Singapore Government Press Release

Media Relations Division, Ministry of Information, Communications and the Arts

MITA Building, 140 Hill Street, 2nd Storey, Singapore 179369

Tel: 6837-9666






            I wish to thank all the MPs who have contributed their views and their suggestions on the President's Address and on the Addenda.

            We have a new Parliament with many new MPs, representing Singaporeans of all races and age groups.  I welcome them to the House.  I appreciate their contributions to the debate. Their maiden speeches showed that these MPs may be new, but they found their feet and they found their voices. As one PAP MP said to me, her daughter told her, "Wah, mama, ni bi fan dui dang yi yuan hai yao xiong."     I think that is quite a compliment, to the PAP MPs.

           I am particularly happy that many have spoken in two languages. It is a reflection of the new generation.  We have bilingual MPs, we have more English-speaking voters. Previously, backbenchers were only allowed to speak in one language. They had to choose and were forced to choose.  Many who could speak in their mother tongues would choose to speak in English because that is the way the debate is moving, that is the way to reach out to a big audience outside.  But it would have been a loss not to have these MPs be able to speak also in their mother tongues and present themselves directly to connect with their voters and to be able to reflect the multi-cultural and multi-lingual reality of Singapore society.   So I suggested, and I am glad that Members agreed, to lift the Standing Order which imposed this restriction and this allowed MPs to speak more effectively and to reach out to their constituents much more closely.  It also helps to create a climate where our mother tongues are spoken in Singapore, not just in coffee-shops, not just at home but in Parliament where national matters of the highest importance are discussed.  But remember, English remains our common working language. That has not changed and that will not change even as we make the effort to promote the use of our mother tongues in Singapore.

            Our future looks bright. The policies we have pursued are showing results. The economy is growing steadily, doing very well this year.  Many jobs have been created.  Just in the first three quarters, we had 123,000 jobs.  If we just calculate, we have 36,000 babies born a year and with123,000 jobs after three quarters, we have already overbooked our babies three-and-a-half times.  But it shows how strong the economy is.  Unemployment is down and the whole city is bustling with activities.

            So this a backdrop in which we meet to discuss and chart our direction for the next five years.  I would like to discuss four of the strategies which we are pursing.  Firstly, investing in our future. Secondly, preparing for our ageing population.  Thirdly, tackling income disparity.  And finally, preparing for our future needs, in other words, paying the bills.

Investing in our future

            Our first priority is to invest in the future of Singapore because this is the way to sustain economic growth, to create jobs and opportunities and to generate the resources that we need.  But that is the utilitarian reason.  The real reason why we have to invest in Singapore is because we believe in this place.  We know it has a future, we want it to have a future, we are going to put our resources and effort into this country to make sure that it will have a future. It is an act of faith.  We will save and invest today, to assure Singaporeans of a better tomorrow.

            How will we do this?  The most important investment is in our people, human capital, which means education.  It is a top priority for the Government. We spend a lot of money on education – about 4% of the GDP every year.  And we will do more to provide a top quality education in all our schools, in our ITEs, polytechnics and universities, not just at the top but across-the-board, in all the schools and in all the streams. So whether you are a top or an average student, whether you work with your mind and write, and whether you work with your hands, you are given the best preparation.  It does not matter which path you take.  We will equip every child with the skills to succeed in a fast-changing world.

            Secondly, we will invest in research and development (R&D) - to develop our intellectual capital and take our economy to the next level because we are not just making things based on other people's prescriptions and recipes and designs, but coming up with our own ideas with which you can create new things, new possibilities and new wealth.  This requires long-term commitment and sustained funding.  It cannot be turned on or turned off, spend when you have money and cut back when you do not have funding.  Scientists need certainty and predictability - many years to work consistently at projects before the germ of an idea is proven, realised and developed and becomes something useful.  A*STAR has done a very important and outstanding job promoting R&D in Singapore. Mr Lim Chuan Poh is taking over from Mr Philip Yeo as Chairman of A*STAR next year in April.  But there will be no change in our approach or emphasis or the resources we will be devoting to R&D. This remains a priority.

            Thirdly, we will invest in infrastructure, keep it up-to-date and relevant to industry needs because what businesses need will change year by year. The quality of the infrastructure - the power supply, the Internet access, the air links, the sea links, the whole environment which enables them to be productive without wasting their time struggling with red tape or battling with Government departments – we will keep that up-to-date and first-class.

            And we also will provide for our own population which grows, we hope year by year, because as we put more people into Singapore, we must make sure that they have the facilities, and land transport is one important area, new expressways and possibly new MRT lines.  These are things that we are presently studying.

            Singapore is small, we are not just talking about above the ground; we are even talking underground. We are planning and we will be building Jurong Rock Cavern, an underground storage facility in Jurong Island. We will excavate the rock, make caverns for storage for oil and petrochemical, and boost our position as an oil and petrochemical production and trading hub.

            We will also invest in our city to make it more vibrant and compelling.  You have seen the plans which I presented two National Day Rallies ago.  We are transforming Marina Bay.  We are rejuvenating Orchard Road. And we are going to be not just a green city but a green and blue city because we will have water in the city.  In MEWR, Dr Yaacob has a plan, which is the ABC Plan - "Active, Beautiful and Clean" waters.  The idea is to have the water bodies cleaned up, beautified, linked up with our parks and green spaces so that they become new community spaces for lifestyle and recreation activities.

            And of course, we are renewing our HDB estates as well progressively - all kinds of upgrading programmes which you know about.  The purpose is to create a quality living environment for every level of Singapore society, including the lower income groups. So whether you live in a rental flat, three-room flat or a private property, this will be a first-class living environment.  It is good for us to live in, and it is also good because it enhances the values of the homes of Singaporeans.    So every corner of Singapore is going to be something special - beautiful, unique and a place that all of us enjoy and feel we own.  And I think people know this.  I met one leader of a neighbouring country recently.  He told me, "Every time I go Singapore, I look at the place, I admire it."  He comes back and tells his own people, "Why can't we do the same?  Singapore is beautiful – improve, match them."  That is the result of our investments.

