Tackling the Economic Downturn

Transcription

1 Tackling the Economic Downturn By Lee Hsien Loong Introduction The Singapore economy is in a severe slowdown. Earlier this week BG George Yeo and Dr Richard Hu announced the third quarter economic results. Our economy contracted by 5.6% compared to a year earlier. In annualised quarter to quarter terms, the contraction was 9.9%. The sustained contraction over the last 3 quarters is the steepest that Singapore has experienced. On 25 July, the Government announced a package of measures worth $2.2 billion to help Singaporeans and businesses cope with the downturn. BG George Yeo made clear in his statement in Parliament that this was only an interim package, as the direction of the economy and the severity of the downturn was still uncertain. The Government would monitor developments closely, and stood ready to do more if conditions worsened. Since that interim package, conditions have indeed worsened. This was happening even before the terrorist attacks of 11 September. But the 11 September attacks caused major shocks to the US and economies around the world, both shortand long-term. The situation is still fluid, and no one can be certain how events will play out. The US is in all probability already in recession. For Singapore in 2002, MTI s best guess at this moment of uncertainty is that growth next year will fall somewhere between 2% and +2%. Over the next 12 to 18 months, we can expect low growth, more retrenchments and higher unemployment. Even as we cope with the cyclical downturn, we will need to make structural changes in our economy to adapt ourselves to the permanently altered environment. Externally there will be further disruptions, as the US and its coalition partners attack terrorist organizations in Afghanistan, with a high probability of the terrorists striking back. We must therefore psychologically prepare ourselves for a protracted period of difficulties. Second Off-budget Package The Government will implement a major package of measures to help the economy to tide over the downturn. These measures fall into 8 categories: Tax and fee rebates and reductions for businesses and individuals; Assistance to local enterprises; Property market-related measures; Acceleration of infrastructure projects; Employment Assistance for workers and executives; Help for the lower income and unemployed; New Singapore Shares; and Measures related to wage costs. These measures should help all Singaporeans, especially the lower income earners and unemployed. They should also help businesses, especially the small and medium

2 enterprises. Let me elaborate on each of them. Tax and Fee Rebates and Reductions The purpose of this category of measures are two-fold. We want to encourage enterprise, because the way to recover is for the private sector to create new opportunities and generate more wealth. We also want to reduce business costs, so that businesses can stay afloat and minimize job losses. Promoting a Conducive Environment for Enterprise Corporate Tax Rebates The Government will grant companies a rebate on their corporate income tax payable for Year of Assessment The rebate will be 50% on the first $25,500 of tax payable, and 5% for any subsequent tax payable beyond that. This will cost the Government $570 million. For Year of Assessment 2002, a corporate tax rebate of 5% will be granted. This will cost $405 million. This is on top of the lower corporate tax rate of 24.5% and the new tax exemption scheme announced in the Budget Statement this year, which also takes effect from Year of Assessment 2002 (in the new scheme, 75% of the first $10,000 and 50% of the next $90,000 of chargeable income will be exempt from tax). These corporate tax rebates will not apply to Singapore dividends, nor to income earned by non-resident companies which is subject to a final withholding tax. Personal Income Tax Rebate In his Budget Statement this year, the Minister for Finance announced a 10% personal income tax rebate for resident individuals for YA2001 and a cut in personal income tax rates with effect from YA2002. For YA2001, the Government will grant a further 5% personal income tax rebate, at a cost of $250 million. This will bring the total personal income tax rebate for YA2001 to 15%, and result in total tax savings of $750 million for taxpayers. For YA2002, the Government will grant a 10% tax rebate at a cost of $400 million on top of the reduction in the personal income tax rates. Reducing Business Costs Increased Property Tax Rebates for Commercial and Industrial Properties The July package included a 25% property tax rebate for commercial and industrial properties, for one year with effect from 1 July In view of the poor economic outlook, we have decided to be more generous. Instead of the 25% rebate, the Government will give a fixed rebate of up to $8,000 per year to all commercial and industrial properties, plus a further rebate of 30% for any balance property tax payable. This will mean that many SMEs who own their premises, including more than 90% of HDB shop owners, will pay no property tax. The new rebate scheme will take effect from 1 July this year and end on 31 December Since property tax is payable in advance, owners who have already paid their tax for the second half of this year will receive refunds from IRAS.

