A Year of Achievements

1.                  2006 has been another eventful year.  The world continued to face a daunting array of challenges, from a nuclear-armed North Korea to the stalling of global trade talks to growing racial and religious tensions in many countries. 

2.                  One major hotspot was the Middle East. The month-long war between Israel and the Hezbollah in Lebanon, the chaos and sectarian conflict in Iraq, and the threat of nuclear weaponisation in Iran all heightened tensions and pushed up oil prices.  Fortunately despite these problems, the world economy grew strongly, at one of its fastest paces in 30 years.

3.                  Growth in Asia was especially strong, due to the continued expansion of China and India, and the revival in Japan.  Southeast Asia was generally lifted by the rising Asian tide, although several countries faced political difficulties.  At the same time, growing competition from China and India is galvanising ASEAN to accelerate its integration efforts and forge an ASEAN Economic Community by 2015.  

4.             For Singapore, 2006 has been a year of achievements.  The economy did well for the third year in a row.  It grew by 7.7%, higher than we had originally expected.  Both the manufacturing and services sectors enjoyed robust growth.  The construction sector also expanded, for the first time in six years.  

5.             The strong economy created more than 124,000 jobs in the first three quarters alone, the highest number ever.  About half of these jobs were taken up by residents.   Unemployment was down to 2.7%.  Companies are reporting better performance, and workers are enjoying good wage increases and higher bonuses.

6.             2006 was a golden year for tourism.  A record high of more than 9.5 million tourists visited Singapore, boosting the hotel and retail industries.   Visitors came from all over the world, including one million from China alone. 

7.             Our efforts to add buzz and excitement to our city are working.  A global survey of frequent travellers and travel experts ranked Singapore second in the world for nightlife and dining.  Our requests for proposals for the two Integrated Resorts (IRs) were a resounding success, attracting very high quality submissions.  The two IR operators will invest over $10 billion in Singapore, creating many jobs and spin-offs for the economy. By 2010, Singaporeans and tourists can look forward to two new mega-attractions. 

8.             Investor confidence in Singapore remained strong.  The Economic Development Board (EDB) attracted $8.8 billion in fixed asset investments, the highest level in recent years.  It also secured significant investment commitments for services and R&D.  Major projects include a world-scale petrochemicals complex by Shell, a wafer fabrication plant by Intel and Micron, and global water R&D centres by GE and Siemens.  Their choice of Singapore is a telling vote of confidence in our people and our future.

9.             In September, we successfully hosted the IMF/World Bank Annual Meetings. This was our biggest international event ever.  Singaporeans rose to the occasion and showed the world what we could do together.  We left a deep impression on all the delegates and business leaders, and reinforced our reputation as an international business and financial centre.

10.        On the regional and international stage, Singaporeans continue to pursue their passions and excel in diverse fields, like the arts, cooking, design and sports.  At the Asian Games, Team Singa­pore showed tremendous fighting spirit, and performed outstandingly.  All our athletes, both home-grown and foreign-born, gave of their best for the nation, as Singaporeans cheered them on.  Team Singapore returned from Doha with eight gold, seven silver and twelve bronze medals, our best-ever tally at the Asian Games.   

11.        2006 also marked a significant milestone in our political history.  In the General Election in May, Singa­poreans chose the new team to take us forward.  The Government will use its mandate to serve all Singaporeans, tackle pressing domestic problems like the ageing population, and stay on top of our challenges and ahead of the competition. 

Growing our Economy & Economic Space

12.        The economic outlook is positive. There are some downside risks, including a slowing US economy, weaker global electronics demand, and high oil prices.  Nevertheless, the global climate remains favourable.  Europe looks forward to another year of steady growth.  In Asia, China and India will remain powerful growth engines.  Japan also expects to continue growing.  Barring unforeseen setbacks, we expect the Singapore economy to grow by 4-6% in 2007.  

13.        Good economic performance can only be sustained with constant effort, change and innovation.  We need to transform the economy to compete on the basis of knowledge, talent and ideas.  The Research Innovation and Enterprise Council (RIEC) will meet again in March to take stock of our progress in R&D, and consider new initiatives to spur future growth.