            But the last investment which I want to talk about which makes all the other previous ones possible is building a first-class public service.  This, like R&D, is a long-term investment in the future.  It takes many years to build up.  You have to have that quality of people, that ethos of service, the system, the efficiency and the performance. And you have to have the whole system work so that whether you are promoting meritocracy, whether you are talking about religious harmony, whether you are keeping Singapore corruption-free or anticipating change or creating an environment for growth, if you press the right buttons and give the right instructions and work with this first-class instrument, it can deliver what Singapore needs.  This is what Mr Lim Swee Say calls "big software". "Small software", you are just working individual departments and solutions, doing computerisation, streamlining  more efficient operations.  But the "big software" is how the whole thing puts together into a first-class system, where all the pieces work.  It is like a precision Swiss watch - every component is top quality, and every component fits precisely into every other component.

            That is our most sustainable competitive advantage in Singapore. Other things people can copy. They see us plant green along the roads - you go to China, many cities now plant green along the roads. They see us clean up Singapore River, some Chinese cities are trying to clean up Chinese rivers   harder, but at least in principle they can do it.  But to see the public service work the way it works in Singapore and to transplant that into another country and make it work there, many countries have asked us to help them to do it.  But we tell them, "We can give you advice on how we have done it in Singapore.  It is not so easy to do it in a different environment.  You have to find out how to adapt this to your circumstances, and do it yourself."  But for us, it is an enduring competitive advantage.

            And that is one of the reasons why we have been so successful in attracting investments here.  If you have been reading the newspapers, you will have noticed some very major investments which have come in over the last few months.  Just recently, Intel and Micron decided to build a $4.7 billion water-fab plant here.  It is going to create many jobs and spin-offs for local suppliers. It is a project which we have been pursuing patiently for a long time with Intel.  EDB has been working hard at it.  I think many generations of case officers must have gone through this, but finally we have landed the big fish.  ExxonMobil is another company close to deciding on a multi-billion dollar petrochemical cracker on Jurong Island.  It is going to be one of their biggest projects.  I met their Chairman and CEO recently, Rex Tillerson.  I had met him in the US, and Minister Mentor had also recently met him in the US.  He came and he met us here again.  I said, "We will do our best to help you.  Not everything is under our control.  Steel prices are global, but what is within our control, we will manage.  We are not necessarily the cheapest.  We are not necessarily the quickest and dirtiest.  But we will offer you a stable and predictable environment in Singapore."  And the Chairman said to me, "That counts for something."

            So, good government is why Singapore workers are able to get jobs and command a premium.  That is why we do not have to be as cheap as workers in China or workers in India or workers in Vietnam.  It is because of the quality of the Government, the quality of the system our people belong to.  You are able to be productive and people are prepared to reward you to work well.

            To maintain the quality of this Government, the political leadership and the civil service, we have to continue to get good men and women, attract them to join and stay in the Government, and offer them fulfilling and competitive careers.  That is why the President talked about this in one paragraph of his Address, and this is something which we will have to continue to focus on in the next five years.

Preparing for an Ageing Population

            Besides investing in our future, we must address social problems that will grow with time.  One of these issues is our ageing population.  You can see it happening before your eyes.  The older MPs will remember 15-20 years ago when they went on house to house visits, the profile of the residents they met, and when they go house to house today, how the profile has changed.  Many more are elderly, many more are old couples living  by themselves, sometimes just one person because the partner has passed away, if they are lucky with children elsewhere in Singapore or nearby who will visit them, if not, living alone, hopefully, with neighbours keeping an eye on them.

            I have circulated some charts which show how this has changed.  I have chosen three snapshots - 1980, which is 26 years ago; 2005, last year; and the next snapshot is 2020, 14 years from now. 

            In 1980, we were a young population.  You look at the bulge, the fat part of the pyramid – it is people in their 20s and 30s.  Very few were old.  Elderly 65 and above - the red tip of the pyramid - 112,000.  Working people were many, older ones were few.  For every elderly person, there were 14 working-age persons, and the median age of the population was only 24 years old.

            In 2005, which is approximately today, the pyramid shape is completely different.  The bulge is now not around 24.  The bulge is now around 50.  The number of elderly has gone up to 291,000.  There is one elderly person to only 9 working-age persons.  The median age has gone from 24 to 36.

            If you project fast forward another 15 years,  2020, the elderly will now be 575,000  -  more women than men, because women live longer.  Each elderly person has only 5 working-age persons to support him.  The median age will have gone up to 40 years old.  If you look at the shape of the pyramid, the bulge is now around 60 and the narrow part is down where the younger population is.  If you project this forward another 10-15 years, that bulge is going to become red, and the working population is going to be where the purple ones are – a small waist supporting a heavy elderly population.

            Let’s look at it another way.  Look at the next chart to get the numbers into something which we can understand.  In 1980, there were 112,000 old people, about one Toa Payoh today - one Toa Payoh of old people if you put them all together, which we would not do.  In 2005, there were 2.5 Toa Payohs.  By 2020, there will be 5 Toa Payohs of old people.

            So, this is a tidal wave which is coming towards us.  In fact, we are the tidal wave ourselves, because the 2020 people will be this generation, many of these MPs who will be standing there and expecting to be supported by the younger generation.  And I know that there are many problems which people who are old and people who can see this coming worry about - housing, financial security. What happens if they have not enough CPF, or their CPF runs out or they live older than expected; working longer, retiring later – how to be able to work longer; healthcare, which is why healthcare is such a hot subject in Singapore.

