Prime Minister Lee Hsien Loong’s National Day Rally speech on Aug 17, 2008

August 18, 2008 by
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Prime Minister Lee Hsien Loong’s National Day Rally speech on Aug 17, 2008

Part 1

Tonight I will start by talking about the economy. I haven’t done so in detail over the last few years because the economy was doing well. So we were focusing on social issues – income gap, ageing population, CPF. But it’s timely to pay some attention to the economy now because conditions this year are more difficult.

Over the last few years when conditions were good, we surged ahead. We did the right thing. We planned, we pushed, we built up our momentum, restructured and upgraded our economy & brought in a pipeline of good projects – F1 Grand Prix, the IRs (Integrated Resorts), our financial services, banking doing well, major investments brought in by EDB (Economic Development Board) through very hard work. And now these projects will sustain our momentum & keep our economy going.

But dark clouds have gathered around us in the external environment. The US faces very serious problems. Their house prices have ballooned, bubbled, crashed and are still falling. Unemployment is going up. Consumers are losing confidence, spending less. And it’s affecting the rest of the world as has to be expected. And Europe, the major economies, have gone into negative growth, and we must expect impact on Asia also.

These global economic problems will continue at least into next year. And some experts think it may last even longer.

We are starting to feel the impact in Singapore. In the second quarter our growth has slowed down, our manufacturing sector has been affected, our exports are weak this year, tourist arrivals are down. Even Asian tourists are travelling less, partly because airline fares have gone up – the fuel cost. Retail stores say that customers are more careful, and restaurants have also fewer guests now in Singapore. Singaporeans are more careful with their money.

This year I think we can get four to five per cent growth. It’s not bad. Next year we expect slow growth and more uncertainties. I’m not predicting a crisis. We’re competitive. Investors still want to come to Singapore. And we have a strong pipeline as I explained, but we have to be vigilant and we have to be psychologically ready in case of trouble. But we also must be on our marks, so when the global economy recovers we can bounce right back up.

Right now the hottest issue for Singaporeans is the rising cost of living. Inflation is not just a problem for Singapore. It’s a worldwide problem because oil prices have gone up, food prices have gone up. I show you a graph of oil prices over the last few years and you can see how in 2000 we were paying about $20 a barrel and gradually it went up $60, and in the last one year it spiked all the way up nearly 140. Now back to about $115 a barrel.

Food is an even more dramatic story. I show you rice because that’s what affects Singaporeans. And you can see the price has very stable for a very long time, gone up a bit two years ago, and in the last one year tremendous spike, now come down some to US$800 per ton. And maybe it will stabilise there or maybe it will come down a little bit. And similarly with oil, there are some signs that maybe it will come down a little bit. But even if it does, it’s still high and it’s quite understandable why people are agitated all over the world and demonstrating, rioting, protesting, blaming their governments.

I show you some slides from around the world.

This is Europe. These are truckers in France protesting about diesel prices. So they are blocking the roads.

This is Spain. Farmers put all their tomatoes on the road because their fuel prices have gone up.
Indonesia – the government raised prices of kerosene, demonstrations and riots.

Pakistan – we’re not having a dance. We are showing their displeasure at their government, because food prices went up.

Philippines. Philippines sells their people subsidised rice, ran short of supply, there was a scramble, mad scramble. The government had to scramble internationally to buy rice. Domestically long queues. Big problem.

Fortunately in Singapore we have plenty of rice. So you don’t see riots. All you see is Mr S. Iswaran, Senior Minister of State for the Ministry of Trade and Industry, inspecting our rice stockpile. But I know that people are unhappy still about the price increases. I’ve read a lot of the interesting things on the Internet. Some are quite good. I don’t have time to show you all of them, but I’ll just show you one tonight. This one says: “Wapiang eh! The ERP has reached Pedra Branca.” I sent this to Raymond Lim. He said that’s his favourite one too.

I completely understand how Singaporeans feel and why Singaporeans feel like this. But we have to react rationally to understand what’s happening to us and what we can and cannot do about it. We can’t prevent prices from rising in Singapore.

We import all our food except for a few eggs, and Mah Bow Tan reminded me a few fish. We import all our fuel and all our electricity is produced from imported either fuel oil or natural gas. So when the world prices go up, how can we keep our rice prices, our petrol prices, our diesel prices, our electricity prices down?

It can’t be done. In terms of dollars, your wages have not gone down because most workers are earning more dollars this year than last year. Last year was a good year – people got good increases, got good bonuses. So you have more dollars. So when you spend those dollars, you find that they have shrunk. And with inflation, what that means is that some of your wage increase went to you, some of that wage increase went to the people who sell us oil.

