National Productivity Fund (Amendment) Bill

Order for Second Reading read.

1.39 pm

The Senior Minister of State for Finance (Mr Chee Hong Tat) (for the Deputy Prime Minister and Minister for Finance): Mr Speaker, on behalf of the Deputy Prime Minister and Minister for Finance, I beg to move, “That the Bill be now read a Second time.”

Sir, this Bill seeks to expand the scope of the National Productivity Fund (NPF) Act to cover investment promotion. Specifically, clause 3(b) of the Bill amends the NPF Act to allow NPF funds to be used to anchor quality investments in Singapore. Clause 6 of the Bill amends the NPF Act to extend specific powers of the Productivity Fund Administration Board (PFAB), which administers the NPF, to also cover investment promotion activities.

Let me explain why we are making this change. Investment promotion has been a cornerstone of Singapore’s economic growth over the years. Pre-Independence, there was significant unemployment in Singapore. The Government quickly recognised that rapid industrialisation and investment from multinational enterprises (MNEs) were needed to provide jobs for large numbers of unemployed workers.

To accelerate the pace of industrialisation and inflow of investments, Dr Goh Keng Swee established the Singapore Economic Development Board (EDB) in 1961 to attract MNEs to Singapore. The Government built on the initial momentum to establish Singapore as a credible location for higher-value and more advanced economic activities. We built up key infrastructure, we set aside industrial land and developed our utilities, transport and communications networks.

But hardware alone is not enough. We also invested in other intangible fundamentals – our operating software and the skills of our workers. We developed our workers, equipping them with skills for the new jobs that would come. We also fostered strong tripartite relations as a foundation for economic stability and growth. We put in place a strong governance and legal framework, so that investors would have the confidence that their business operations and assets would be protected, contracts would be honoured and there is strong rule of law.

With these conditions in place, we attracted MNEs, such as Texas Instruments, Philips and Panasonic, previously known as Matsushita, to set up in Singapore. They brought with them production capabilities and management know-how. Local companies that supplied to these MNEs benefited as they built up capabilities and gained access to the global market. Similarly, workers employed by these MNEs and their local suppliers benefited. They were able to earn a stable income and acquired valuable skills to progress in their careers.

Through these investments, we grew our economy and created employment opportunities for Singaporeans over the years.

Today, our economy is in a stronger position. Singapore is a regional and global hub for many MNEs and a leading international financial centre. We are a global trading hub, with strengths in transportation and logistics, anchored by our world-class air and sea ports. We also have a vibrant manufacturing sector with key segments like electronics, chemicals and biomedical science. These generate good jobs for our people and deepen the expertise and sophistication of our economy, which, in turn, enhance Singapore’s competitiveness against other cities.

But we cannot take this for granted, as nothing in our story of survival and success is pre-ordained or guaranteed to last forever. We know that the external environment has become more challenging and competition for investments is increasing.

With the Base Erosion and Profit Shifting (BEPS 2.0) initiative, we have less scope to use tax incentives as a tool to attract new investments. At the same time, countries are intensifying their efforts to attract new investments, particularly in strategic sectors, such as semiconductors and biomedical manufacturing.

Several countries have already announced generous incentives to anchor manufacturing activities. The US CHIPS and Science Act sets aside S$69 billion to support semiconductor manufacturing, R&D and workforce development. India has similarly announced a S$13 billion package to attract investments in semiconductor manufacturing.

We will not be able to, nor should we try to, outbid these major economies in terms of spending. But we will certainly have to do more to ensure that Singapore remains competitive and relevant on the global stage.

We must, therefore, double down on our productivity efforts and ensure that our workforce remains highly skilled and competitive. Only then can we remain attractive to foreign investors, grow strong local companies that can do well in domestic and overseas markets and ensure that Singapore remains top-of-mind as a choice destination for investments and talent.

To demonstrate our commitment to attracting new investments, the Deputy Prime Minister and Minister for Finance announced in the FY2023 Budget Statement that the Government will top up the National Productivity Fund (NPF) with $4 billion and expand the scope of the Fund to include investment promotion as a supportable activity.

We are setting aside funds when we can, to ensure that we have the resources ready to anchor new investments when there are opportunities to do so. This is crucial because MNEs make their investment decisions based on business and investment cycles, which may not align neatly with funding mechanisms bound by the terms of Government.

This Bill will amend the NPF Act to effect the changes announced at Budget this year. If Parliament approves this Bill, funds from the NPF can be used to support all three prongs of Singapore’s economic growth strategy.

We will continue to tap on the NPF to support local enterprises to improve productivity and generate greater value. One scheme that the NPF has supported is the Construction Productivity and Capability Fund (CPCF). It offers incentives to help firms adopt productive technology and develop their workforce to raise productivity in the construction sector. To date, the CPCF has helped over 10,000 companies, with more than 90% being SMEs.

We also want to continue investing in CET and lifelong learning to further strengthen our human capital. The NPF supports initiatives, such as the SkillsFuture Work-Study Programme, which has helped more than 7,000 fresh ITE and polytechnic graduates deepen their skills through integrating on-the-job training with classroom learning.

With the proposed expansion, we will also be able to tap on the NPF to anchor quality investments from MNEs in Singapore. This includes the use of incentives to attract companies in advanced industries to make new manufacturing investments here. It can also support efforts by MNEs to train and upskill local workers.

Sir, as we compete for foreign investments, we will also continue with investments in our local enterprises, including our SMEs, to help more companies improve productivity and scale up their business.