            We know this.  We started tackling various aspects of this piecemeal - the lift upgrading programme, the barrier free access – these are really about old folks.  Twenty years ago there would have been no market for lift upgrading.  You are young, you walk up one flight of stairs, what is that?  But when you are old and your knees are not so good, or when your parents are wheel-chair bound, that is a big thing.  And when we are wheel-chair bound, that is a bigger thing.

            So, we have the Maintenance of Parents Act, to keep families together so that children help to look after their parents, and do not just dump them on the State, as  Dr Maliki pointed out in his speech last week, it sometimes happens in Singapore.  We had a Tripartite Committee on Employability of Older Workers, which Gan Kim Yong chaired to see how we can get employers to keep older workers working longer, not just to 62 but beyond 62, not the same job but adapted to a different job, and not the same pay but pay appropriate to the new job which they are able to do.

            We had another Committee on Ageing Issues which Dr Balaji Sadasivan and Dr Maliki Osman chaired, to look into the social aspects on how we can try to adapt to this.  But although this work is all valuable, I think we need to go beyond that.  We need to take a holistic approach, and I know who is a good person to ask to do this job - Mr Lim Boon Heng.  Because Mr Lim has had a close interest in this subject for a very long time.  He has given us many suggestions and shared with us many of his insights as to what the problems are likely to be, what we can do about them.  And I have asked Mr Lim Boon Heng because he expects to hand over NTUC to Mr Lim Swee Say at the end of this year.  After he has handed over NTUC, not to retire because he has a new responsibility – continue as Minister in the Prime Minister's Office, oversee this matter of ageing issues on my behalf, and bring together all the efforts of all the different Ministries so that we are able to get the whole of Government response to this whole of Government problem, in fact, whole of Singapore problem.

            On financial security of older folks, I ought to say something a bit more today.  We have not neglected this.  We have provided for the financial security of older Singaporeans, and the most important way we have done this is through the CPF.  We have built up the CPF.  We have put aside substantial savings.  We have allowed Singaporeans to invest these savings in housing, and property values have appreciated for many Singaporeans.  Not all, because some bought on the open market at the peak and their prices have come down.  But if you take the overall picture, the vast majority of Singaporeans - well over 90% - who bought houses have seen their assets appreciate, and they now have a substantial nest-egg put aside in the CPF and in their house as they grow old.

            It is not just wealthy people who have done this.  In fact, even the lowest income groups have been provided for.  And even the bottom 20% of the population -  I showed this data some time ago in the previous Parliament  - have in their homes a significant asset.  First of all, most of them own their houses which they live in.  Secondly, if you may ask what value do they have in their house?  How much is the house worth, after subtracting the amount of the loan which they have not paid back?  On average, this bottom 20% by income has $138,000 worth of equity in the home.  So they are not poor in terms of assets for the future.  They have to service their loan, they have to pay the rest of the mortgage, but we have helped them to have a very substantial asset.  I think we can take credit for that.  I think we can take comfort in that because that means our problem is much more manageable.

            The issue for people like this who have a house worth a lot of money is how can we help them to unlock the value of that house as they grow older, so that they still have a home to live in - maybe a smaller one, maybe a shorter lease - but unlock some of this value and convert it into a stream of income which will  support them and see them into their old age.  We have several ideas.  Mr Mah Bow Tan is working on this and he explained some of the things which we are doing when he spoke in Parliament on Friday.

            Overall, in terms of financial adequacy of our old folks, we have a good system based on individual savings and home ownership.  It ensures that most Singaporeans have put aside enough savings for their old age.  There will be a few who will not have enough, because they have not been in regular work, because they have been ill, because some misfortune has befallen them which is beyond their control, because they do not have a family.  The Government will do more to help them and will help them to do more to help themselves, as we have been doing.  For example, when we had the Progress Package, I paid special attention to the elderly. This is the way forward and when we have future packages, this is what we are going to continue to do.

            But looking after the elderly who are needy through no fault of their own is a much more manageable problem than saying that the State has to provide for the elderly, whether rich or poor.  That is a different proposition altogether.

            We need a sustainable approach.  You saw the numbers.  You see how quickly the number of old people and the proportion of old people is growing in Singapore.  Some MPs and some other commentators outside writing in the newspapers have suggested old age pensions, which they argue every Singaporean should have as of right, because I am born here, I carry a pink IC, I should have an old age pension.  But if every old person, whether rich or poor, is entitled to an old age pension, it is going to impose a very heavy financial burden on the State, which means a very heavy financial burden on young Singaporeans, because they are the ones who are going to be working and paying the taxes, which is where the State will get the money.

            What will happen?  Can you say, "You work, I am entitled to this?"  In Singapore, what do you think will happen?  Some will work.  Others will say sorry, the burden is too heavy, I am off overseas.  I can look for alternatives elsewhere.  I am mobile.  I can go to Hong Kong.  I can go to China, seek my fortune.  I can go to America, Australia, Europe - the world is my oyster.

            Other countries have this problem, because they went on a system of tax and pay for their old folks.  And if you look at the European Union or the US, their social security problems are looming, are predictable.  You can see the train crash coming but you cannot prevent the train from crashing, because if you want to change it, the old folks say, understandably so, "I have already paid for the generation before me.  It is now my turn, and you are telling me no more, the music stops here?”  The music is not going to stop here.  It is going to carry on another generation.  And this is going to cause them a lot of problems and we must not go that way.  Better for each of us to save for our own future needs.  Then we can all enjoy peace of mind and fulfilling lives in our golden years.