So to put this in a very simple over-simplified way, the oil producers of the world have got rich. The Russians, the Arabs, they’ve got rich. The oil consumers of the world like Singapore, therefore we have got a little bit poorer. That’s what it is. They are richer, we are poorer. How has it happened? Not by taking dollars away from you but by shrinking each of your dollar a little bit smaller when you spend it.

Singaporeans wish that the government would do something to stop these prices from going up, just order them to stand still, control them, don’t let them go up. Some governments try to do that. But the subsidies cost huge sums of money and all the governments who try to do this have very serious problem on their hands.

And even those who produce oil and gas find this very hard to sustain, because you look at Malaysia. They subsidise oil, but what happens? Singaporeans go to Johor Bahru to top up. And Thais go across from Thailand into Kedah to top up – not your petrol tank but the huge special tank in a truck so as to get maximum benefit. And they are oil producers.

So they’ve had to cut their oil subsidies and push up prices recently. Malaysia, Indonesia did that, also an oil producer, China – produces some oil, India also – no oil but they were subsidising. It’s untenable. We can’t do that but we can help Singaporeans. And the way we help Singaporeans is to let the electricity price go up but to top up your SingPower accounts with U-Save and give more U-Save to the poorer households – three-room flats, two-room flats.

And what that means is we’re helping you directly because U-Save really is cash. We’re putting it into your account, up to you to spend. And if you use it for electricity, well then it helps you to cover your bill. If you use less electricity, it will last longer. But it’s a lot of money because for the lower income households – three rooms and below – it’s worth three to six months’ worth of your electricity bills, of your utility bills. So that’s a lot of money.

So we can help but we have to help in the right way. And this year we’ve done more to help Singaporeans. We foresaw this spike in inflation last year. Towards the end of the year as prices started rising, we knew that Singaporeans would be worried. We started planning what we could do to help them, what we could do to reassure people.

And when it came to the Budget, fortunately we had a surplus last year, we were able to make a significant distribution in the Budget to help all Singaporeans, but especially for the middle income groups and even more for the lower income groups, needy. So we have Growth Dividends, Medisave top-ups, U-Save, so many measures, such long lists but all to give help where the help is needed.

Besides the Budget we have many other measures to help the needy. For the lower income workers, we’ve got Workfare to top up their income and savings. And this year in the National Wages Council deliberations, we made a special one-off payment to the low wage workers. We recommended it and many employers have done it because we knew that they would be pressed this year.

For the destitute, we have Higher Public Assistance rates, which we’ve revised up this year. I think it’s now $330 per person. We’ve got ComCare, we’ve got Medifund. And for retirees, we’ve pushed up the CPF (Central Provident Fund) rate, which was one of the things we discussed here last year at the rally. One extra per cent interest on the first $60,000 of your balances. And it’s come into effect this year and it will help to preserve the value of your CPF savings for your old age. So it’s helpful to retirees, it’s helpful to the young people and not so young but not yet old. Overall it’s $3 billion from the government this year, and I think that’s not a small sum of money.

I know that many Singaporeans who are not so poor but also not so well off feel that they are pressured – middle income Singaporeans. And they feel that they’re the sandwiched class, stuck in the middle. But when you ask who’s the sandwiched class, all the way from quite low down to quite high up, it’s a very fat sandwich. But they feel sandwiched, and we haven’t forgotten them.

We’ve got Growth Dividends extended to them. We’ve helped them with their education costs. For example, the polytechnic and university bursaries have been extended, so large proportion of students are now eligible for bursaries. We’ve topped up the post-secondary education accounts for all school-going age children. And that includes all of the middle income groups. And that’s a big sum of money. I know that the middle income put a lot of emphasis on education, and this is one way to build up, so when your kids go to poly or university, well that little kitty, that nest egg is there.

But overall I think our most important strategy to help the middle income group is to keep our taxes low and therefore minimise your burden. And if you look at our personal income taxes, actually they’re already lower than most other countries. And for middle income Singaporeans, in fact our income tax is lower even than Hong Kong by quite a lot. And on top of that, this year we gave a generous 20 per cent personal income tax rebate in the Budget, costing us nearly $400 million aimed at these middle income Singaporeans. So I think if you look at it in perspective, we have done a great deal to try and help the middle income Singaporeans.

I know there’s one item which middle-income Singaporeans worry a lot about. And that’s cars. And car-related taxes are something which the government studies very carefully.

I would acknowledge that at one time the car-related taxes were a significant burden on car owners and many of them are middle-income. Because our car ownership taxes have become so high, we needed to control the number of cars, we have pushed up the ARF (Additional Registration Fee), excise duty, so many items and the amount per car was very high and it was disproportion.