As I explained earlier in my speech, attracting MNEs to Singapore will benefit our local companies as they can access opportunities to get more contracts, enhance their capabilities, including upskilling of workers and developing strong track records, to support their overseas expansion.

This is how we ensure that each new investment we bring in strengthens the vibrancy of our economy, enhances our competitiveness and, ultimately, benefits Singapore and Singaporeans. Mr Speaker, I beg to move.

Question proposed.

Mr Speaker: Mr Sharael Taha.

1.48 pm

Mr Sharael Taha (Pasir Ris-Punggol): Mr Speaker, Sir, before I begin, I would like to congratulate you on your recent election as Speaker of Parliament.

Mr Speaker, Sir, Singapore’s stable and trusted policy environment and access to global talent have attracted many MNEs in sectors like oil, finance, electronics and pharmaceuticals. However, geopolitical and economic rivalry between the United States and China – two of the world’s largest economies and Singapore’s top trading partners – may threaten this investment trend.

In Deputy Prime Minister Wong’s Budget speech earlier in February this year, he mentioned that "The geopolitical context has shifted greatly. Great power contestation has intensified, most notably between the US and China." Due to this, MNEs are reconfiguring supply chains, at times, moving away from the most cost-efficient configurations to a more robust supply chain that takes these geopolitical risks into serious consideration.

There is a trend of MNEs relocating to safer locations to avoid geopolitical conflicts. He mentioned, "All this is setting off a dangerous dynamic towards greater economic nationalism and protectionism around the world. Governments are stumping out more aggressive support, in the form of tax breaks and subsidies, to anchor strategic industries."

In addition to the increased economic nationalism and protectionism around the world, the higher inflation rates, higher interest rates, higher borrowing cost and cost-of-capital, the manpower crunch, our higher wages and even higher dormitory cost and rental market continue to increase the cost of doing business in Singapore. Our strong currency also means Singapore-based businesses are finding it harder to compete through cost in the global market. Furthermore, additional headwinds, such as the impending increase in carbon tax and the implementation of the BEPS 2.0 initiative, may add even more costs to doing business in Singapore, something which Senior Minister of State Chee Hong Tat mentioned earlier, too.

The US and other countries are rolling out aggressive tax breaks and subsidies to attract investments, such as the CHIPS and Science Act in the US, to build up their industries and revitalise their domestic manufacturing, competing with Singapore. Senior Minister of State Chee Hong Tat mentions that other countries like India are also intensifying their investment promotion. BEPS2.0 tax equalisation reduces Singapore’s investment attraction capabilities.

However, the best way to deal with the geopolitical uncertainty, the increased competition and the cost pressures is for Singapore to continue to be a trusted investment destination, to remain open and to boost the long-term productivity and global competitiveness of our enterprises. In his 2023 Budget speech, Deputy Prime Minister Lawrence Wong’s announcement of the $4 billion top up to our NPF and the expansion of the scope of NPF to include investment promotion was very much welcomed. Hence, I am in support of the amendments to the NPF Bill.

However, I have three points of clarification to make. Firstly, what are the types of investments that meet the criteria for NPF investment support? Secondly, how do we ensure that funds are effectively used to drive real productivity so that the improvements can help lower the cost of doing business in Singapore? And how do we prevent it from being abused? Thirdly, given that the Industry Transformation Map (ITM) is funded through NPF, what is the status and progress of ITM 2.0 or the ITM refresh?

Allow me to elaborate more on the first point. The NPF was established in 2010 to support a wide range of measures for businesses to improve productivity and continue to educate and train workers. Now, NPF’s scope is expanded to include investment promotion.

The amendment allows the fund to be used for grants to enterprises for Singapore investments and economic activities which are aimed to develop the economy. I would like to seek clarification on what are the types of investments that meet the criteria for NPF funding. Are there specific industries or critical or novel technology strands that we are targeting?

The reason for the question is because while $4 billion is a large sum of money, it pales in comparison with the resources other countries have and, hence, we must be selective and be very clear on the capabilities that we want to develop which leverage on our infrastructure, geopolitical positioning and, most importantly, the capabilities of our workforce and the added capabilities that we want to develop for our workforce.

If we were to compare with other state support abroad, Intel has sealed an agreement to build a new $33 billion semiconductor plant in Magdeburg, Germany, with US$11 billion in subsidies from Germany. That investment promotion alone is 2.5 times the size of our NPF top-up!

As NPF is also used to continue to educate and train our workers, how do we ensure the NPF is utilised and distributed fairly across educating and training workers to improving productivity and investment promotion? How do we find the right balance so that we do not overinvest in one at the expense of others?

On 2 March 2023, Minister of State Low Yen Ling mentioned that over the last five years, Singapore’s NPF has disbursed more than S$1 billion across 47 Government projects related to productivity improvements and continuing education and training (CET) and about half was spent on productivity projects and the other half on CET programmes. With the $4 billion top-up to the NPF, what is the expected duration that the fund will last for and what are the specific targets that we want to achieve for these funds?

Which brings me to my second point. The example on the funding support from Germany for Intel’s new factory shows that our NPF resource is quite limited when compared to others. As we expand the scope of the NPF to anchor more quality investments in Singapore, how do we ensure that the funds are effectively used by businesses to drive real productivity, productivity improvements that will lower the cost of doing business in Singapore? How do we ensure that the funds drive a real reduction in the operating cost of businesses so that we can remain globally competitive? How can we link funding support for businesses with tangible, proven improvement to business performance? With our limited funds, we must ensure that every single dollar is effectively used at driving transformation for our businesses.

