities and we are doing more especially in the areas that meet our objectives of preserving a dynamic society – education, housing, work support and providing some economic security to our retirees, especially the current generation.

We are not starting from a state of despair. As Dr Chia Shi-Lu just mentioned, it does mean something that in an EIU study, of a whole range of countries internationally, Singapore was placed No 6 as the best place to be born this year. The study has many indicators, you can question some of them, but these are objective indicators. And as Dr Chia also mentioned, in healthcare, the latest Bloomberg index of healthiness, a very large number of countries − I think 100-over countries, I have it here myself − Singapore was ranked No 1 in the world for healthiness. They had 16 indicators of healthiness – risk indicators and other objective indicators. In education, we know how we are ranked. In the World Economic Forum Global Competitiveness Report, third best education system. And regularly in the PISA and TIMSS reports, not just because we have top students who do well, but also because we have what is called "resilient" students, that is, our students from the lower social economic background do better than expected compared to the way it is in other countries. So, it is quality across the board. That is in education.

So, we are not starting from a position of despair. But we want to do better. We have set out our priorities and we want to do better. Our social policies will evolve, particularly as our incomes grow more slowly and grow unequally, and as our society gets older.

Let me go on now therefore to two key priorities with regard to our low-income group. When we think about the low-income group, those who have the

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toughest time are the bottom 10%. Among citizen households, the 10th percentile have incomes of about $1,650 per month – or if you include employer's CPF, it is about $1,800. It is tough to survive, particularly for those who have larger families, elderly or children. And we intend to do more to help them.

But there are two very distinct groups within this lower income segment − those who are older and those who are younger. And our solution needs to be tailored to their distinct needs.

Households who are older, whose heads of households are 55 or above, actually account for slightly over half of this group of households in the bottom 10%. Most of these breadwinners, in fact, six out of 10 of these breadwinners, have no more than primary education. That is the description of the older Singaporean low-income households. And many have seen very little improvement in their pay, especially in real terms, in the last five to 10 years. We know that.

For the younger group, it is very different. If you look at the group aged below 35 years, there are some in that bottom 10% as well, but it is a very small group, a very small proportion of the young and very small proportion of the bottom 10%, nationally, of households. They are very different in description, having benefited from a vastly improved education system − almost all with at least Secondary education, and many with ITE or something further. So, they are in the early stage of their careers. So, the way we think about them and how we want to help them, with regard to work, skills and home, is different.

For older low-income Singaporeans, we have to enable them to have the dignity of work, we have to think about workplace design to suit their needs and we have to provide them with greater economic security in their retirement years.

For younger low-income Singaporeans, we have to provide every opportunity for them to climb the ladder of skills, better jobs and better pay, every opportunity for them to do that. And find every way for their children to do well, starting early in life through their school years.

Let me start with older workers. Mr David Ong, Mr Heng Chee How and several others spoke at length about their needs and how we need to pay more attention to them. What is our approach? These are people who are already well

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into their careers, well into their 50s, some 60s.

First, we will supplement their pay using Workfare. We have enhanced it now. Almost 30% of the older workers who are low-paid, almost 30% supplement to pay through Workfare. Second, we are helping their employers to hire them, through the 8% Special Employment Credit. And if you take it together for someone who is earning, let us say, $1,000, a low-income worker, if you take the Workfare and Special Employment Credit together, it means that we are paying about 40% on top of what the employer would have paid. That is a very substantial top-up by the Government.

Then, we have the Workfare Training Support Scheme (WTS). Mr Ang Hin Kee is very familiar with this as he used to run e2i. Mr Ong Teng Koon and several others spoke about this. Even our older workers are benefiting from the WTS and we have to find every way of tailoring it to their needs. No one is too old to learn, to do better on their job and to take on responsibilities at work. We have many examples and we are very serious about this. So far, one in five older workers aged 50 to 64 years have been taking part in the training and we want to up that ratio. MOM will be discussing this in the Committee of Supply as well.

