Singapore may offer tax incentives to start-ups, hasten asset sales and open health care and education to competition as manufacturing jobs are lost to low-cost competitors like China, Deputy Prime Minister Lee Hsien-loong said.
Singapore, in the midst of its worst recession in 37 years, will have to move beyond its role as manufacturer of semiconductors, disk drives and other exports if it's to provide jobs for its 4 million people and keep its economy growing, Lee said in an interview.
Singapore's economy shrank an estimated 2.2 percent last year, its worst performance since 1964, and 25,000 people were thrown out of work as electronics exports plunged and companies such as Hitachi Ltd and Datacraft Asia Ltd cut back. With China entering the WTO, the world's most-populous country is likely to divert investment from Singapore.
"We have to ask what is going to replace the employment that may not be created by so many more wafer plants, so many more plants making disk drives, and what will we do with workers that are retrenched when companies in Singapore relocate," Lee said.
Lee, who also serves as finance minister and chairman of the central bank, heads a committee charged with "upgrading, transforming and revitalizing" Singapore's economy, which grew at an average annual rate of 8 percent in the 1990s as electronics exports surged.
The 20-member Economic Review Committee includes officials from government and labor as well as executives from companies such as Deutsche Bank AG and Philips Electronics Singapore. It will release a preliminary report that's likely to focus on issues such as taxes and fees by May, in time for the budget, and a final report in August.
Although Singapore's per capita gross domestic product is among the world's highest at US$22,000, "the actual depth of capabilities and breadth and scope of the economy are not that mature," Lee said.
Lee said he wants to encourage local companies to become more international and to spur entrepreneurship in a society that has long emphasized training managers and workers for foreign corporations such as Royal Dutch/Shell and government-linked companies such as Singapore Airlines Ltd.
To do that, "the tax system has to be conducive to people who do well and make it big," Lee said. "Our taxes are quite low but still we have to watch to make sure they're competitive and not to over-tax people who are creating wealth." Overall, "our direct tax rates are going to be under pressure to come down," said Lee, and Singapore is likely to run smaller budget surpluses, although it will maintain its policy of avoiding deficits. The corporate tax rate is 24.5 percent -- the lowest in Asia after Hong Kong -- and the top individual rate is 26 percent.
Manufacturing, which accounts for about a quarter of the country's economy, will remain prominent because "we have built capabilities and we're still getting good projects coming to Singapore," such as a US$3.6 billion chip factory planned by United Microelectronics Corp. The company said early this month that it may delay opening the factory.
Yet with electronics makers such as Solectron Corp and Philips Electronics Asia Pacific Pte shifting manufacturing operations from Singapore to China to cut costs, the island should seek to expand its service industries, Lee said.
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