While we ensure the NPF is effectively used, we must also ensure that it is not abused.

In March 2022, Lim Chit Foo was sentenced to nine years and four months' jail for cheating the Inland Revenue Authority of Singapore (IRAS) into disbursing more than $11.8 million in productivity funds. Lim made 400 fraudulent claims involving fictitious purchases of software made by the applicant companies from a pool of six shell vendor companies. In 2020, Ng Cheow Chai, who runs two machinery companies, helped 83 businesses submit fraudulent claims to the Productivity and Innovation Credit (PIC) scheme seeking payouts of $2.7 million between March 2013 and July 2016. He pleaded guilty to 57 income tax charges involving more than $1.4 million in cash payouts and bonuses. In 2018, S Chandran admitted to submitting $1 million in fake PIC claims.

These three cases are just some of the cases involving fraudulent claims drawing down from the NPF. While we want to make it easy for businesses to utilise NPF to improve their productivity and remain competitive, we must also ensure that the system is robust and cannot be abused by unscrupulous individuals. As we top up our NPF with an additional $4 billion dollars, how do we also ensure that we have a robust system that balances the pace required to fund innovation and not stifle it while ensuring good governance?

During the Committee of Supply debate in 2023, Minister Gan Kim Yong highlighted notable progress within the 23 ITM sectors, showcasing a 3.5% annual growth in value added (VA) from 2016 to 2019, surpassing the overall economy's 3.1% average. Moreover, these sectors demonstrated enhanced productivity, growing by 4% annually between 2016 and 2022, compared to the economy's 3.5%.

Minister Gan also discussed the impending ITM 2025 refresh, designed to incorporate pandemic-induced lessons and address emergent priorities like sustainability and economic resilience. I would like to ask the Minister for an update on the ITM 2025 refresh and how the additional $4 billion top-up will assist in expediting the implementation of the ITM refresh.

Beyond the emerging priorities of learnings from the pandemic and greater economic resilience seen in 2023 during the Budget debates, are the ITM and Job transformation Map (JTM) considering the impact of generative AI? Can I also request that the JTM and ITM refresh consider strongly promoting job redesign for the soon-to-be seniors, so that future seniors who are now digitally literate and exposed to digital technologies will have the opportunity for other job roles in the future which are beyond the manual labour-intensive jobs, such as cleaning?

Mr Speaker, Sir, notwithstanding the clarification above, I stand in support of the Bill.

Mr Speaker: Assoc Prof Jamus Lim.

2.00 pm

Assoc Prof Jamus Jerome Lim (Sengkang): Mr Speaker, the proposed amendments to NPF are meant to allow an expansion of the scope of the Fund, following the Deputy Prime Minister's Budget Statement earlier this year. In that speech, Deputy Prime Minister Wong also proposed an expansion of the Fund, by $4 billion.

While I support the thrust of this expanded objective and, by extension, the Bill, I have some reservations about this wider coverage as to whether it may inadvertently lead to a dilution in the purposes of the Fund, which would, in turn, be detrimental to the ultimate goal of producing sustainable growth in the longer run.

Clause 3(b) allows grants to now be directed towards the general purpose of "making investments in Singapore… or carrying out economic activities in Singapore, in order to develop the Singapore economy."

Similarly, clause 6 amends the Second Schedule to recognise investment promotion as a supportable activity. But the amendment likewise adds the qualifier that the Fund may be applied to the "promotion of [not just] investment [but] economic activities in Singapore".

In my view, this is relatively expansive language. Were this Bill to pass, investments by the NPF would no longer be limited to just financing for productivity enhancement or continuing education as they currently are, but investments in general, so long as they contribute towards economic development. But would this mean that the Fund could be directed towards crude capital accumulation, such as the purchasing of capital equipment or funding of factory construction? What about infrastructure projects, like a new Changi Terminal, which could otherwise be financed by other instruments, such as SINGA bonds?

By a similar token, what are allowable promotions for economic activities? Would it include, for instance, marketing sports events, such as the Singapore Rugby Sevens, although I would be happy if they were to do so, or the Grand Prix, Singapore Art Week or Singapore Food Festival? What about Taylor Swift and Jackie Cheung concerts? After all, having taken over the Sports Hub, these now certainly qualify as "economic activities" within the purview of the Government.

In my view, these investments fall well outside the scope of productivity-enhancing activities and, hence, should not qualify for NPF grants. Allowing them, as well-meaning as it might be, would subvert the original objectives of the NPF.

And while one may make a case for supporting growth at all costs, I believe that this is similarly wrong-headed. We already know how to rudely drive growth: crank up capital expenditure, unfortunately, to the detriment often of both labour income and productivity. Indeed, this has been a consistent criticism of Singapore's growth model during its rapid-growth phase from the 1960s through the 1990s and was the impetus for the menagerie of productivity campaigns and bodies that, alas, saw largely a continuation of our nation's relatively anaemic productivity gains, at least relative to our headline growth.

So, while it is tempting for us to look to bolstering growth from tried-and-tested tools, such as building up yet more of our already-intensive capital stock, we must surely resist, because it is clear that returns to ploughing further resources into investment are already hitting diminishing returns. Moreover, doing so would undermine the very purpose of the Fund, which is to elevate productivity and not investment per se.

Sir, perhaps unsurprisingly, the desire to foster productivity-enhancing investment is also the essence of other schemes that Deputy Prime Minister Wong announced during his speech, such as the Enterprise Innovation Scheme for nurturing and sustaining R&D, which is the lynchpin of enduring productivity gains. I am on the record for supporting that initiative and continue to do so.