Next, the Progressive Wage Model which Mr Lim Swee Say and his colleagues among the Labour Members spoke about. How do we give them the maximum upside, while minimising the downside, as Mr Lim Swee Say put it. And that is a very important point because for our older workers, the downside comes easily. The downside of losing their job, because they are most vulnerable and they have the least education. It is very easy for employers to discriminate against older workers if they want to, even on what appears to be the basis of merit. So, maximise the upside and minimise the downside, as Mr Lim Swee Say says. Progressive Wage Model − we are putting resources into it, we are helping the companies through the Inclusive Growth Programme together with it, and we are going to find a way of raising their pay, particularly in cleaning and security. And we are working industry by industry.

Next, redesign the workplace. I will not elaborate on this because many Members have spoken about it, including just a short while ago, Ms Low Yen Ling. MOM will take up suggestions on job redesign and how we can enhance our schemes. That is for workplace-related initiatives.

The home was always a key pillar of our social support for that generation of Singaporeans. Eighty-three percent of those aged 55 and above who are in

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this bottom decile are proud homeowners. Most have paid off their loans, and for those who own a fully paid-up 3-room flat and if they are moving to a studio apartment, they can realise on a net basis, after paying for the studio apartment, housing equity worth $200,000. And on top of that, we are giving them a Silver Housing Bonus of $20,000 as an incentive. So, the home is very important, and helping them to monetise their home and unlock the value so that they can have better retirement years is extremely important.

Finally, the healthcare financing review, which I am not going to discuss in detail, but that generation of older Singaporeans is foremost in our minds. Mr Gan Kim Yong will be talking about this in the Committee of Supply.

Next, the younger group of low-income Singaporeans − they require a different set of strategies. We provide the best education and the best opportunities for upgrading. We must provide every leg-up, rather than handouts.

Social mobility is a key feature of our policies and Members across the board supported the strategy we are taking, including what we want to do to enhance the pre-school sector. But beyond the pre-school and school years, we also need to provide them with a ladder of advancement in the workplace. We have to be a continuous meritocracy, not a meritocracy based on what happened when you left school or a tertiary institution. We have to be a continuous meritocracy. Constant opportunities to upgrade, to switch line, to pick up new skills and develop real mastery. And I think we can do it. We have the resources and we can work together closely on a tripartite basis. We can do this.

Next, housing, which was very important for the older generation but is still a key pillar of our social support for the younger generation of low-wage workers. You know the schemes – the $40,000 Additional CPF Housing Grant, and the $20,000 Special CPF Housing Grant which we introduced two years ago. These are tailored to the needs of the low-income Singaporeans. I just checked the data recently. Since we introduced it two years ago, 1,100 low-income households have taken advantage of the Special Housing Grant. For those who have income below $1,500, which is very low and within the bottom 10% of household incomes, they are eligible for 2-room flats. In fact, one-third of those who obtained 2-room flats using Special Housing Grant, had income of $1,000 or less, which is something that initially people find surprising. How can someone with $1,000 or slightly less obtain a flat? It is because of the Special

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Housing Grant and the Additional Housing Grant.

But why do we want to help them this way? For this group, surviving is tough. Why do we want to help them this way? First, it allows them to have more disposable income because they pay for the 2-room flat entirely, or almost entirely, and, in fact, in almost all cases, entirely using their CPF. It gives them the incentive to stay in a job. We will support them in staying in a job while they pay for their housing using their CPF, so that they can use their full disposable income for their other needs.

Second, very importantly, it is not just about immediate cash needs, it is about having an asset that will appreciate with inflation and appreciate with progress. So, they do not get left out and they too will retire with a significant asset for their retirement years. It is a very important strategy.

Eight out of 10 low-income households in Singapore can own their own homes. There is no other country that comes close to it. The Koreans are closest – another country with an East Asian ethic, a roof over the head is very important and you want your own.

But no other country comes close to us. Eight out of 10 of low-income households own their own flats. Those who cannot own because they do not have a stable job especially or there has been family disruption, HDB subsidises public rental flats. Mr Khaw Boon Wan will, of course, be discussing all these issues in further detail in the Committee of Supply.

But I will just clarify very quickly the useful points that Mr Png Eng Huat raised about the "cliff" effect, so to speak, when someone crosses monthly income of $800. I would like to reassure him and all Members that for existing tenants, HDB automatically gives a grace period when your income crosses $800.

So, that is basically our approach to helping the younger group. Workfare, once they cross 35 but before that, opportunities to upgrade, helping them own their home, helping their children in school. Every opportunity for a leg-up for this younger group.