3 The total tax savings from this measure is $880 million. JTC and HDB will pass on these savings to their tenants. The Government encourages other landlords to do so as well. Reduction in Stamp Duty Rates The Government has also decided to reduce stamp duty rates by 30% on all instruments. The new rates will apply to chargeable instruments (basically relating to property and share transactions) executed on or after the 13 October, and expire at the end of This will reduce transaction costs for businesses and individuals who enter into agreements where stamp duty is payable. It will cost the Government $290 million. Reduction of Petrol Excise Duty and Diesel Tax The petrol excise duty is currently pegged at 40% of pump price, subject to floor rates that vary for the different grades of petrol. With effect from tomorrow, 13 October, we will reduce the petrol excise duty from 40% to 35%, and also cut the floor rates proportionately by 5 to 6 cents per litre. This measure will be in place until the end of 2002, and be subject to review after that. The Government expects the oil companies to pass on the savings arising from the reduction of excise duty fully and promptly to motorists. This reduction in petrol duty should save motorists $120 million. Taxis today pay a Diesel Tax of $5,100 per year. Its purpose is to close the gap between the fuel cost of diesel-powered taxis and petrol-powered private motor cars, since no duty is imposed directly on the sale of diesel, unlike petrol. In line with the reduction in the petrol excise duty, the Government will reduce the Diesel Tax for taxis by $400, to $4,700. Revenue loss is $8 million per annum. The Government expects taxi companies to pass on the savings to their taxi drivers by lowering the taxi rental rates. Road Tax Rebates The Government will also give a one-time $100 road tax rebate for cars, taxis, goods vehicles and buses, and a one-time $20 road tax rebate for off-peak cars, weekend cars, motorcycles and trailers. These rebates will be implemented on 1 Jan 2002 for one year. The revenue foregone is $59 million. Landing Fee Rebate Lastly, the airline industry is reeling from the effects of the 11 September terrorist attacks. Airlines all over the world have been badly affected in terms of passenger and cargo loads. In light of the current turmoil in the industry, CAAS will give a 10% rebate on landing fees to all airlines operating out of Changi and Seletar Airports. This will take effect from 15 October 2001, and remain in place for one year. Thereafter CAAS will review the situation again.

4 This reduction will cost CAAS $20 million. Assistance to Local Enterprises Let me turn now to measures to help local enterprises. Local enterprises form a significant part of our economy. They make up more than 90% of the total number of establishments, and account for more than half of total employment. It is thus important that we help them to ease the pain of the economic downturn. Improved Access to Funds One key issue for local enterprises is access to funds. The Government already has in place the Local Enterprise Finance Scheme (LEFS), an affordable, fixed interest financing programme designed to encourage and assist local enterprises to upgrade, strengthen and expand their operations. The scheme is administered by the Productivity and Standards Board (PSB) through 28 participating financial institutions. The Government will enhance the LEFS to allow local enterprises to have easier access to funds. First, to help SMEs reduce their interest expenses, the Government will reduce the interest rates for both new and existing LEFS loans by up to 1 percentage point, depending on the duration of the loan, for a 1-year period starting from 1 November This will increase the interest rate subsidy from the Government by $38 million. In addition, to help SMEs access to funds as banks become more cautious in the downturn, the Government will increase its share of risk under the LEFS from 70 % to 80 % for new loans, for 1 year from 1 November This will apply to all types of LEFS Loans. To help the very small companies, a new micro-loan programme under LEFS will be launched. To kick it off, the Government will increase the loan line by $250 million over 5 years and the interest subsidy by $14 million over 5 years. A Loan Insurance Scheme will also be launched to help SMEs, especially those who lack collateral or track record to gain better access to loans. $6 million will be set aside to pay for the cost of insurance premium over a period of 5 years. This should be sufficient to insure $500 million in loans. Enhanced Package for Hawkers under the Hawker Centers Upgrading Programme (HUP) The Government has a Hawker Centers Upgrading Programme (HUP) to upgrade HDB, JTC and ENV hawker centers in Singapore, and to help stallholders who are not doing well to retire from the business. When a hawker center is upgraded, stallholders who qualify are given the option either to operate in the upgraded centers, or to take ex-gratia cash grants and give up their trade. If the center is selected for standard upgrading, then first generation stallholders who are 62 or older qualify for the cash grant. If the center is selected for re-configuration and re-building, then all first-generation stallholders qualify. The cash grant for a market stallholder is $15,000,