But just as important to productivity, especially economy-wide productivity, is the need to not just boost innovation but also the assimilation and deployment of said innovation throughout firms in the economy. And while automation and digitalisation were at the forefront of the previous wave of productivity increments, the next one is far more likely to be driven by artificial intelligence (AI) and robotisation.

This topic is not unfamiliar to this House. Members have asked about the rollout of AI in Singapore, including by my hon friend Ms He Ting Ru, on how our local workforce will meet demand for AI skills, by the hon Members Desmond Choo and Melvin Yong on incorporating AI into the school curriculum and Government services. And Ms He, along with Ms Tin Pei Ling, have also posed questions about Government oversight of AI, underscoring the common fear that, absent robust regulation, AI may run amok.

AI is but the latest example of a general-purpose technology, for which large-language models and generative AIs, such as ChatGPT, are the latest – albeit most impressive – iteration. General-purpose technologies are technologies that permeate every aspect of daily life, gradually improving over time, while holding the tantalising ability to spawn further innovation. Steam, electricity and information and communications technology (ICT) are earlier examples.

These earlier waves of general-purpose technologies found their way into the economy at a slower rate. But the pace of adoption has accelerated over time. The steam engine only became widely used in Britain after 100 years and needed another quarter-century before making it across Europe. Electrification required about a half-century to become ubiquitous, while computers and the Internet took at least a generation. Smartphones have spread much more rapidly, finding their way into the hands of even those in the remotest parts of Asia and Africa in a little more than a decade.

Yet, even when compared to companies at the forefront of Web 2.0, such as Facebook and Twitter – today Meta and X – both of which gathered a million users after only a year or two. ChatGPT has become pervasive at a rabid speed, having amassed that user base in a mere five days.

And unlike early general-purpose technologies, AI appears to be threatening the top, rather than the bottom of the distribution of human capabilities. Up till now, the spectre of technological progress had often come for the blue-collar job. In the late 18th century, textile workers displaced by the steam-powered looms followed the apocryphal example of the apprentice Ned Ludd, smashing the machines that replaced them and thereby earning the derisory moniker "Luddite", a term we still use today to refer to technophobes.

The accelerated adoption of automated-switching telephones after the Second World War made the services of manual switchboard operators redundant, while more recently, the personal computer and smart phone replaced the stenographer and secretary, white-collar functions requiring only modest skills and training.

Hence, while the computer scientists that design algorithms for AI and other machine learning models will still likely find themselves relevant in an AI-driven economy, a great many others will find themselves less lucky. Five years ago, we had already seen examples of how routine mental work, such as data entry, insurance underwriting, tax preparation and telemarketing, could be easily automated away. But AI can now outperform even white-collar workers engaged in creative, cognitively-demanding, non-routine tasks, such as designing websites, performing radiographic diagnoses and summarising legal briefs. Pair AI with advances in robotics that have become ever-better at fine modus and gross motor functions, from piecing together microchips to navigating military obstacle courses to driving cars and trucks and it becomes difficult to imagine what sort of jobs are not immune to the threat from this newest wave of general-purpose technology.

Taken together, our economy will need to transform itself as never before to adapt to these changes faster than ever before.

Sir, the fundamental tension that emerges with the introduction of any new general-purpose technology is the promise but also potential proffered by this technology, versus the risks and repercussions of this self-same technology for the economy and society at large.

On the benefits side, we might expect that the general-purpose technology could provide a boost to productivity and, more generally, welfare. But this can carry substantial costs. Workers whose jobs are destroyed – think horse-breeders and carriage-makers after the car became widespread or candle and lantern makers after the advent of the light bulb – will see a downward spiral in incomes, employability and, eventually, economic security. Companies will also undergo churn. There will be winners – think IBM and Microsoft after the invention of the personal computer, or Amazon and Google following the Internet revolution – as well as losers.

If history is any guide, the leaps made in the earlier stages after the introduction of a new technology will peter out over time. After the initial disruption, completely new applications, once inconceivable to contemporaries, would find their way into common use. The producers of "Gone with the Wind" and "Wizard of Oz" could scarcely have imagined that, one day, their industry would become one where actors would perform in front of a green screen, wired up, alongside computer-generated co-stars, all digitally delivered and enjoyed predominantly not in the cinemas but at home. Spreadsheets may have been expected to render accountants irrelevant. But what that meant was that tedious bookkeeping functions now came to occupy less time of our accounting professionals, allowing them to focus on higher-order, value-added tasks like balance-sheet analysis and forecasting, along with advisory functions. AI is likely to do the same, but supercharged.

Along with these novel uses, new jobs will be created. Horseshoe blacksmiths became old-school auto mechanics, who have now become diagnostic operators who predominantly replace circuit boards in cars. Close to three-fifths of jobs in 2018 did not exist in 1940. Therefore, almost by definition, we cannot conceive of the sort of labour needs that an AI-cum-robotics-driven future economy may demand. But it is likely to be in areas that are uniquely human. Jobs that require an interpersonal touch, such as counseling and care, are in less danger; as are manual, physical roles like welding, electrical wiring, haircuts, massages that robots perhaps can replicate, but, for now at least, are not quite able to do so as quickly and efficiently – or enjoyably.