Tackling Income Disparities

            The other major social issue which I want to talk about is the stretching out of incomes – the income gap.  Many MPs have talked about this.  We have known about this trend for some time. If you look back, the turning point was 1997 – the Asian financial crisis.  Before that, wages went up across the board.  After that, the pattern was quite different.  I circulated two charts to show how it changed.  From 1990 to 1997, if you look at how income increases from the bottom 20% to the top 20%, all in between, everybody got good income increases.  The bottom income got 7.2% per year, while the top got 8.8% per year. There is a gap, but not a big gap.  Even the bottom got 7.2% which is a very rapid rate of increase of incomes. It means that within 15 years, you double your income.  After 1997, the picture changed.  The top incomes grew more slowly than before, 4% per year.  But the bottom incomes grew a lot more slowly, only 0.3% per year.  It is a completely different pattern.

            The working out of that over the last eight years, since 1997, is what has generated the income gap and the feeling on the ground that cost of living is high, that life is not getting better the way it used to get better.  It is not just the numbers.  It is also the human stories, some of which MPs have shared in this House – how lower-skilled workers have been displaced from their jobs and unable to get back into the workforce, or if they get back to the workforce, find new jobs which are less desirable than the old ones, at lower pay.  And older workers similarly have a problem.  If you are older and also lower income, you have a bigger problem.  This is a problem which affects many countries because the root cause of it is not Singapore, it is not our policies, it is globalisation.  It is the way countries have gone today in a global economy. China, India and Vietnam and others are now impacting the world’s labour markets, with millions and millions of workers at the bottom end, and increasingly not just at the bottom end but also coming up to more skilled jobs.

            So America and Europe have seen this happen.  In America, the median income (the 50th percent), of the average American, or near the middle, has hardly moved even though the economy has grown and top incomes have grown a lot.  Even China and India, where they are highly competitive and forcing change in the rest of the world, have not been spared too because their top incomes are rising rapidly and their bottom incomes, particularly in the rural areas, are still stuck at the bottom.  So their income gaps are widening, causing the Chinese to have to talk about harmonious development and taking care of the lower income groups.  So it is a global problem. 

            The question is: how do we respond?  The IMF World Bank meetings were held in September recently and this was a major topic in all the forums, debates and sessions.  And I discussed this with Larry Summers at one of these sessions.  Larry Summers was President of Harvard – he is now a professor there.  And he put it provocatively – why many people oppose globalisation, why it hurts.  I quote him: “Here’s how it looks to many people out there … China and India are vast - they have a nearly infinite supply of labour that is competent to do a wide range of things … and since it comes off the farm, it comes at a very low price…That’s good if you are a consumer [because you buy their things they make], good if you are a commodity producer [because  you sell them oil, steel, gas], good if you are a superstar who can combine with that labour to be more productive than anybody else. But if you are an American or a European without a fancy college degree, if you are a Latin American, if you are an Eastern European, if you are an African [he is too polite to say if you are a Singaporean], if you are in the vast middle who don’t want to compete on price with Chinese or Indian labour, and aren’t smart enough to start the next Microsoft, you are caught in between … And so, what is [globalisation] concretely going to do to create opportunity for [you]?”

            My response to him went something like this.  Singapore is a small country, we accept the world as it is.  These changes around us – in China and India - are going to happen whether we like it or not.  Can we stop it?  No.  Are they going to continue to grow?  Yes.  Do we have the power to wish them away?  We have no such magic.  So the question is, given that this is the situation, let us sit down, accept it, and ask what is the best strategy for us to respond to this situation.

            Supposing we took the approach of protectionism and we said, shut out the competition, don’t let them in, try to go it alone, postpone change, I think the results will be worse for us.  As it is even for Europe, which is a continental-scale economy, is trying to keep out and slow down the change. In particular,  countries like France and, to some extent, Germany and Italy are paying a high price for resisting globalisation – stagnation, high unemployment, lack of vitality and verve, in contrast particularly to America.  What more Singapore? 

            So we cannot keep it out.  Supposing we squabble among ourselves, supposing we now decided that we will argue over how to divide what we have, instead of going out and working together to increase the pie for everybody, I think all will suffer too.  Because the investments will stop coming, the cohesion will not be there, the steps forward to deal with our next problem over the horizon are not going to be taken and we are going to fall back and become just like all the other countries which are seeing the world pass them by.

            So what we have to do in this situation, with globalisation happening, is to stay united, work together as a team, get our people to understand, first of all, that the world has changed and that we must change with it.  Then, we all understand that we must work together and do our best to upgrade the economy, restructure the economy, retrain our workers, reskill them, adapt ourselves for this new situation. 

            But I think we can take comfort because so long as we, as one country, come out ahead, then, as Singapore, we can generate the wealth and we can ensure that all the citizens will benefit from the country’s success.  If the whole of Singapore were going to be hit negatively and as a result, it is going to lose 10%-20% of GDP, I will still have to lump it, but I think that will be a very, very different situation.  But if the result of globalisation is that I can grow, and there is going to be wealth which can be distributed, then I think I can solve this problem.

            So the question is, for Singapore as a whole, is globalisation good or bad?  I believe that globalisation is a big plus.  Because of globalisation, we have grown and prospered.  Because of globalisation, we are the busiest port in the world, we are a big financial centre, wealth management centre, fund management centre.  Because of globalisation, we are a major tourist destination, attracting talents and attracting investments from all over the world, linking up with our neighbourhood but not constrained to our neighbourhood, and so we are able to reach beyond them, connect up with China, India and the world, and stand out as a first world country in Asia, in terms of job opportunities for our people, and quality of life for Singaporeans.

            China and India coming along – that also benefits Singapore.  Because our people in our businesses are pursuing many opportunities in China, all over Asia, in fact.  I met many of them in China recently, some of them were in Chengdu.  I asked them: how is it?  They said, "Well, my people were at first reluctant to come.  Now they are here, they are very happy.  Some of them do not want to go back."  But we have people all over - in the Middle East, Russia, and Eastern Europe.  We are taking advantage of opportunities overseas.  We are creating opportunities in Singapore.  To put it quite candidly, if China and India were not up, I do not think investors would be competing with one another to build integrated resorts, whether in Marina South or in Sentosa.  It is because of the region that we are able to do this.