14.        To create more opportunities for Singapore, we must venture beyond our shores and expand our international space.   We are strengthening our ties with existing partners and linking up with new ones.   We are deepening cooperation with our nearest neighbours, Indonesia and Malaysia, and with other ASEAN partners, to make Southeast Asia a vibrant region which investors cannot ignore.  Next year, it is Singapore’s turn to occupy the ASEAN chairmanship.  We are hosting the ASEAN Summit in November, and planning a whole year of activities to comme­morate ASEAN’s 40^th anniversary.  This will be a timely occasion to push for further regional integration, and secure ASEAN’s place in the world.

15.        At the same time, we must look further afield for global opportunities.  One major advantage we enjoy abroad is the Singapore brand name.  People admire what we have achieved, and see us as a model for their own development.  They hold our companies and people in high regard because of Singapore’s reputation for integrity, efficiency, reliability and high standards.  We are in demand as managers, partners and investors, whether in China, India or the Middle East.   

16.        I am happy that more Singaporeans are venturing abroad, not just to the major cities, but also to less familiar destinations.  On overseas trips last year, I met Singa­poreans in Chengdu (China) and Doha (Qatar).  They are well adapted, making headway in their ventures, and establishing little communities to help one another and guide new arrivals to settle in.  They fly the Singapore flag high, and win friends and supporters for our nation.

Preparing for the Future

17.        Overall, Singapore is in a strong position. But we must not become complacent and slacken.  Instead, we must capitalise on this strength to move boldly, and open up a decisive lead over competitors.  Now is the time to press on with restructuring and prepare well ahead for a more challenging future. 

18.        This is why we are raising the GST to 7%, and amending the Constitution to draw more Net Investment Income (NII) from our past reserves.  These moves will give us extra resources to launch new programmes like Workfare and meet future needs. 

19.        We will strengthen our competitiveness by lowering direct taxes when the need arises, particularly on companies. 

20.        We will invest in the best education for all our children, improve our infrastructure and our city, and grow our capabilities, including through R&D. 

21.        We will consolidate our social cohesion at a time when incomes are stretching out.  Globalisation has created prosperity worldwide, but it has also put more pressure on workers in many countries.  They now compete against millions more from China, India and Vietnam entering the world economy.  As a result, workers are receiving less than a proportionate share of the increase in their countries’ national output. 

22.        This is happening in Singapore too.  In the last five years, our real per-capita GDP grew on average by 4.3% per annum, but real average wages (after adjusting for inflation) grew at only half this rate – 2.1%.  Higher-end wages have risen by more than this.  But at the lower-end wages have increased by much less, and some have even stagnated.  

23.        This is why we are implementing Workfare as a fourth pillar of our social safety net, together with the CPF, the 3Ms (Medisave, MediShield and Medifund) and HDB home ownership.  Workfare will provide long-term, systematic support for lower-income Singaporeans.  We will also continue with programmes to improve the skills and earning power of this group, so that they can uplift themselves and their families.

24.        We will also pay attention to the middle- and higher-income groups.  We should help them to provide better for themselves, rather than make them dependent on state support.  NTUC leaders have suggested raising employer CPF contributions for the middle- and higher-income groups.  Such a CPF increase will complement the Workfare scheme which covers the lower-income groups.  Then all Singa­poreans will be able to save more for their housing, retirement and healthcare needs.

25.        The govern­ment is studying this idea carefully.  Our economy is doing well. The labour market is tight, and wages are rising.  A CPF increase makes sense.  But we must not impose too heavy a burden on companies and impair our competitiveness.  Provided the outlook stays good, we should be able to raise the employer’s CPF contribution rate by 1 to 2 percentage points in 2007.  The Government will discuss this with the employers and unions before making a decision nearer the date of the Budget Speech.

Conclusion

26.        All the favourable developments we enjoy today came from the hard and difficult decisions we made in the last three years, such as the CPF reforms, the restructuring of the economy, and the decision to proceed with the IRs.  Had we flinched and put off painful adjustments, our economy would have lost competitiveness and stagnated. Singa­poreans would have had few opportunities, high unemployment and far fewer jobs than the over 100,000 we created in each of the last two years.  

27.        The Government will continue to work with all Singaporeans as we embark on our next phase of development.  Taken together, our strategies will enhance our competitiveness, reinforce our social safety net, and strengthen our cohesion.  They will enable us to grow and prosper, and to improve the lives of all Singaporeans for many more years to come.   

28.        I wish all Singaporeans a Happy New Year.