Perhaps, more importantly, AI can augment our existing work, especially in the creative professions, so long as we are able to leverage AI to customise goods and service offerings, thereby expanding both the size and scope of the market. For example, a beauty advisor for cosmetics may be able to use AI to scan a customer's face, offer recommendations suited for the individual, cross-referenced to their historical purchases and preferences. At one level, this may reduce the work of any given advisor, but if it reduces the time required for the advisor to serve a customer, it could drum up additional business instead.

The corporate landscape will also be transformed. The AI rollout has already resulted in firms with greater AI exposure to run ahead of those with less. Eventually, companies that fail to deploy AI extensively in their business operations will be left behind, either by competitors who are better able to do so, or because AI will have rendered their entire industry obsolete. Many will fail. Mergers and takeovers will inevitably follow.

Once these transformations occur, we will likely be able to reap the net benefits of AI for our economy. The world has seen a dramatic slowing of productivity worldwide after the 2007 Global Financial Crisis. Indeed, as far back as the 1980s, Nobel Prize winner Robert Solow commented that one could see the IT revolution everywhere, except in the productivity statistics. That productivity boost eventually arrived around a decade or two later and bumped up productivity for a decade-and-a-half, at least until the crisis.

This then is the fundamental promise of the AI revolution – a revitalisation of our nation's productivity and growth. How soon we get there is unclear, as are the sorts of disruptions that will occur along the way, but it is now incumbent on the Government, working hand in hand with our private sector, to help our companies, both large and small, to utilise AI in their business and operations and to help our workers get comfortable working with AI as they go about their work day.

This should be a major imperative for our nation. The National AI Strategy document appears to recognise this but it is noteworthy that the term "productivity" only appears a dozen times in the 45-page document and twice in the foreword and twice in quotes, leaving the body of the document offering only three concrete examples for potential productivity gains from AI.

It is important that we remember that technology adoption is neither inevitable nor automatic. Rather, efforts must be directed specifically to domestic investments and technology adoption as well as R&D tailored towards that purpose.

This is why, in my view, the language of the Bill should, as far as possible, be clearly limited to productivity-enhancing investments because it will ensure that the dollars in NPF are channelled towards this specific purpose.

Of course, this is not, nor should it be, limited to companies. Thankfully, the original Act already allows for the funding of continuing education, training, research and scholarships, all of which may be directed towards human capital accumulation in support of raising productivity.

It is imperative, however, that such research and training opportunities be available to the typical worker and SME, rather than being limited to just highly-skilled, so-called "knowledge workers" or large multinationals. This is the only way to ensure that the AI revolution becomes infused into the broad fabric of our economy.

What may be even better is if the NPF will commit to providing an in-depth report to Parliament that details how precisely the $4 billion in funds are to be used – the sort of activities these funds support and the main beneficiaries of these programmes. This will provide greater clarity on how channelled funds, with Government bodies as an intermediary, ultimately get to our businesses and workers to upgrade their productivity. It will also clarify how, if at all, monies from the fund may overlap with those set aside for SkillsFuture.

Mr Speaker, how will the transition to our collective AI future occur is hard to tell, but I expect that an ecosystem of AI adoption startups will eventually emerge and that established consultancies will likewise expand their offerings to include AI support.

Over the next decade or so, the NFP, working through these Government intermediaries, should be applied as much as possible towards helping our local companies and people become fully AI-enabled. More generally, we need to allow AI to fully permeate our companies and workers to become an invention that fosters itself, new methods of invention and new ways of going about doing things.

When that eventually occurs, the productivity gains that have so far eluded us may perhaps finally find fruition.

Mr Speaker: It is now my pleasure to call on hon Member, Assoc Prof Razwana Begum Abdul Rahim, to make her inaugural speech in Parliament. [Applause.]

2.19 pm

Assoc Prof Razwana Begum Abdul Rahim (Nominated Member): Mr Speaker, the National Productivity Fund (Amendment) Bill expands the purposes for which the monies in NFP may be withdrawn and utilised. I support the Bill.

The fund was set up in 2010 to provide a range of initiatives related to productivity enhancement and continuing education. These include supporting productivity improvements for specific sectors and industries as well as developing infrastructure and tools to raise productivity across the economy. Productivity growth reduces production costs and increases returns on investments, some of which provide greater income for business owners and investors or enable businesses to pay their staff higher wages.

In Budget 2023, a $4 billion top-up was provided and investment promotion was included as a supportable activity. The amendment to this Bill is necessary as it provides greater flexibility with the usage of funds to build capabilities and anchor quality investments.

As shared by Senior Minister of State Chee, I agree that investment is an important cornerstone of Singapore and I commend the Government's focus on developing the capability of our workforce.

Mr Speaker, I declare my interest as the head of the Programme in Public Safety and Security at the Singapore University of Social Sciences (SUSS).

I believe skills development is central to improving productivity. In turn, productivity is an important source of improved living standards and growth. We also know that education, training and lifelong learning foster a cycle of higher productivity, more employment of better quality, income growth and development. I view skills development as crucial in improving productivity and fostering growth. This Bill aligns with SUSS' intention in developing capabilities to enhance workforce productivity and overall competitiveness.

While I acknowledge the potential benefits of this expansion, I have some minor concerns.

As reported by the Minister of State for the Ministry of Trade and Industry (MTI) Low Yen Ling in Parliament on 2 March 2023, over the past five years, Singapore's NPF has disbursed more than $1 billion across 47 Government projects related to productivity improvements and continuing education and training (CET).