            But, of course, globalisation is going to create new problems, and one of the most difficult to deal with will be the income gap. It is now affecting low income workers, but the Chinese and Indian skill levels are moving up, and their aspiration is to move up, and the competition will increasingly be not just with the low level unskilled workers but also increasingly with the middle level skilled workers, and even professionals. For example, our hospitals are outsourcing the reading of x-ray films to India.  You take the x-ray (it is digital) and it is zapped to India on the Internet, an American-board qualified Indian doctor in India reads the film, writes a report, sends it back all within half an hour, which is more than we are able to do with Singapore doctors in Singapore, because they have the people and the resources.  So globalisation is going to put pressure not just at the bottom end but increasingly also at the middle and going up.  And we have to see how this affects us, watch this and manage the situation as it unfolds.

            But the picture is not all gloomy because what we are doing to restructure and to upgrade is showing results.  The economy has bounced back in these last two years, things are getting better for most Singaporeans, including at the lower end.  If you look at the companies which have restructured, the workers down the line have benefited.  You can see this in SIA, you can see this in PSA.  Grace Fu, who has first-hand knowledge of this, explained to Members last week how in PSA, they turned it around and now it is growing again, which they could not have done had they not bitten the bullet and taken the very unpleasant measure to retrench 600 workers three years ago.

            But now that the economy is up, our collective agreements are reaching good settlements, good from the point of the unions - higher annual increments, better bonuses, low wage workers are enjoying higher increments and higher variable payments. The labour market is tightening and wages are going up.  So, that is one reason why we can be confident that we can tackle this problem. 

            The second reason we can take comfort is that I do not see the wage gap widening forever.  Chinese and Indian wages are going up.  The Chinese and Indians do not aspire to be poor forever.  They want to be successful too.  They want to be prosperous.  They want to be middle-class, to travel.  And their wages are going up, year by year.  In Shenzhen, by double digits.  There are shortages of workers, companies cannot find enough, they are thinking of going inland.  But the conditions inland in China are not the same as the conditions in Shenzhen.  So you cannot pay workers the same as in Shenzhen, and they may be cheap, but they are not as productive.

            And in India too.  Not all 1,000 million Indians can man call centres.  Some can speak English – the well-educated graduates.  But as their economy grows, this supply is tightening. And they will have to work hard to expand the supply, and their wages are going up.  So Bangalore wages, some of them are more expensive than wages in Singapore.  So I think that, as this happens, the pressure on Singapore and Singapore workers will ease.  It will not happen overnight.  It may not happen within the next five years. But in 10, 15 years, over time, I believe that is what is going to happen.  And you will have two middle-class economies or more in China and maybe India, and Singapore will have the pressure off us and we would be able to improve our life, provided we work and upgrade ourselves. But meanwhile, 15 years is a very long time.  We have to work and tackle this problem.

            One seductive argument on how to tackle this is that we should go for welfare.  It is not a new argument.  It is not a brainwave which has just struck somebody since the election.  It is an old argument which other countries have had and which we have to know about and deal with.  We have treated welfare as a dirty word.  The Opposition, I think the Workers' Party, has called for a “permanent unconditional needs-based welfare system”.  I think that is an even dirtier five words.

            Why do we say this?  I think we have reason for it.  Some MPs have suggested that the Scandinavians make it work.  They have welfare.  It is successful.  Let us follow them.  But our situation is fundamentally different from the Scandinavian situation.  How so?  They are homogenous societies.  So their people, their cohesion, is much stronger, top and bottom you stay together, you help one another.  They are monolingual, non-English speaking, less likely to emigrate if the pressure is on them.  They are rich in natural resources.  Norway has oil, it is 20% of their GDP; Denmark also has oil; Finland has timber, and they have a large and wealthy continent as their hinterland.  If they go south, they have the Germans, they have the British, they have the whole of Europe.  If we go around us, that is not what our hinterland is like.

            Scandinavians do not depend on multinational investments.  Their model is different.  They go on high taxes - VAT which is equivalent to our GST - at 25%, personal income tax up to 60%.  So every dollar you earn, 60% goes to the state.  For every krona you spend, one quarter of that goes to the state. And the first dollar you earn, maybe 20% goes to the state.  And so, high taxes, high government spending accounting for more than half of the GDP.  Even then, the Scandinavian countries are not without problems.

            In the 1990s, they had a long period of decline.  Over the last decade, the average growth had been less than European growth, 2.2%.  And it is an economy where one third of the people is employed by the government.  Everybody is a civil servant, of some kind or other.  Even then, high unemployment.  Finland has an unemployment rate of around 8%, compared to ours which is below 3% today.  It is a very expensive show to keep going.  Because the basic problem is that high taxes sap the incentive to achieve, to excel, to go and create new wealth.

            We cannot follow the Scandinavian model.  We are Singaporeans.  We are in the middle of South East Asia - English-speaking, multi-racial, completely open to the world.  If we try to do that, talent and businesses will leave, no investments will come.  Singaporeans who cannot leave will be stuck because the ones who are able will leave.  The ones who are not able will have no capable persons who are here to lead the country, to take care of them, and we would be in serious trouble.

            So what is our social model?  How do we ensure that our economy can grow and that Singaporeans can benefit from this growth?  I think we have to take three approaches, emphasise three things.  Firstly, enterprise and drive to create wealth, rather than merely redistributing a smaller pie; secondly, self-reliance rather than welfare; and, thirdly, saving for ourselves and spending within our means rather than taxing for others and borrowing from the future.  So in this way, we can get the people to perform to the best of their abilities; we can keep our economy competitive and flexible; and we can attract more investments and more talent, and improve the lives for all Singaporeans.