Next, let me move on to my third theme which is about the middle-income group of Singaporeans. It is a positive for Singapore society that expectations and aspirations have gone up; aspirations for education, for how well you do in

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your job, as well as for your standard of living.

That is a positive. How do we meet the needs of an aspiring middle-income group of Singaporeans? First and foremost, we have got to succeed in achieving quality growth. First and foremost, we must enable income growth for Singaporeans, including especially this middle-income group, besides the lower income group. And all our surveys show that that is the main consideration. All our surveys of Singaporeans showed this: good jobs with income that can go up and more than cover the cost of living. That is their main concern. That has to be a key priority. And quality growth is not just an economic strategy but a social strategy.

Second, we have to ensure a level playing field for Singaporeans, in terms of job opportunities and progression on the job.

Third, we have to make sure they get adequate benefits as well out of our whole fiscal system.

Fourth, we have to do so in a way that keeps overall taxes low, particularly for the middle-income group, and I will come to that in a short while.

The key strategy, as I mentioned, is to help incomes grow. Fortunately, we have been able to do this so far. Many other countries have had difficulty, including countries that are on the same league as us, as I mentioned in the Budget Speech – Korea, Taiwan, Hong Kong. We have done much better than them to grow median incomes, in real terms, in the last five years.

We designed the Wage Credit Scheme deliberately to include the middle-income group. We extended the Wage Credit Scheme up to pay of $4,000 to help the companies and to help Singaporeans. So, that is income growth. I will not go into it in any more detail because we have covered quality growth. Quality growth is a key social pillar as well, not just in economic strategy.

Second, a level playing field. Many Members have spoken about this. We have to make sure that as more Singaporean graduates enter the workforce, diploma and degree holders, there is a level playing field at the middle- and upper levels of the workforce, besides the lower levels.

That has been a concern. You notice that we have been tightening at the middle end. We have tightened especially for the lower end of Employment Passes (Q1 Passes), and also for S Passes, tightened quite significantly, to

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ensure that Singaporeans are not disadvantaged by the presence of foreigners at these levels of the workforce.

Mr Liang Eng Hwa and Mr Patrick Tay reflected several valuable concerns. Mr Patrick Tay has been talking about this for some time. He is the one who started talking about labour market tests and the variety of labour market tests. We have been studying the proposals. MOM is still studying this very carefully. It is not something that we want to rush but we want to put in place a system that is fair, sustainable and allows the companies to stay competitive. But it is a very important issue for us.

Our younger PMEs have been able to find jobs quite easily. Our youth unemployment rates are the lowest around. It is even lower than in Korea and Taiwan. Very low. For our older PMEs, especially in the middle age and once they lose their jobs, some of them find it tough to get back in. I believe there is an element of age discrimination that we have to tackle. They are also vulnerable to the competition from foreigners. So, we have to be quite careful about this.

We need to do more to ensure a level playing field but very importantly, do it in a way that is sustainable. Sustainable means our firms must be able to compete. They must be able to compete. They must have the teams with the right mix of locals and foreigners with the right skills and expertise – because that is what allows us to compete internationally. The competition is changing. It is not about China 10 years ago – low-cost manufacturing. It is changing dramatically as Chinese cities move up the value chain and large numbers of their own graduates entering the workforce. The competition is also changing in the United States. Re-shoring is now happening. Very significant advantages that the US has – lower cost of power because of shale gas; and technology improvements that have allowed them to substitute for manpower. It is not helping their unemployment situation but it is helping their companies. They are able to base operations in the US on a more competitive basis than even their operations in China in many segments of the industry.

And there are new advancements in technology that Ms Tan Su Shan was talking about – big data and data analytics – which are transforming not just manufacturing but services. They are going to pick up steam going ahead.

The competition is changing and we have to make sure our companies can survive and compete, which means having the right mix of locals and foreigners with the skills that we need to create a strong Singapore team, because the real

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competition is outside.

We are determined to ensure a level playing field for Singaporeans, fair to Singaporeans, not just in getting a job but progression on the job – while ensuring that it is sustainable, by enabling our companies to compete.