About half of the funds from the NPF are allocated to CET programmes. It is heartening to note from Senior Minister of State Chee the number of individuals who have benefited from CET. However, as we broaden the fund's usage, it is essential to ensure that the quantum allocated for CET is not reduced.

At this juncture, I would like to clarify the measures in place to safeguard the use of funds for CET. May I propose implementing a mandated minimum allocation of funds for CET-related activities and ringfencing funds dedicated solely to employee training and development? This will prevent the diversion of resources to other areas.

Additionally, I am interested in understanding the mechanisms in place to monitor the return on investment from CET initiatives.

As the nature of work evolves rapidly, we need to assess the effectiveness of CET programmes and their adaptability to the changing work landscape. A continuous and sustained approach is essential to support employees who may face job displacement due to technology and automation.

On that note, NPF supports the work of the 23 ITMs. Some of the larger projects funded by NPF include sector-specific schemes like the Construction Productivity and Capability Fund as well as schemes that support enterprise and workforce transformation like the Inclusive Growth Programme and the SkillsFuture Enterprise Credit scheme. Projects supported by NPF complement our wider range of schemes and projects in driving productivity improvements.

As we evolve, to ensure that no one is left behind, I believe we should also consider expanding the outreach of NPF to include sectors that engage gig economy workers.

With the growth of digital platforms, the gig economy is booming, an ideal win-win situation for both the employers and jobseekers by providing a flexible workforce at a nominal cost to the employers. However, the sustainability and employment prospects of gig workers are questionable.

Is there any consideration given to how NPF could also extend and support the development and growth of gig workers?

I am concerned about equity in education for our workforce. Equity in education refers to ensuring that all individuals, regardless of their background or circumstances, have fair and equal access to educational opportunities, resources and support to develop their skills and reach their full potential. It aims to remove barriers and disparities that may hinder certain groups from accessing quality education and training, thereby promoting a level playing field for everyone in the workforce.

Inclusivity is vital in our approach to productivity enhancement. May I suggest we consider upskilling workers across the board, including people with disabilities, women re-entering the workforce and individuals in contact with the law?

Moreover, as we focus on innovation and with the expansion arising from this Bill, I would like to suggest that we direct specific sectors, as they tap on the funds, to engage in R&D, specifically, in supporting initiatives like the Singapore Green Plan.

Finally, I am pleased to see measures in place to ensure accountability and governance, with the revision granting the Productivity Fund Administration Board the authority to inquire into and verify the accuracy of statements or information provided in applications for financing or incentives.

I would like to seek clarification regarding any past instances of infringements and the steps taken to address them.

It is crucial to maintain transparency and uphold high standards when it comes to the usage of the fund. I trust that we have established guidelines to monitor the administrative aspects of fund allocation, particularly, in delivering CET programmes.

Considering the fund will be used to anchor more quality investments in Singapore, I propose placing a stronger emphasis on the content and quality of the CET programmes offered. To achieve this, it is vital to establish oversight mechanisms that can effectively assess the excellence of these programmes and their impact on Singaporeans.

Skills development should be an integral part of our broader employment and development strategies. Therefore, I believe there is a strong correlation between the quality of CET programmes and improved job prospects for Singaporeans.

I appreciate the efforts to enhance the NPF and its administration. I believe this revision is a positive step towards advancing productivity and continuous learning in our nation. By addressing the concerns raised, I believe we can ensure that the funds are effectively utilised to benefit both employers and employees. Mr Speaker, clarifications notwithstanding, I conclude in support of the Bill.

Mr Speaker: Senior Minister of State Chee Hong Tat.

2.27 pm

Mr Chee Hong Tat: Mr Speaker, I would like to thank Mr Sharael Taha and Assoc Prof Razwana Begum for their support and all three Members for their comments and suggestions.

Members raised questions around three themes: one, adequacy of the NPF funds for various purposes; two, ensuring proper accountability and governance for NPF-funded projects; and three, providing support for specific groups or programmes through the NPF. I will address them in turn.

Assoc Prof Razwana asked whether part of the funds in the NPF could be ringfenced for CET and Assoc Prof Jamus Lim asked how we will ensure that NPF does not dilute its focus on productivity. Mr Sharael Taha asked if the $4 billion top-up is adequate and how we can balance the use of NPF funding across the three purposes of productivity enhancement, CET and investment promotion.

Sir, as I explained in my opening speech, all three purposes are important and they are complementary pillars of our economic growth strategy.

Foreign MNEs which invest in Singapore, bring with them new technologies, market access and business models which are internationally competitive. The net injection of such companies raises the quality and productivity of our local economy.

Investments in CET build a skilled workforce, raising the overall productivity and competitiveness of our economy and enable our workers to earn higher wages over time. With a better skilled workforce, Singapore also becomes more attractive to foreign investments.

MNEs in Singapore benefit the wider ecosystem as they provide valuable training to our workers or form partnerships with our local enterprises, including SMEs.

The NPF is not the only source of funding for productivity enhancements, CET or investment promotion. The NPF is generally used to fund new initiatives on productivity and CET. Once these initiatives have proven to be effective, we will regularise them as mainstream programmes and they are then funded by the respective Ministries' annual budgets or other sources.

As for investment promotion, MTI will continue to tap on its annual budget for such activities. The reason we are expanding the NPF to cover investment promotion is to ensure that we have the additional firepower ready to attract key investments to Singapore in the event that the timing of these opportunities does not neatly match with existing funding mechanisms bound by the terms of Government.