            These are the principles which are reflected in the key pillars of our social safety net, which are the CPF system, the 3M system for healthcare, and housing, HDB.  These social safety nets are self-sustaining based on self-reliance and mutual support within the family; we encourage individuals to make the effort to work, we encourage families to save for their own needs and support one another. There is a Government safety net but it is as a last resort, and we have to look at your situation to decide whether you are meritorious and this net should be extend to you more generously or less generously. 

            The Govern­ment has not been ungenerous and we have done a fair amount of transfers.  We have helped Singaporeans, both when times are hard and they have needed help.  We have also done some when times have been good, when we have surpluses to share. So the initials are many.  If I gave you a list, I would need another few pages - Utilities Save, Economic Restructuring Shares, Medisave top-ups, Additional CPF Housing Grant, Progress Package.  Overall, over the last five years, we had spent $10 billion in total.  It is a vast sum.  But I think it was spent within the context of this model - with the CPF, with the 3Ms, with the housing - and it is sound.

            Now, in this new environment, what should we do?  I think there are two things we should do, two broad approaches on how we should react to this new environment.  Firstly, to strengthen the safety nets; secondly, to tilt the balance, shift it, in favour of the lower-income groups who do not benefit proportionately from growth.

            To strengthen our safety nets, we should build on the pillars which are there.  The CPF - we have been reforming it and making changes over the last few years.  I think we need to enhance it to help members to earn better long-term returns on their savings.  It is not easy to get the right way to do it.  That is why we have taken some time, but it is something on the agenda, to find ways to help members to earn better returns on their CPF savings.

            We are improving the 3Ms.  Mr Khaw Boon Wan lives and sleeps with this everyday, and he will tell you more about it tomorrow. Medisave - extending this to other chronic illnesses if the current pilot succeeds, which we will have to make it succeed.  MediShield - providing more risk sharing for large bills through insurance, which MOH is presently looking at, in other words, giving you more insurance and more protection for very large bills.  Of course, you have to pay higher premiums, but I think the premiums can still be affordable.  Then Medifund - to take care of the needy, especially the older Singaporeans who are poor, and who do not have sufficient funds in their Medisave.  We will build this up year by year.  I think we will find ways specifically to look after older, poor Singaporeans who need medical care. Medifund has done a lot of good work.  Just last year alone, in FY 2005, it helped nearly 300,000 patient cases, so some patients were probably helped more than once, and it paid out $40 million.  But we will build on this and do more.

            Housing - we also have a good scheme.  But what we need to do is to help Singaporeans to realise the value of their homes, as I explained earlier.  If we do this, it will help Singaporeans of all income groups.

            But specifically for the lower-income groups, we should do more systematically to tilt the balance in their favour.  Mdm Halimah raised this when she moved the motion and Mr Seng Han Thong talked about it too.  There is a right way to do this and there is a wrong way to do this. The wrong way to do this is to have a legal minimum wage which Mr Chiam See Tong proposed; is to keep out foreign workers and immigrants, which nobody has proposed, but the Workers' Party asked us to think about; is to subsidise individual consumption items, like utilities, electricity, public transport, which is not the way we have gone.  A minimum wage will not work because you will just make it harder for low income people to get work.  Because the employer will say, "Why should I hire him?  I cannot afford to pay him more."  You are putting a burden on the employer which he cannot bear.  It is a social burden.  Keeping out foreign workers and immigrants will not work because if there are no foreign workers here, the jobs may not come to Singapore.  The investments may not come to Singapore.  In fact, they may go elsewhere. And those who are here may leave.  Subsidising electricity or public transport is not a good idea because if you do that, firstly, a lot of the subsidies will go to people who are not poor; and secondly, you are encouraging people to use electricity, burn more fuel, more gas.  Actually, what we should do is directly to assist you and give you a U-Save grant if you are poor.  Then it is up to you, you want to turn on the light, that is what it costs.  You do not want to turn on the light, you save the money and you can take the cash. 

            What we should do is to help the poor directly in a long-term way fundamentally.  How can we do that?  First, through education because with education, we can ensure that the next generation has every opportunity to do well and to break out from the trap of poverty and to move up.  And education starts early.  Dr Lily Neo made a passionate plea for pre-school education.  Mr Michael Palmer also raised this.  I do not know that we will go as far as they would like us to do immediately.  But we have gone some way in this direction and we have schemes like the Kindergarten Financial Assistance Scheme (KiFAS), we have schemes to upgrade the kindergarten teachers, we are putting money into education from kindergarten upwards all the way to primary, secondary and tertiary levels.  As some MPs have noted, per child, the Government is spending $100,000 in subsidies by the time you graduate.  We have the Edusave Merit Bursary (EMB), which is meant for children from lower-income families.  I know some parents who have higher income complain that their children are deprived of EMB, because they did not meet the income criteria.  But the scheme was set up specifically to help the lower-income children to encourage them, to give them an extra boost so that they will do better.  We have other schemes which are open to everybody.  But the EMB is meant to be for the lower-income children who do well, and I think it achieves that objective, and helps them to level up.

            There is one more idea which we can pursue on education.  I have discussed it with Mr Tharman Shanmugaratnam and we are looking at it.  We created Post-Secondary Education Accounts a few years ago.  What this means is that the Baby Bonus, when the child reaches the age of six, if he (or his parents) has not spent it all, we will take that money, put it into a Post-Secondary Education Account so that when the child gets to post-secondary, i.e. ITE, polytechnic or university, he can use it to pay for his school or university fees.  It is a good idea.  But, so far, the first group of children who will have money in their Post-Secondary Education Account is only five years old.  It is going to take them 11 years before they reach 16 and really kicks in.  So, what about the 11 years' worth of students who are older than five and below 16 years old?  They are in schools now. Why not we think of some way to put a bit of money into their Post-Secondary Education Accounts, just like we put into their Edusave Accounts, and when they reach tertiary or polytechnic, then they can use this money which can help pay for their school fees?  Mr Shanmugaratnam thinks it is a good idea.  I asked him, "Are you speaking as the Minister for Education or Minister for Finance?";  he says, "Both".  So, I think it is something which we will pursue.