5 while that for a cooked food stallholder is $19,000. To make the cash grant option more attractive, we will raise the ex-gratia payments to $18,000 for market stallholders and $23,000 for cooked food stallholders. Furthermore, we will relax the qualifying criteria, to offer the grants to all first generation hawkers regardless of age, for all HUP programmes, whether the center undergoes re-configure/re-build or standard upgrade. This will apply to all stallholders affected by the HUP since 1 July The Government will select 10 more hawkers centers for the HUP, in addition to the 19 centers already selected. These measures will help the less viable hawkers to exit and allow more enterprising ones to come in and make full use of the upgraded centers. The Government will also implement other measures to help hawkers. These include staggered increase in rent for those who are due to pay market rents, subsidized rental for hawkers renting alternative stalls in another hawker center during the period when their centers are closed for upgrading, a removal allowance for all stallholders who wish to return to the upgraded centers and further rental rebates for stallholders paying market rentals in all hawker centers from 1 Nov 2001 to 31 Dec Land/Property-Related Measures With the external outlook uncertain and the economy in recession, the property market has been in decline. No Government can guarantee to maintain property prices, which have to vary with market conditions and the property cycle. However, in Singapore the Government is a major supplier of land for property development. The Government therefore should try to phase its land sales to be a stabilizing influence on the property market, and avoid doing anything to exacerbate an oversupply situation. Government Land Sales Programme The Government has reviewed its land sales programme for 2001 and For residential sites, there are currently two sites where tenders have been launched and will close in end-oct The Government will proceed with these tenders. Interested tenderers may have expended much effort in preparing their bids, and the Government should not change the rules mid-stream. We will award the tenders if the respective reserve prices are met. However, the Government will withhold the launch of the last 4 sites in the Confirmed List of the 2H2001 Government Land Sales Programme, originally planned for release later this year. Instead, it will transfer these sites to the Reserve List. For 2002, the Government will suspend the sale of residential and commercial sites from the Confirmed List. However, sites will still be made available on the Reserve List, and interested parties can apply to the Government to release them for sale. This will provide flexibility in case market conditions improve. The Government will also defer all sale of industrial land for the rest of 2001 and In addition, we will extend the Project Completion Period for all government industrial land sale projects. Currently, developers of industrial sites are granted

6 Project Completion Periods of 8 or 10 years. This will be extended by 2 years for land sale sites already awarded, thus increasing the Project Completion Periods to 10 or 12 years. Anti-Speculative Measures on Property In 1996, at the peak of a property boom, the Government introduced anti-speculation measures to cool down the property market. These proved timely and effective. Subsequently when conditions changed, most of the anti-speculation measures were lifted. However, a few measures have remained, notably the income tax on gains from sale of property within 3 years of purchase, the restriction on non-citizens borrowing in Singapore dollars to finance property purchases, and the 80% limit on bank lending for mortgage loans. As part of this comprehensive package, the Government has reviewed these remaining anti-speculative measures. Presently, part of the gains from the sale of property within 3 years of purchase is subject to income tax at the individual or corporate tax rates. The Government has decided to remove income tax on gains from such sales of properties contracted on or after the 13 October. Presently, each Permanent Resident is limited to one Singapore dollar loan, to purchase a residential property in Singapore for owner-occupation. Foreigners who are not PRs and non-singapore companies are not allowed to obtain housing loans in Singapore dollars. These restrictions will be lifted with immediate effect. Over the last few years MAS has progressively lifted restrictions on Singapore dollar lending to foreigners which are not critical for stability reasons, and this restriction on Singapore dollar housing loans is one of the few remaining. However, the Government has decided not to lift the 80% loan-to-valuation financing limit for mortgage loans. Although this rule was introduced in a property boom, its purpose was not only anti-speculative, but also prudential. The requirement that the owner of the property puts up 20% of the value in cash ensures a sufficient level of owner equity in the property. It lowers the risk of default, and reduces the likely loss to the bank in case of a default and a forced sale of the property. In order to allow banks to lend more than 80% of the value of the property, it would be necessary to introduce some form of mortgage insurance for the portion of the loan exceeding 80% of the value. However, such mortgage insurance does not presently exist in Singapore, and we do not know whether it is feasible. MAS is studying this matter, but it is not likely that we can introduce such mortgage insurance soon. Exemption of Property Tax for Land Under Development In 1998, the government allowed property tax exemption for land under development in view of the difficulties faced by the property sector. This measure was withdrawn in the Budget Statement of 2000 when the property market showed signs of recovery and transaction volume picked up. This measure will be reinstated with immediate effect. However, the property tax