Next element of how we are helping the middle-income group because I think in the overall Budget Statement, it is not something that received strong emphasis but actually, there was a significant amount of benefits for the middle-income group as well, in terms of actual benefits in this year's Budget. Special transfers as well as some of the permanent changes we have put in place.

I will just give Members an example. Husband and wife in their 40s; middle income; together earning above $6,000 – very distinctly middle-income group; living in 4-room HDB flat; two children – one in Primary school, one in Secondary school; employing a foreign domestic helper. This family, from this year's Budget, would save a combination of $530 through the special transfers, as well as $730 through tax savings, both the personal income tax rebate as well as property tax changes, which are permanent; and a permanent change in the foreign domestic worker concessionary levy.

When we add it together, it is about $1,500 which also happens to be about the same as the increase in their household expenditure as measured by the CPI. About the same. We did not design it to fully offset their cost of living increases, but it is a decent sum – $1,500.

They have benefited from other improvements in recent years. The middle income group has benefited from significant improvements in recent years, especially our childcare subsidies, the increase in our tertiary subsidies including the increase in University bursaries to cover the middle income and our healthcare financing changes.

Last year, we introduced major changes to support the middle-income group in community care and home-based care, outside the restructured hospitals. Going forward, the middle-income group will be a major beneficiary of the healthcare financing review because the low income group is in fact already heavily subsidised. We can improve it, particularly in giving people a greater sense of whether they qualify for Medifund, but the middle-income group is a major beneficiary of the healthcare financing review.

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I am not going to go into the initial thinking on the healthcare financing review. Mr Gan Kim Yong, Minister for Health will be covering that, but there were several suggestions in the debate which I can assure Members we will take up. Mr Heng Chee How talked about looking at ElderShield, Dr Intan Azura Mokhtar, Assoc Prof Fatimah Lateef, Ms Tin Pei Ling and Ms Ellen Lee all mentioned greater flexibility in the use of MediSave. That is close to the hearts of our residents and is something which we are studying as well.

Ms Janice Koh mentioned the issue of capping co-payments, particularly for very large expenses. It is an issue that we are studying, about how we can give Singaporeans re-assurance against very large bills including the middle income group.

Caregivers are also very important. Mr Christopher de Souza and Ms Lee Li Lian had spoken about caregivers, including respite care to give caregivers a chance to rest and recharge. Respite care is an important issue as well and Mr Gan Kim Yong will be talking about this in the COS.

Keeping the tax burden low on the middle-income group is also part of this strategy. It is not just the benefits we can give out but keeping the tax burden low. They pay GST, very limited income tax. If you look at those with chargeable income of about $60,000, we have also reduced the income tax rate. They pay income tax but we have reduced income taxes significantly for the middle-income group two years ago. We kept the top rates unchanged but we reduced the middle bands. So, they benefited. This saves about $650 a year.

The Foreign Domestic Worker levy reductions will benefit them. Some also pay taxes for cars but the overall burden when you add it together – maid levy cost, small amount of personal income tax because it is very low rates for the middle-income group and GST – the overall is low by international standards.

We have to keep it low. Keep the burden on the middle-income group low. Through our emphasis on our priority to achieve quality growth and through keeping the tax burden low, we will be able to allow disposable incomes to rise for the middle-income group. That is our basic strategy.

No country has been able to deliver significant benefits for the middle-income group without significant taxes for the middle-income group. There is no country that has done so. There are some countries that are in fact more progressive than us – much stronger slant in their transfers towards the lower and the middle-income groups – but also much higher middle-income taxes.

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There is no country that can raise the revenues that it needs to support not just the low-income group but the middle-income group through substantially enhanced benefits by just relying on taxes at the high end.

Taxes for the middle-income group are the norm in many European countries.

The US has somewhat lower taxes than them but higher than us. The European countries have vastly higher taxes. And that is why the VAT rate – the GST equivalent – ranges from about 17% to over 25% in most European countries, including those that have quite admirable social welfare systems but very high rates of tax in the middle-income group. Their income tax rates are also extremely high for the median, not just the top end. The lowest tax rate for the median in Europe is Switzerland – something like 10% for the median. But for most of them, it is 20% or higher. Income tax for the median is 20% or higher, in addition to VAT rates of 17% to 25%. Very high tax burden on the middle-income group.