            Next, HDB home-ownership.  It is still important to build up assets of Singaporeans and build up more for the lower end.  In the past, all families enjoyed the same housing subsidy, regardless of income.  It can be a household family income of $8,000 or $1,000, but when they buy the same flat, you pay the same price, you get the same subsidy on the loan.  But, actually, we should tilt in favour of the lower end.  If you are from the lower-income, poorer but making the effort, we should give you a bigger subsidy when you buy a HDB flat, and we should pay that subsidy into your CPF.  If you are well-off or middle-income, you can still buy the flat, but I do not think you need quite as big a subsidy.  And that was the idea of the CPF Additional Housing Grant.  If you are at the lower end, you can get up to $20,000 more when you buy an HDB flat.  That is quite a lot of money, because a 3-room flat can cost up to $110,000 if you buy it from the HDB.  $20,000 is nearly an 18% discount on the value of the flat.

            This is an avenue which we will continue to pursue and, over time, we will see how the grant works out and increase the grant so as to continue to do more for lower-income Singaporeans.  We want the lower-income to own a property which is valuable, to have something to live in and to retire on, and this is a good way to do it.

            The third thing we will do for the lower-income group is Workfare.  We first introduced Workfare in the Progress Package this year.  About 330,000 low-income workers benefited from the first payout of Workfare on 1st May this year, and they received $150 million all together.  On 1st May next year, there will be a second tranche, and more workers will benefit from that because I think there are more people who are employed this year.  It was a once-off measure, but we introduced it having in mind that this is the direction which we would need to go in the long-term.  So we are experimenting and testing it out.

            It is a sound principle.  If you are willing to work, jobs are there.  So the minimum you should do, if you want us to help you, is to help yourself by trying to get work.  And if you work, then the Govern­ment will top-up what you earn through your own efforts.  We will top up something to help you meet your current expenses and costs of living, in cash.  We will top up something to provide for your future, i.e. in the CPF, for Medisave, housing and retirement. 

            This is how it worked, and I think it fits in quite nicely with the way the CPF scheme works, because for lower-income workers earning below $750, the CPF contribution rate from the employees' side is lower, as we want to make sure that he has enough to live on and we accept that he is not able to put aside quite as much for the future.  But with Workfare, I can help to make good this shortfall in contribution from the employee to his CPF when he is working, so that he will have enough for medical, retirement and his house, and he will have enough because he is taking back in cash more of what his employer pays him, to meet his current needs.

            We will implement more workfare schemes in future.  The precise mechanisms and formulas, we will experiment.  We will try out different forms.  But the principle will be the same - you help yourself, we will help you.  It is essential for us to tilt the balance in favour of lower-income Singa­poreans, because globalisation is going to strain our social compact.  That is why we are doing all this.

            But I would like to caution Members that we should proceed with care.  I know a lot of Members have used the words "slippery slope".  They will appear all over the Hansard if you search for them.  But it is a really slippery slope.  Many social welfare schemes which have ended up in serious trouble have started off with good intentions.  The New Zealanders started like this in the 1930s and ended up with a system which they could not afford and have had to unwind.  The British started off with such a scheme.  As Dr Goh Keng Swee once described it, the conception was immaculate, but the way it worked out was not immaculate at all.  The scheme became a heavy burden on British society - national health, social welfare, state pensions.  The economy dragged until ex-Prime Minister Margaret Thatcher came along and started to try and put some of these right.

            So we have to be very, very careful - experiment, learn and modify as we go along.  Do not go overboard and end up with excessive welfare for the lower-income, and end up encouraging families to break up and to abandon their old folks.  Do not over-extend subsidies to people who are not poor, because if I grant a lot of benefits for people who are not poor, then what I will have to do is to tax them, take money from them so that I can give them back the services and spend the money on their behalf, which I do not think Singaporeans need my help to do.  Once we have made a mistake, unwinding is impossible, because once people have been given welfare benefits, it becomes an entitlement; it is permanent.  There will be budget deficits, taxes would have to keep on going up and we will be in the Scandinavian situation.  So if we compare the Americans and the Europeans, there is a difference between the Americans with their vibrant competitive economy and the Europeans with their heavy burden of social spending.

Preparing for Future Needs   

            If we do more for the lower-income and the elderly who are needy and also invest more for their future, then Government spending has to go up.  There is no other way.  We have kept this Government lean and trim.  The Government spends only 14%-15% of the GDP, i.e. $1 in $7 approximately.  This is lower than virtually any other country in the world.  The Europeans, as I told you, spend more than half their GDP.  We are even lower than Hong Kong, which spends 18%-19% of its GDP.  So Singaporeans are really having a very cheap Government - high quality but cheap Government.  But we will have to spend more.  I think this is inevitable over the next five to 10 years.

            Infrastructure investments are going to cost money.  We are spending $5 billion on R&D over the next five years.  For healthcare, as medical technology improves, as our people age and we go into hospitals more often and get more treatments, spending is bound to go up.  It has already gone up over the last five or seven years.  And year by year, it will continue to go up.

            Social spending has been going up.  Dr Vivian Balakrishnan showed the House some numbers last week on how MCYS' welfare spending has been rising, but those are quite small, compared to what we will have to spend if we start to tilt the playing field and start to say, across the board, give people who are in the lower-income group an extra boost and in many years, not just once in a while.  Therefore, it is better for us to start building up our resources now, so that when we need to spend more, we will have the means to do so.