7 exemption will be given for a period of 2 years instead of 5 years. Projects that start foundation works on or after today will qualify for exemption from property tax from the date of commencement of foundation works until the date of Temporary Occupation Permit or the 11 th of October 2003, whichever is earlier. For projects that have already started foundation works, the period of exemption will start from today. The Government will monitor the property market and economic conditions and review whether to extend the exemption after 2 years. The revenue loss is $70 million per year. Rental Rebates for Commercial and Industrial Tenants Various government agencies will also be extending assistance to tenants of properties under their charge. JTC, for example, will give a 50% reduction in refurbishment charge for upfront payment lessees. It will also reduce the required rental security deposits from 3 to 2 months for tenants and temporary occupation license holders who make payment through GIRO. A further 10% rental rebate will be given across the board to all JTC tenants until December 2002, with effect from November To help tenants of HDB commercial and industrial properties, HDB will extend the existing rental rebates, ranging from 10% to 30%, to December HDB will give a further 10% rental rebate to all HDB commercial and industrial tenants, from 1 Nov 2001 to 31 Dec In addition, for tenants whose rent are being adjusted to market rate, HDB will spread out the rental increase over the remaining term of their tenancy. These measures will benefit 8,400 tenants of HDB commercial properties and 10,200 tenants of HDB industrial properties. They will cost the Government an estimated $103 million. Other government agencies and statutory boards will also be extending rental rebates to their tenants. Acceleration of Infrastructure Projects We recognize the limitations of stimulating the economy through pump priming. However, it is still worthwhile to bring forward selectively the building of economic and social infrastructure. This way we will take advantage of lower prices, help the economy, create some jobs, and enhance our long-term capabilities. Government agencies have identified more than 100 infrastructure projects that can be implemented quickly within the next 18 months. These include upgrading the NUS campus, expanding NTU teaching facilities, and constructing new polyclinics and hospitals such as the Jurong West Polyclinic and Simei Community Hospital. In total, accelerating these projects will inject some $3.5 billion into the economy, with $280 million coming on-stream in FY 2001, $1.1 billion in FY 2002 and $2.1 billion in FY Employment Assistance for Workers & Executives Let me turn now to employment assistance for workers and executives.

8 More Singaporeans are being retrenched, and those who are unemployed are finding it harder to find new jobs. This is both because of the economic slowdown, and also because of the rapid restructuring of our economy. Many more are anxious that they too may lose their jobs, and find themselves in the same difficulty. Older workers face the most serious problem, because they find it harder to adapt to new jobs, and they also carry heavier family responsibilities. An important part of this package is therefore to help these retrenched and unemployed workers. The main approach is to encourage and fund training and skills upgrading programmes. These are critical for lifelong employability, and are the real antidote to unemployment. Workers and executives with up to date skills have a better chance of finding good jobs, and a lower risk of redundancy. We must therefore help as many workers and executives as possible to upgrade quickly. The NTUC has set up a Taskforce on Employment, led by Mr Heng Chee How, Deputy Secretary General of the NTUC. This Taskforce has recommended to the Government several measures to promote worker training and upgrading. The Government has accepted these recommendations and will give its full support to the work of the Taskforce. Expansion of People for Jobs Traineeship Programme The Taskforce has recommended that the Government expand the People for Jobs Traineeship Programme. The Ministry of Manpower introduced this as a pilot programme in June. It is a vocational conversion programme for older workers, that seeks to help unemployed workers aged 40 and above to make career transitions. Companies participating in the programme set up traineeship/ mentorship arrangements to help newly recruited older workers to fit into the new jobs and work environment. For each unemployed older worker that the participating company successfully places, the company receives 50% wage support per month, up to a maximum of $600, for 3 months. Based on experience gathered from the pilot programme, there is keen interest from employers. Presently 60 companies are participating in the programme. Many more companies have indicated that they will also come forward if more funding support is available. We need to extend the benefits of this programme beyond lower income production workers, to skilled workers and management staff. Unemployment among this group is rising, as industries consolidate and restructure, and companies streamline operations to reduce layers of middle management. We cannot slow down this restructuring, but we can and will help affected workers to find new jobs. The Government will expand the scale of the People for Jobs Traineeship Programme significantly. It will raise the ceiling on the 50% wage support from $600 to $2,000, which will cover skilled workers and management staff. We will also lengthen the period of support from 3 to 6 months. The enhanced programme will run for 1 year, starting 1 November $200 million will be set aside for this enhancement. This will cater to some 20,000 traineeship places. Whether all the places will be taken up will eventually depend on