So, even as we expand the scope of supportable activities under the NPF to cover investment promotion, please let me assure Members that the Government will continue to set aside sufficient funding, be it in the NPF, Ministries' annual budgets or other funding sources, to support meritorious productivity enhancements, CET and investment promotion.

Mr Sharael Taha asked about our ability to compete with other major jurisdictions for investments and what are the investments we are targeting. Our intention is not to try and outbid the major economies in terms of overall spending. With limited resources, we cannot afford to do that. In view of our constraints of land, labour and, increasingly carbon, we will have to play to our strengths and in areas where we have a competitive advantage. We cannot attract every project. Some are not compatible with Singapore's constraints and how we want to grow our economy. Our economic agencies have to carefully select the right projects that bring value and critical capabilities to Singapore.

We will use the NPF funds to anchor quality investments from best-in-class companies in high-growth and high value-added sectors, including advanced manufacturing, the green economy and digital economy. This includes attracting foreign MNEs to make new significant investments here, to create good jobs in Singapore, provide training to our workers and partner our local enterprises.

All these will be supplemented by a robust cost-benefit analysis to ensure that the value these MNEs bring to Singapore outweighs the incentives given to them.

Sir, I do not know whether I heard Assoc Prof Jamus Lim correctly earlier, but he seems to suggest that we may want to use the NPF to attract sports events, festivals and concerts. Maybe he meant that in jest, because certainly that is not the plan. As I mentioned in my opening speech, we want to target quality investments from MNEs to anchor those that can add value to Singapore, create good jobs for Singaporeans. The broad phrasing in the Bill is to give flexibility, to be able to meet future needs and requirements, which can change over time. But the intent is clear and I have said that clearly in my opening speech.

Sir, we will continue to ensure that there are sufficient resources available through the NPF and other funding sources to support investment promotion. At the same time, we will monitor the use of NPF funds across the three areas of productivity, CET and investment promotion. It may not be meaningful to ringfence the funds for any specific area, since all three are mutually reinforcing. Instead, we should preserve flexibility to accommodate fluctuations in spending from year to year, depending on factors, such as what the business needs are, what opportunities are available and what are the take-up rates of the various schemes.

Let me now move on to the second broad theme – the safeguards we will put in place to reduce the risk of abuse of NPF funds, to ensure that projects achieve their intended outcomes. Assoc Prof Razwana mentioned that she was pleased to see the Bill will grant the Productivity Fund Administration Board, or PFAB, with the authority to inquire into and verify the accuracy of statements or information provided in applications for financing or incentives.

I thank Assoc Prof Razwana for her support in ensuring strong governance of the Fund. The PFAB already has the authority to verify the accuracy of statements made by applicants for a grant from the PFAB. The intent of clause 4 is to clarify that the powers to obtain information under section 24 of the NPF Act apply not just to grants, but also to financing and incentives provided by the PFAB. So, this is an enhancement to an existing power of the PFAB.

Currently, NPF funds are channelled through Government agencies to support their productivity or CET schemes, and the individual agencies are responsible for the implementation of these schemes. As part of PFAB's governance process, implementing agencies must carry out regular internal audits and these audit reports will be submitted to the PFAB for review. Rectifications will be made if there are audit observations raised.

The cases of fraud cited by Mr Sharael Taha pertain to the Productivity and Innovation Credit, or PIC, scheme. Sir, I want to clarify that these were not funded by the NPF. The Police investigated these cases and appropriate actions were taken against the perpetrators. We will adopt the same stringent approach for all funding sources to deter fraud and abuse cases.

In terms of monitoring of outcomes, we will monitor the progress of schemes funded by the NPF to see if they are on track to meeting their targets. For a particular scheme, we also review its outcomes and assess whether it has met targets. We will then decide whether the scheme should be closed, extended or regularised as a steady state programme and funded from recurrent funding sources.

Mr Sharael Taha asked how we can ensure that NPF funds contribute to productivity improvements that could lower the cost of doing business in Singapore. The NPF will continue to fund existing and new schemes to support our businesses to do so. We will also continually review the effectiveness of these schemes to ensure that they remain relevant and can help our firms to drive real productivity gains.

One such example is the iSPRINT scheme, which supported SMEs to automate their business functions through information and communications technology (ICT). A study by the Ministry of Trade and Industry (MTI) found that the median firm saw an increase in revenue of 3.1% after adopting solutions under the iSPRINT scheme, compared to firms that had not adopted the solutions.

By and large, we have made good progress in driving productivity growth in Singapore. Since the NPF was set up in 2010, Singapore has met the labour productivity growth target set by the Economic Strategies Committee of 2% to 3% per annum over the next 10 years. At the aggregate level, our labour productivity growth rate over this period was 2.9%, which was higher than most advanced economies, such as the US, Germany, Switzerland and Japan, over the same period.

So, Assoc Prof Jamus Lim's comment that our labour productivity growth has been "anaemic", if I heard him correctly, is actually factually incorrect and is not supported by evidence. Sir, we will continue to monitor our overall productivity improvement, taking into account the combined effect of NPF funding, other Government schemes and the broader macroeconomic environment.

Mr Sharael Taha also asked for an update on the ITMs. I understand that MTI will provide a fuller update on this.

Sir, let me now move to the third area. Third, Assoc Prof Jamus Lim, Mr Sharael Taha and Assoc Prof Razwana gave several suggestions for NPF funds to be used to support specific programmes, like AI adoption as well as for specific worker segments, such as seniors and gig workers. I thank them for their suggestions.