            Therefore, comes the question: how do we finance this?  Mr Inderjit Singh, in his speech last week, asked about our reserves.  I was surprised that nobody else did.  But it is a pertinent question.  The reserves are something which we have built up for a rainy day because we are highly dependent on imports.  We have no natural resources.  That is all we have and we have to husband them carefully and use them only when we really need to.  There is an argument, of course, that the present generation accumulated the reserves, so we also should have a claim, especially when we grow old.  I think this is a valid argument.  But we have to balance this argument against the claim of future generations - our children and grandchildren.  We want to give them a better life, more security, and to let them start off with something a bit more than we started off.  I do not think we want them to say, "Our parents' generation saved a lot of money and they spent it before they left."  So we have to balance the claims of the present and future generations.

            In fact, that is what we have been doing.  We invest the reserves prudently.  Out of the returns from the investment, out of this kitty, we draw an income stream which will fund Government spending and enable the present generation to have its fair share.  But we keep the nest-egg intact, so that it will grow from year to year and be something which we can pass on to our children.

            Under the Constitution, the Government can spend up to 50% of Net Investment Income (NII) on past reserves, and 50% of Net Investment Income has to be kept for the future.  I believe this is the right formula.  It is a fair balance between the claims of the present and the future generations, and will protect our reserves, our seed corn, from being depleted.  But we can refine the implementation of this 50% rule because, currently, the definition of Net Investment Income only includes dividends and interest.  This is not quite right, because a significant part of the returns on our reserves are capital gains.  We should look at total returns on the reserves as the basis for deciding how much it has grown.  Therefore, we intend to change the definition of Net Investment Income to include realised capital gains.  This will increase the amount which we can draw on average.  Some years, if the markets are bad, we may end up with less but, on average, we should end up with more.  To do this, we need to amend the Constitution.  We will amend the Constitution and work out the details with the Elected President.

            But it is not sufficient just to depend on NII to meet our future spending needs.  We also have to plan ahead to make sure that we have enough revenues, including from taxes.  Direct taxes cannot go up.  In fact, we have been bringing down our direct taxes, i.e. personal income tax and corporate tax.  We have brought them down to 20% over a long period of time.  In fact, we may have to lower them further.  Hong Kong is competition for us.  Their corporate tax is 17.5%.  They are thinking about GST.   If they do a GST, they may decide to bring their corporate tax rate down and we may have to follow suit.  The Central and Eastern European countries are also very competitive.  Many countries in the former Soviet bloc, e.g. Poland, Hungary, Slovakia and the Czech Republic, have corporate taxes which are below 20%.  Slovakia and Poland are just 19%.  In the Baltics, e.g. Latvia and Lithuania, they pay only 15% tax.  They are highly competitive.  Many of them have joined the EU so they have an additional advantage over us and increasingly, they are direct competition to us. They will attract investments which may otherwise come to Singapore and we have to watch them.  If we have to bring our corporate tax down, every percentage point we bring it down, from 20% to 19%, for example, will cost us $400 million a year.  It is big money.

            Therefore, we need to consider raising indirect taxes, in other words, the Goods and Services Tax (GST).  It is now 5%; I think we need to push it up to 7%.  Even 7% will still be lower than nearly all other countries which have GST or VAT.  But if we raise it from 5% to 7%, it will give us precious extra resources to implement social programmes like workfare later on.

            Our aim is to help lower income groups and the elderly, it is not to increase their burdens.  So when we implement the GST increase, it is not just a GST increase; it is a package which will fully offset the impact of the GST for these groups and begin to strengthen the social safety nets and tilt the balance in favour of the lower income Singaporeans.

            We will not just raise the GST, but we will have a comprehensive offset package.  We know how to do this. We have done it twice before - in 1994 when we introduced the GST and then, in 2003, when we raised the GST and implemented the Economic Restructuring Shares (ERS) package.  And we made sure that a large segment of Singaporeans ended up not worse-off.

            This time again, we will do a comprehensive offset package, but we will weight it more heavily towards the middle- and especially towards the lower-income group and the elderly poor.  I am quite confident that we will be able to do this.

            When should we do this - earlier or later?  I think it is better to do this now when the economy is doing well.  Then we can manage the adjustment. We have the flexibility to adjust our programmes depending on how things turn out because over the next 5-7 years, we do not know what the trend of globalisation will be like.  We do not know what difficulties will come our way.  Better get this done, settled, ammunition prepared, powder dry.  Any troubles, we will be equipped to cope with them.  We are working out the details. We will announce it in Budget 2007 which will be on 15 February 2007.  Mr Tharman Shanmugaratnam will deliver the Budget as the Second Minister for Finance.


            Sir, we worry a lot about the challenges ahead, and especially about the social issues which we have to tackle.  But let us see these issues in perspective.  Let us remember, as Ms Josephine Teo said, "to celebrate what is right about Singapore".  And we have a lot to celebrate. Our prospects have never been brighter.  Our overall environment is positive.  Our economy is vibrant. Our people are well-educated and equipped to excel in a globalised world.

            I received several visitors from Africa recently, including President Pohamba from Namibia.  He had not visited Singapore before.  He congratulated me effusively.  He said, "As soon as I arrived at the airport, the airport itself, the drive into the city, the streets and buildings, it is like paradise.  I have not been up there.  I do not know anybody who has been up there who has come back to tell me about it.  But from everything which I have read, this is what paradise is like.

            I think we should improve on what we have and not just be satisfied that it is like paradise.  But we are in a strong position.  Let us stay united in purpose.  Let us stand firm in our determination to succeed.  And let us work together to build a competitive economy and an inclusive society.