9 the employers and unemployed workers. Enhancement of Skills Redevelopment Programme The NTUC Taskforce has also recommended that the Government enhance the Skills Redevelopment Programme, to make it more attractive for employers to hold and train their workers and for unemployed workers to upgrade their skills. The Government accepts this recommendation. Currently, unemployed workers and workers on temporary layoff attending full-time and part-time SRP training receive training allowances. The Government will increase this training allowance. For those taking full-time training courses, the allowance will increase from the current $600 per month to 75% of the last drawn salary or $1,000 per month, whichever is lower. Those on part-time courses will have their allowance increased from $3.80 to $5.70 per hour. Employers who send their workers for training receive absentee payroll support under the SRP. This will also be increased to either $6.10 or $6.90 per hour per worker, depending on the age of the worker. These enhancements to the SRP will be for 1 year, starting 1 November. They will cost $41 million. Increased SDF Funding Support To complement the improvements to the SRP, the Government will increase funding support for training through the Skills Development Fund (SDF). Currently, the SDF supports 80% of the fees for certifiable skills training from courses. This will be increased to 90%, for 1 year starting from 1 November With this increased support, the value of commitment for certifiable courses is projected to be $200 million, generating 210,000 training places for the 1-year period. To signal its continued commitment to worker training, the Government will also make a one-off, top-up of $500 million to the SDF. This is expected to support 1.9 million training places in total over 3 years. With the top-up, the SDF can further intensify its promotion of skills upgrading, particularly in certifiable skills. Efforts in continuing education and training will also be stepped up. Matching Grant for NTUC Education and Training Fund The NTUC set up an Education and Training Fund or N-ETF in October Since then, the Fund has supported over 57,000 training places, with nearly 20,000 training places supported in 2000 alone. The N-ETF is an endowment fund with $40 million, comprising $10 million raised by the labor movement and a 3-to-1 matching grant of $30 million from the Government. Earnings from the fund are used to support the training of union members in approved courses. The Taskforce has proposed, and the Government has agreed, to inject a further $15 million into the N-ETF, on the same 3-to-1 matching basis. Intensification of Employment Assistance Services Despite the economic downturn and the larger numbers of unemployed, there are

10 still jobs which go unfilled because of mismatches in expectations between employers and job seekers. MOM has organized many job fairs, but often with discouraging results. We must strive harder to improve our job matching efforts and promote available job opportunities to the unemployed. CareerLink, MOM s one-stop career center, will be beefed up to meet the increased demand of unemployed Singaporeans for job assistance. In addition, the employment assistance services of the distributed CareerLink network, consisting of the CDCs, self-help groups, NTUC and SPEC (Singapore Professionals and Executives Cooperative), will be strengthened. Foreign Worker Policy As job prospects have diminished, there have been more calls for the Government to limit the inflow of foreign workers in order to protect Singaporean jobs. But this would be counterproductive. It is a fallacy to imagine that the economy contains a fixed number of jobs, so that every foreigner takes away one Singaporean s job. Properly managed, the admission of foreign workers actually helps to create more jobs and to protect some existing jobs for Singaporeans. The issue of foreign workers is perhaps most sensitive in the middle levels of the job market, i.e. the skilled workers and professionals. This group of foreign workers often competes directly with Singaporeans who have similar training and skills. But our economy needs them, just as it needs construction workers, domestic workers, and factory workers at the lower end, and top-notch scientists, managers and professionals at the top. The Government s approach to managing foreign workers and foreign talent is to control tightly the lower end of the skills spectrum, and to relax the restrictions progressively for higher skilled workers and professionals. This approach is sound. In this downturn, we should not turn foreign workers away, particularly skilled workers. That would hurt ourselves directly. It would also damage our reputation as an open society which welcomes talent from around the world, which we have taken many years to build up. What we can and should do is judiciously to tighten the criteria for skilled workers and professionals, so that we raise the quality of the foreign workers who come here to help Singapore compete for global investments, and ensure that the quality of foreign manpower admitted to Singapore is compatible with our level of economic development. In the decade since 1990, the skills and educational profiles of the local workforce have improved tremendously. The profile of foreign manpower admitted should not retard the improvement in our workforce profile. Instead the foreign worker profile should be compatible with the rising need of industries for more skilled workers. First, criteria for employment passes. Foreigners with acceptable degrees, professional qualifications or specialist skills generally work in Singapore on an employment pass. The Government will raise the minimum salary to qualify for an employment pass from $2,000 to $2,500 with effect from 1 December $2,500 will be comparable with current starting salaries of local graduates. This higher salary