Our strategy is to do more for the middle-income group, particularly greater assurance in healthcare financing. We are helping them in home ownership too. But the main way is to help them grow their real incomes and keep taxes low. Keep the overall burden of taxes low, even if we unfortunately have to tax cars because of road congestion. Minimal income tax, try to avoid GST going up and try to keep the overall burden low when all indirect taxes are counted.

Let me then move on now to two specific issues. I will not elaborate on housing because Mr Khaw Boon Wan, Minister for National Development, will be talking about it, but it is an important concern for younger middle-income families. House prices have risen faster than incomes, much faster in the last few years. And we are doing something about it. We intend to bring house prices down relative to incomes, not just short term but long term. Mr Khaw Boon Wan will be discussing this issue.

Demand for cars has increased. But this is unlike housing – Mr Lui Tuck Yew, the Minister for Transport, cannot be Mr Khaw Boon Wan in cars. We cannot ramp up the supply of Certificates of Entitlement (COEs) the way we are ramping up the supply of housing. We need to manage our vehicle population growth within what we can support with our land constraints.

COE prices have been driven by very strong demand and also the slower growing supply of COEs. That is why we have seen a very sharp spike in COE

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prices over the last two years. Last year, there was a 30% to 60% increase in COE prices. Low interest rates and easy credit have fuelled this as well – 100% credit at very low interest rates. Many Members have been speaking about this. In fact, we have been receiving feedback from Singaporeans for some months on this issue of whether we should tighten the loan restrictions so as to cool the market and not have credit so easily available.

A rapid increase in COE premiums poses two types of risks. First, for car buyers, they take on more debt to finance their car purchases, sometimes beyond what is financially prudent. We all know of very unfortunate stories – of young people who have taken loans for cars, although they are not able to service it over time. It does not end in a nice way.

The second risk, however, is that higher COE prices contribute to a higher inflation rate that affects all Singaporeans and the broader economy. This is because the increase in COE prices does not just jack up the price for those who are buying a car, but also shapes inflationary expectations and feeds generally into inflation.

Car prices accounted for one fifth to one half of CPI inflation in the past three years. One fifth to one half of our total CPI inflation. In 2012, car prices contributed one full percentage point of our CPI inflation. So, by helping to dampen the demand for motor vehicles, the financing restrictions that MAS has introduced aim to cool the COE market and to help alleviate overall inflationary pressures in the economy. This is to the benefit of most Singaporeans.

The last time we introduced these restrictions was in 1995. At that time, the loan-to-value ratio was 70%, maximum loan tenure was seven years. Unfortunately, it did not have much discernible effect on COEs at that time and eventually we lifted the restrictions in 2003. This time round, COE prices have risen much more significantly. MAS has, bearing in mind the past experience, unfortunately had to take much tougher measures to make sure that the financial restrictions are effective. However, the measures are not permanent. They are necessary for now, but depending on market developments, MAS will review the loan rules later.

Several Members, including Ms Jessica Tan and Mr Lim Biow Chuan, had concerns about the impact of the new loan rules on families. As Dr Intan Azura Mokhtar had specifically mentioned, families with physically disabled members may face difficulties. This is a valid concern. MAS has therefore decided to exempt a physically disabled person, or his or her caregiver, from the loan

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restrictions for one car. The exemption will take reference from the criteria in existing assistance schemes for the physically disabled. MAS will provide details of this exemption soon.

Besides this exemption for the physically disabled, it is unfortunately not possible for MAS to liberalise further at this point without undermining one of the important reasons for the new loan rules, which is to cool demand and COE prices. As I mentioned earlier, the new MAS rules are not permanent and will be reviewed later, depending on market circumstances.

Er Dr Lee Bee Wah and Mr Teo Siong Seng also flagged the concerns of used car dealers, given the unexpected impact of the financing restrictions on the industry. To help used car dealers make adjustments, LTA will give them more time to find buyers for their cars, by extending the Temporary Transfer Scheme for used car dealers from the current nine months to a full year. MAS has met the Singapore Vehicles Traders Association to listen to their feedback and also to explain the rationale for the measures.

MAS is studying how the depreciation in the value of a used car can also be taken into account in determining the Open Market Value (OMV) for the purpose of applying the appropriate tier within the new loan rules. If Members recall, the new loan rules have a 50% or 60% loan-to-value ratio, depending on the OMV. MAS will study how the depreciation in the value of used cars can be taken into account when determining the OMV. This is something MAS is studying.