We will consider their suggestions carefully. Such efforts need not be and are not funded through the NPF alone. Various Ministries and agencies contribute to these efforts through their budgets and other funding sources. For instance, Assoc Prof Razwana suggested allowing firms to tap on NPF funds to engage in R&D. I wish to inform Assoc Prof Razwana that firms can seek R&D funding through the $25 billion Research, Innovation and Enterprise (RIE) 2025 budget.

Mr Sharael Taha and Assoc Prof Jamus Lim also suggested allowing firms to tap on NPF funds for AI adoption. In fact, the Government has already been investing in AI, we have developed a national AI strategy and made significant R&D investments to build up our strengths and capabilities in AI.

We have also rolled out programmes, like AI Singapore, to support enterprises to find suitable use cases and adopt AI. As AI will affect each industry differently, economic agencies will have to develop tailored AI strategies on a sectorial basis and make plans for how to upskill and reskill our workers as jobs are transformed. We are already funding these initiatives through the Ministries' annual budgets and other funds. If need be, we can also use NPF funds to supplement this funding.

In short, if there are meritorious projects that are suitable for funding from the NPF, the PFAB will always welcome such proposals and Government agencies can submit them for funding consideration.

Mr Speaker, please allow me to conclude. The proposed amendments in this Bill seek to expand the scope of the NPF Act to cover investment promotion. Through the expansion, we will continue to strengthen Singapore's proposition as a competitive and attractive place for business.

But even as we continue to compete for foreign investments, we will also keep our focus and continue investing in productivity and CET so that our local enterprises and workers can reap the full benefits from our investment promotion efforts. As I mentioned earlier, these areas are mutually reinforcing.

This is how we can build a virtuous cycle for our economy to thrive through investment promotion where foreign MNEs want to set up in Singapore because they know we have strong local companies and a capable workforce supported by strong tripartite partnerships. At the same time, our local enterprises and our workers benefit from the MNEs' presence here, through access to valuable partnership opportunities and good jobs. The three pillars of our strategy are complementary and will help to grow our economy in a sustainable manner, for the benefit of Singapore and Singaporeans. Mr Speaker, I beg to move.

Mr Speaker: Assoc Prof Jamus Lim.

2.42 pm

Assoc Prof Jamus Jerome Lim: Thank you, Speaker, for the opportunity to clarify. First, let me start off by pointing out that while I understand the original intent of the Bill was along the lines, as Senior Minister of State Chee mentioned, which is, to promote both investment as well as productivity, my point when I gave those examples, which actually were not entirely in jest, was that the language leaves this door open for such alternative expenditures. So, I am sure Senior Minister of State Chee will agree that precision in the language of the Bill is important, even as we wish to retain flexibility as much as possible. This will prevent the potential sort of abuses that one could imagine, perhaps in my somewhat ludicrous examples.

On the issue of productivity, I do not want to get too much into the weeds, but there are two distinct measures of productivity. One is, as Senior Minister of State Chee mentioned, labour productivity. But, in fact, there is another measure which is more precise. It is called total factor productivity. It is productivity after you take into account all the observable factors of production, and here, unfortunately, I would take issue with the fact that the evidence is incorrect.

In fact, I mentioned that in the 1960s through to the 1990s, evidence is abundant in this regard. The first evidence came from Alwyn Young, an economist that was currently at the London School of Economics and Political Science (LSE) at the time at Chicago. It has been corroborated by other economists, Chang-Tai Hsieh in 2002, using a different methodology, came up with the continued finding that productivity in Singapore remains low.

More recently, MTI did have a publication in 2010 where they looked at the measure and MTI tends to have the highest numbers, but other authors, like Bhaskaran and Chiang in 2020, continued to find that Singapore has poor productivity performance, even as recently as the 2010s.

So, unfortunately, I am sure we can continue to disagree, but the point is that there is a slate of evidence, not just drawn from my own research but from other academics, that demonstrates that Singapore's total factor productivity, after you take into account observable factors of production, remains and I did use this word "anaemic".

Just one final point, Mr Speaker, I do, in fact, despite my reservations, support the Bill.

Mr Speaker: Senior Minister of State Chee Hong Tat.

Mr Chee Hong Tat: Mr Speaker, first, let me thank Assoc Prof Jamus Lim for supporting the Bill. I was not sure whether he supported the Bill, that was why I was careful in how I phrased it. But I thank him for that.

Sir, let me address the point about the language. I mentioned it earlier in my response speech. The drafting of the Bill to keep the language broad is to cater for future changes because we cannot predict what are the new industries that will emerge; what are the new activities that we will need to focus on; what are some of the new investments that we want to attract to Singapore. But the purpose of me in my Second Reading opening speech making it clear what is the focus and the intent is so that we provide clarity publicly and on record that this is what NPF wants to focus on. So, I hope that gives assurance to Assoc Prof Lim.

On the point about productivity, Sir, I know there is a range of different reports with different figures – maybe because they make different assumptions. Like Assoc Prof Jamus Lim, I do not want to go into a lengthy debate here. But let me just say this, Sir. If it is true that over the years, Singapore's total factor productivity (TFP) or labour productivity has been very poor, I do not think it will be possible for Singapore, as a very open small economy, to be able to attract investments, to be able to provide good jobs for people, and for our workers to be able to see, over time, real wage increases.

So, I think these are proof points that matter most, I think, to Singapore, to our companies and to our workers.

2.46 pm

Mr Speaker: Any other clarifications for Senior Minister of State Chee? None.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mr Chee Hong Tat.]

Bill considered in Committee; reported without amendment; read a Third time and passed.