11 cutoff will apply to new employment pass applications, and employment pass holders who change employers on or after 1 December Those who continue to work with the same employer will be allowed to renew their employment passes. Second, criteria for work permits which attract low foreign worker levy. We have a two-tier levy system for work permits a higher levy for unskilled workers, and a lower levy for those who are better qualified. Hitherto, to qualify for a low levy work permit, a person needed NTC-3 (practical) technical qualifications, or other academic qualifications deemed acceptable. Currently, more than 50% of work permit holders are on low levy, but a large proportion have low education qualifications. We will be raising the qualifying standards for low levy work permit holders, to ensure that a greater proportion of them have at least completed secondary school education or possess NTC-3 (practical) qualifications. As with the change in the salary criterion for employment pass holders, the new criteria for low levy work permits will be effected for new work permit applications, or those who change employers on or after 1 December Helping The Lower Income and Unemployed In addition to the economic measures above, the Government will extend a helping hand to lower income households, or those who have lost their jobs. They are hardest hit, and need assistance the most to tide over this difficult period. Freeze in undergraduate and polytechnic tuition fees To help students whose families are affected by the slowdown, the AY2002 tuition fees for polytechnic and undergraduate courses, including medical and dental courses, will be frozen at the existing levels. MOE will review the fees for AY2003 in the 2 nd half of The total revenue loss to the Government is $16 million. Many graduates are finding it difficult to get a job after graduation, and so face difficulty in repaying their tuition fee loans and study loans. Foreign students who took up tuition grants with a 3-year bond to work in Singapore, find that they cannot fulfil their obligations not because they do not want to, but because the job market has shrunk. The Government has therefore decided to suspend for 1-year repayment of tuition fee loans and study loans for all university and polytechnic graduates, from 1 November 2001 to 31 October Non-Singaporean graduates of our universities and polytechnics who had received tuition grants, are required to serve a 3-year employment bond in Singapore. We will allow them to suspend this bond for 1-year, if they fail to find a job upon graduation or lose their present job during their 3-year bond period. After the suspension, they will be required to serve out the rest of their bond period. Easing Cash Flow of New HDB Flat Buyers The Government recognizes that new HDB flat buyers may have cash flow problems during this downturn.

12 To address this problem, HDB will extend its Staggered Down-payment Scheme to all first-time flat applicants from Nov 2001 to Dec Under the scheme, first-time flat applicants can pay for the 20% down-payment in 2 stages, 10% at the signing of Sales Agreement and another 10% at the collection of keys, which could be 2 years later. The estimated loss in interest is $10.5 million for HDB will also provide a contra-facility to lessees who have submitted resale applications for their existing flats and are buying new HDB flats that are completed or nearing completion. This will enable them to use the cash and CPF proceeds from the sale of their existing flats to purchase the new HDB flats. Financial Assistance for HDB Mortgages The Government has earlier put in place financial assistance measures for HDB flat lessees with difficulties serving their mortgage loans as a result of wage cuts, retrenchment or business failure. The measures include the Reduced Repayment Scheme, deferment of monthly mortgage payment for 6 to 12 months, and extension of loan repayment period. These measures will continue, to help HDB lessees. Utilities Bills Many Singaporean households are concerned about high utilities bills, especially electricity bills. The Government is mindful of their concerns. World oil prices have recently been falling. This has enabled Power Supply to reduce electricity tariffs by 4% with effect from 1 November On top of this, from 1 Jan 2002, the Energy Market Authority (EMA) will reduce the price cap for the large generation companies. This will moderate their market power. We can then expect tariff to fall further by about 6%, assuming oil prices remain at current levels. This translates to $270 million worth of savings in electricity bills. In addition, in this year's Budget, the Government gave rebates on utilities bills as part of a new "Utilities Save" scheme, designed to help the lower income. The rebates are $350 for households living in 1 to 3-room HDB flats, $300 for those in 4-room flats, and $250 for those in 5-room flats. The Government will now extend the Utilities Save scheme for another year, until April This will cost $226 million. Extension of Service and Conservancy Rebates In recent years, the Government has been extending Service and Conservancy (S&C) rebates for HDB 1-5 room households. These rebates are graduated according to flat size to help the lower income households. The Government will now extend the S&C rebates for another year. This will cost $100 million. HDB Rental Assistance Currently, there are 37,000 low-income households living in HDB rental flats. These households currently enjoy rental assistance depending on the size of the rented flat. 1-room flat tenants enjoy rental rebates of $12 per month and a 4-month rent free period. 2-room tenants enjoy rental rebates of $8 per month and a 2-month rent free period.