I will touch on other tax issues very briefly before I conclude.

Ms Sylvia Lim wanted me to clarify what I said in the Budget Speech about the majority of retirees not being affected by the more progressive property tax structure for owner-occupied residential properties. The Government is especially mindful of this group, as I mentioned in the Budget Speech. That is why we designed the new property tax schedule for owner-occupied properties to make sure that it only meant a higher property tax for the top 1% of homes, or about 12,000 homes. These are homes with annual values of above $59,000. The remaining 99% or 950,000 owner-occupied homes will pay less property tax rather than more.

What is $59,000 annual value like? In other words, those that are below $59,000 would cover 96% of terrace houses and 85% of semi-detached properties. To be frank, in designing this scheme, we even studied it

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geographically to make sure that the places where we knew older Singaporeans owned private homes were taken into account carefully. We looked at Serangoon Gardens, Opera Estate and Teachers' Estate. I can tell Members that at least 90% of even the semi-detached properties in these older estates will not face higher property tax rates as a result of this move.

For the small group of retirees who own and live in the top 1% of owner-occupied residential properties, they will be subjected to a higher property tax rate. Even then, the tax increase is modest unless they are at the very high end. For example, a centrally-located condominium with an annual value of $70,000 will see property tax going up by just $120 a year. It may be a meaningful sum for retirees, but in this top 1%, many retirees have other forms of income. They are not earning income from work but they have passive income from interest, dividends and rental. That is the typical profile of people in this top 1%.

Fundamentally, this is a matter of equity. It is the right principle that a wealthy retiree should pay more tax than someone who is less well-off. For example, a wealthy retiree may own and live in a large bungalow with considerable worth, whereas a middle-income Singaporean may own and live in a smaller home but own a investment property, letting it out for rental. It would be inequitable, particularly since we are raising tax rates for investment properties, not to tax the wealthiest of those who live in owner-occupied homes.

Ms Sylvia Lim also had an interesting suggestion about taxing properties based on the total value of properties owned by an individual rather than on a per property basis. Internationally, property tax is on a per property basis. In principle, I think the Member's concept is right − that since it is a wealth tax, why not consider taxing based on the value of all the properties owned by an individual? Not a bad idea in principle, but unfortunately very difficult to implement from a practical point of view. To implement based on the individual and all his or her properties owned, rather than on a per property basis. Properties can be held under the names of different family members or relatives quite easily. And there will also be administrative problems when properties are jointly owned by multiple owners, which is not uncommon – when they are jointly held by multiple owners with no divisible share for each owner. There are many practical issues but the idea was not a bad one.

Mdm Speaker, let me conclude. We are intensifying our efforts both to restructure our economy and to build a more inclusive society, so that we can achieve a better Singapore.

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This is a critical period of transition for Singapore. As Ms Low Yen Ling says, "We are at the inflexion point in our history". There is no guarantee that we will succeed. There is no guarantee that any economic or social strategy will succeed. But whether we succeed depends not on incentives, grants and subsidies. It does not depend on the narrative of incentives, but on the narrative of responsibility and values. Whether we take responsibility together, to strengthen the values that matter the most to Singaporeans – that is what will determine whether we succeed in this important new phase of our national development.

The Government has a responsibility. We will play an active role in enabling Singaporeans to achieve their fullest potential and in enabling them to live fulfilling lives.

Employers have a role. And they should heed the call of Members over the last two and a half days to value every worker, including the elderly and women, and to reshape the workplace to allow every worker to have a fulfilling job.

As individuals, too, we all have roles, whatever our vocation. We all have roles. Do better and develop mastery, in every vocation, and stay long enough in a vocation to develop mastery. Each of us, too, has a responsibility in our own ways, to contribute to a better community and a better Singapore.

So, that is what will determine our success in this next phase of development, just like it has done before. It is not about incentives, grants and subsidies. It is about responsibilities and values. And that will determine whether we will transform Singapore by the end of this decade. Mdm Speaker, thank you.

*Question put, and agreed to.*

*Resolved, "That Parliament approves the financial policy of the Government for the financial year 1 April 2013 to 31 March 2014."*