So we discussed this when we had the Economic Review Committee a few years ago which I chaired and we decided to make a major policy shift to shift from ownership to usage so that we could bring down the ownership taxes, ARF, excise duty and so on, we could issue more COEs (Certificates of Entitlement) so that they will be more affordable, then we could enable more people to afford cars but to do all these good things, we would have to push up ERP (Electronic Road Pricing) so that we can control traffic jams on the roads. And in fact, we have moved decisively on that.

I put together some figures to show you. It’s easiest if I show you on a graph but if you compare 2000, before we moved, and 2008 where we are today, you will know how far we have come.

In 2000, the government collected $6 billion in vehicle-related revenues, $6 billion, it’s a huge amount of money. It’s like two or three times the amount of GST (Goods and Services Tax) we collected in that year. Because we have changed policy by 2008, the amount has come down. Halved, $3 billion. So we’ve given, effectively we have saved Singaporeans about $3 billion of tax. And this includes everything but to do this we’ve had to push up the ERP, by how much? In 2000, that’s all the ERP there was, $80 million. This tiny sliver at the top of the whole stick.

This year, after a lot of ERP adjustments, we’ve doubled it. It’s $160 million, but still very small compared to the total amount of road tax which we have collected. And despite this, in fact we have still made this big reduction in the road taxes which we have collected, which is savings to Singaporeans. And because of these savings, therefore more households have been able to own cars.

In 2000, there were about 320,000 households owning cars. Since then, in the last eight years, the number has gone up. Now 430,000 households had own cars, which is about one-third more, 100,000 households. I think this is something which is worth trying to do because many Singaporean households want to own cars and we’ve been able to enable more of them to do so. How have we been able to do that? By bringing down vehicle taxes and how have we been able to do that? This little red sliver here, by pushing up the ERP.

This is in terms of overall gross numbers, billions. But if you are buying an individual car, one household, one car, you can see the difference. So I have chosen as an example, a 1.6L car, typical Toyota Corolla. It was there in 2000, it is there this year.

In 2000, how much do you think it cost to buy a Toyota Corolla all in? $110,000. This year, same car, in fact the salesman will tell you it’s a better car, the price has gone down to $64,000. And this is mainly because the government taxes have come down, because the OMV (open market value) has remained about the same. It’s about $19,000 before, now it’s $16,000 now. So basically, the government taxes have made the cars a lot more affordable. So the result of this is that there are more cars around us. You can see it, HDB car parks getting more crowded. You can see it on the roads. And therefore because of this, this year we’ve had to increase ERP charges.

I know many people are upset by these ERP charges but we have to see the bigger picture because in fact, the ERP charges are enabling us to benefit Singaporeans so as to reduce the burden on you and to enable more Singaporeans to own cars. So when we have to make the adjustment this year, we considered it very carefully, how should we do this without increasing the burden on Singaporeans? And we worked out an ERP package, not just raising the ERP or putting more gantries but reducing road tax at the same time so as to offset it and overall to bring down the cost.

Let me show you how this works. Before the package, let’s take the 1.6L car again. Probably a Toyota but could be another one. Before the package, the ERP was $122, after the package, it’s gone up, nearly 200. So it looks very frightening but in fact if you consider the road tax which you have to pay and which we have adjusted, you used to pay $874 of the road tax and now it’s come down to $744. So the net effect is that you have a saving, in fact you are saving money rather than out-of-pocket because of the ERP changes. How much? Let’s do the sums.

ERP increase, $76. Road tax reduction, $130. Net savings, $54. So overall, there’s a net saving from this package. So we have not increased the burden on Singaporeans, we’ve actually reduced the burden on Singaporeans by some. The trouble is people may not realise or remember how much road tax they are paying, or even worse, how much road tax they paid last year. And sometimes they may not be the one to pay it.

I asked one driver how much road tax she paid because she was complaining about the gantries she went through and the beeps which she heard. So she thought a while and then she said to me, I’m not sure, I have to ask my husband. Because she didn’t pay the bill, her husband paid the bill and I’m not sure even when the husband paid the bill, he noticed that it was smaller this year. And furthermore, when the husband pays the bill, there’s no beep, beep. But when the wife drives the car, each gantry, one beep.

So, that is a problem and I think that’s part of the reason why people are not happy. And so we have to draw the connections and get people to understand that actually the middle-income Singaporeans have benefited from government policies.