13 This rental assistance was announced in this year s Budget, and expires in Mar The Government will extend the existing rent-free periods and rental rebates for one more financial year, to 31 Mar 2003, at a cost of $8 million. Enhancement of the Rental and Utilities Assistance Scheme (RUAS) The Ministry of Community Development and Sports administers the Rental and Utilities Assistance Scheme (RUAS) to help families in rental HDB flats who need temporary financial aid in their payments for rent, utilities, service and conservancy charges. The assistance is for 6 months, to be reviewed thereafter. The Government will raise the subsidy amounts and the income eligibility criteria of this RUAS Scheme. In addition, MCDS will extend temporary financial assistance to lower-income HDB flat owners who face difficulty paying utilities and maintenance charges. The assistance will be for 3 months in the first instance, to be reviewed further. These temporary financial assistance measures will cost $5 million. Hospitalization Fee Assistance Scheme We already have comprehensive arrangements to help Singaporeans meet their medical costs, through MediSave, MediShield and Medifund. Nevertheless, many Singaporeans are still concerned that they will fall ill and need to pay substantial medical bills during the economic downturn. To ease their worries, the Government will give a 10% rebate on all class B2 and C hospital bills, and on subsidized day surgery, to citizens and their immediate family members. A similar rebate scheme was implemented in In addition, the Government will give more fee assistance to patients whose family circumstances have changed. Retrenched Singapore citizens and their immediate family members can apply for additional help to cover 40% of their bills. This would apply to the families of citizens who have been retrenched on or after 1 January Thus together with the 10% rebate, retrenched citizens will effectively enjoy a 50% reduction in their hospitalization bills. This fee assistance scheme will be implemented from 1 November Economic Downturn Relief Scheme Despite all the above measures, some Singaporeans may still face financial difficulties, because they have lost their jobs, or because of family circumstances. We should take a targeted approach at helping unemployed and retrenched Singaporeans. This is far more discriminating and sensitive than across the board unemployment dole or welfare, which not only is a heavy burden to the state, but can easily discourage people from seeking new jobs, thus worsening the unemployment problem it hopes to alleviate. The Government will introduce a new initiative, the Economic Downturn Relief Scheme (EDRS). Under this Scheme, Citizens Consultative Committees (CCCs) will help needy Singaporeans to meet essential expenses, such as school fees, school transport and food. CCC may after investigating the cases provide up to $200 per

14 month of assistance for 3 months, to be reviewed thereafter. The EDRS would be helpful to families whose breadwinner has been retrenched, or who has fallen ill. However, I should stress that the assistance is not an automatic entitlement. The CCCs will investigate each case, and decide whether the applicant merits assistance, and if so how much and for how long. The Government will set aside $20 million for the Scheme. CCCs can apply for funding from this sum, based on their needs. Disbursement to the CCCs will be supervised by an EDRS Committee, to be chaired by Mr Chan Soo Sen, Senior Parliamentary Secretary in the Prime Minister s Office and Ministry of Health. The Scheme will be implemented with effect from 1 November 2001, and run for one year. New Singapore Shares The New Singapore Shares scheme is a new initiative to give Singaporeans a share in our future growth and prosperity. The distribution is specially weighted in favor of less well-off Singaporeans to help them during the current downturn. The Prime Minister had announced this scheme at the National Day Rally in August. The Government will give New Singapore Shares to citizens on 1 November Everyone receiving the CPF Top-up will automatically also receive the New Singapore Shares. Adult Singaporeans not receiving the CPF-Top can also receive the New Singapore Shares on 1 November 2001, provided they contribute at least $50 to their CPF accounts between 1 January 2001 and 15 October We will make special arrangements to issue New Singapore Shares to Singaporeans who miss this deadline, but contribute $50 to their CPF accounts by the end of the year. This $50 contribution is not a co-payment for the shares, but a way to ensure that the shares are not given to dormant or "dead" accounts. The shares will be distributed free. The New Singapore Shares will be worth $1 per share. The shares will earn annual dividends for 5 years, from 2002 to The dividend rate will be a guaranteed minimum of 3% per annum. In addition, bonus dividends equal to the real GDP growth rate of the preceding year (provided that is above zero), will be declared annually. The dividends will be in the form of bonus shares. The shares will not be transferable or tradable. However, citizens can cash them in with the Government for $1 per share. In the first 12 months (i.e. before 1 November 2002), citizens may cash in up to half their shares. After that, citizens can cash in their shares at any time without limit. Citizens who keep their New Singapore Shares until maturity will earn the maximum amount of dividends. On 1 March 2007, the Government will redeem in cash all shares still outstanding at $1 per share. Each qualifying citizen will receive a basic allocation of shares, the number to depend on his income level and housing type. In addition, two groups of Singaporeans will receive bonus shares the elderly, and NSmen. The total cost of the New Singapore Shares scheme is $2.7 billion. The Ministry of Finance will provide full details of the scheme on 16 Oct Measures related to Wage Costs