But we haven’t only thought about road tax and car drivers because the point of all this is to have a system which will work for all Singaporeans and that means improving our public transport. So together with pushing up the ERP, we are building more rail lines, we have more trains running, about 800 more trips every week. So the waiting times have come down. The over-crowding during peak hours has come down. Bus service are getting improved. We are making the transfers more convenient and cheaper because the transfer rebate will go up.

So we are doing many things. We can’t in the end have every household in Singapore own a car, like in America. That’s not possible. But what we can do is to have the roads free flowing and a first-class public transport system for everybody.

Besides cars and public transport, we also have to pay attention to the wider needs of the public. And you can get a good sense of what the public is worried about by looking at the mix of MPS (Meet the People Sessions) cases which the MPs hold. And I do my own MPS from time to time. The MPs do regularly. And I can tell you what we find. Not many job-seekers, unlike during the last recession because there are a lot of jobs to go around. There are some hardship cases but we have a lot of schemes to help them. We got vouchers, we got Comcare, you got CCC (Citizens’ Consultative Committee) and CDC (Community Development Council) programmes and so on. I talked about some just now.

But there’s one worrying trend in the MPS cases and that is there are more and more people looking for HDB rental flats. And in one year, the number of applications have gone up, tripled. And now they form the bulk of our MPS cases. The biggest group is people looking for rental flats. Many many reasons.

HDB is building more rental flats but they will look into the applications. Not all of those who apply for rental flats are truly needy. And HDB gave me some examples. I show you one where a woman aged 60 was applying for a rental flat. And she had three children. Two of them live in private property and the children wrote down, don’t worry, we will jointly hire a maid to look after our mother. Please can she have a rental flat?

I think families must have their problems, otherwise they would not go to look for MPs or HDB for help. But I think that for this group of people, rental flats are not the right solution. Instead they should look for other viable alternatives. They can rent out a room, they can even rent out the whole flat, move in with their children. We are going to have the lease buy-back scheme for the two-rooms and three-room flats which is going to be implemented next year.

Or they could sell their flat and move into a smaller flat, or move into a studio apartment, also with a short lease and therefore free up some money. So there are various ways they can solve their problems but I think we have to manage this rental flat problem and MND (Ministry of National Development) and HDB will be reviewing the scheme for rental flats so that we can keep it an effective safety net for the people who need this, the minority of genuinely needy families who have not only no income but also no assets and also no family support.

So I’ve talked about the poor, I’ve talked about the middle-income, I’ve talked about those who need housing, rentals. I think for the vast majority of Singaporeans, we’ve provided comprehensive measures in the Budget. Most people do not realise how much they are getting and as I said in the Chinese speech just now, if you take a three-room flat, a low-income household, say an elderly couple with one child working, they are this year from the government $5000, all in, which is much more than any increase in their cost of living.

And if you take a middle-income household, five-room, let’s say middle-aged, working parents, two children, which is a typical profile, they get not a small sum either, about $3,400, and that’s not counting any personal income tax rebates which they may be getting.

So I think we’ve done a fair amount to help Singaporeans but inflation has turned out higher than expected, especially electricity and fuel prices, and the economy is a bit more uncertain than the outlook at the beginning of the year. So I think after looking at the Budget position, we can do a little bit more.

There’s a second instalment of the Growth Dividends coming on 1 October and we will increase this by 50 per cent. And because energy, electricity is such a heavy bill now and some people’s bills have gone up by 100 per cent, even more, so this year’s U-Save rebates, we will also push it up by 50 per cent, which means for a three-room household like the one I mentioned earlier, they’ll get about $500 more all in and a five-room household will get about $200 more.

And overall, this is going to cost us $250 million to the government, a quarter billion dollars. If you add it to all the other things we are doing, I think it will help Singaporeans see us through this period.

But I would say, please don’t think that hong baos are going to solve this problem. We can’t give hong baos all the time and giving ourselves hong baos does not help address the problem of the oil producers becoming richer and Singaporeans becoming poorer. To address that problem, we have got to keep our economy competitive, we’ve got to produce more, be more productive. Therefore earn more for ourselves, then we can raise our standard of living, despite increases in oil and food prices.

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2 Comments on Prime Minister Lee Hsien Loong’s National Day Rally speech on Aug 17, 2008

    [...] The Hsien Loong shocker – The one dimensional island: PM’s National Day Rally – Sgpolitics.net: Rally speech on Aug 17, 2008 [1] [2] – Sgpolitics.net: PM Lee’s National Day Rally: Political rules to be relaxed & [...]

    [...] The Hsien Loong shocker – The one dimensional island: PM’s National Day Rally – Sgpolitics.net: Rally speech on Aug 17, 2008 [1] [2] – Sgpolitics.net: PM Lee’s National Day Rally: Political rules to be relaxed & [...]

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