15 Finally, let me turn now to the issue of wage costs. NWC Recommendations The NWC, in its recommendations in May, noted that with the economic slowdown in the US and regional uncertainties. The Council recommended that Singapore should take a cautious approach in managing wage costs, and that wage increases this year should be lower than that of last year. It divided companies into three groups A) companies which are profitable and performing well; B) companies which are making lower profits and facing uncertain prospects; and C) companies which are incurring losses and performing poorly. For the last group, the NWC recommended wage freeze or appropriate cost reduction measures, including wage cuts through the variable component. With conditions much bleaker now than in May, a cautious approach is doubly justified. The NWC s specific recommendations for each of Groups A, B and C remain appropriate, but now far more companies are likely to fall into Groups B and C. Therefore overall economy-wide we should expect wage settlements to be restrained, or in many cases frozen. Workers should be prepared for lower bonuses, wage cuts through the variable component, or at best minimal wage increases. AVC and NPAA Civil service salaries have included an annual variable component (AVC) since 1988, with payments made in the middle and end of the year. Last year, the AVC was 1?months, with?month paid out in July and 1 month paid out in December. This year, the civil service paid?month of AVC in July. In view of current conditions, the Government has decided that there will not be any year-end AVC payment. However, for Division II IV civil servants whose salaries are lower, the Government will make a one-time payment of? month. In addition, the Government will pay the 13 th month Non-Pensionable Annual Allowance (NPAA) for all civil servants as usual in December. Salaries of Political Appointment Holders and Senior Civil Servants To send a clear signal that this is a grave situation, and that the Government is taking the lead in wage restraint, political appointment holders and senior civil servants, whose salaries are tied to the private sector salary benchmarks, will have their monthly salaries cut by 10% from 1 Nov 2001 for 12 months. All other adjustments to their salaries will be frozen during this period. The allowance of MPs and NMPs, which are pegged to the Superscale benchmark, will also be cut by 10%. Members will recall that the annual salaries of political appointment holders and senior public officers contain a GDP Bonus component that is directly tied to the performance of the economy. With negative GDP growth this year, the annual salaries of ministers will automatically be reduced by 2 months, 7.3%. The 10% cut in monthly pay is on top of this. CPF This package does not contain any cut in employer CPF contributions. The

16 Government has decided against this, because employer CPF contribution rates were only recently cut in 1999, and then partially restored in 2000 and The CPF is meant for the retirement needs of members, and should only be cut as a last resort. It is not designed as an instrument for fine tuning wage costs from year to year. However, we cannot guarantee that we will not need to cut CPF contribution rates at some point in this crisis. After 11 September, we are in a totally new situation. While we address the immediate problems through this package, the Government will also be reassessing more fundamentally all our economic strategies. This will take several months. We cannot rule out beforehand any options which may become necessary for us to restore the basis of our growth and prosperity. Conclusion This is a substantial package. Its total size is $11.3 billion, equivalent to 7% of GDP. A summary of the measures and the costs are in the handout which the Clerk will now circulate. Ministries will be providing further details of the measures under their charge in the week ahead. In FY 2001, the package will result in a government budget deficit of $4 billion. For FY 2002, MOF s preliminary estimate is that the package may result in a deficit of approximately $1 billion. However, this Government has accumulated more than enough surpluses since it took office in 1997 to finance the entire package. General elections must be called at the latest by August After the elections, the reserves accumulated by the present government will be locked away. The new government will not have access to these surpluses. In this eventuality, the new government will have to seek the President s permission to draw down on protected reserves to fund the package. This package will help Singaporeans and businesses to tide over the downturn. But large as it is, it cannot by itself restore our economy to steady growth. We cannot spend our way to prosperity. To grow we have to generate wealth, which means producing and exporting, earning wages and making profits. And that will depend on the global economy and foreign markets, because our economy is so heavily reliant on external demand. Domestic exports amounted to 85% of our GDP in So our growth can only pick up again when external conditions improve. Meanwhile, we must build up our capabilities and prepare to ride on the recovery when it comes. We must be resolute and resourceful to ride out the current difficulties. In the early years of independence, a previous generation faced crises far graver than this one. Yet they prevailed through sheer grit and determination. The people backed their leaders and together they worked through tough policies on to success. In that battle for survival people and leaders forged strong bonds of mutual trust and confidence. As a result they were able in one generation to raise Singapore from the Third to the First World. To tackle this crisis we have more resources: a larger economy and stronger capabilities in the public and private sectors, plus a deeper sense of nationhood. This downturn is a major test for us Singaporeans. We will tackle the immediate problems. We can remake Singapore and stay relevant in changed world. We will secure our

17 future and make life better for all Singaporeans. Source: