The future of closer Singapore/Australian trade, political and defence relations seems assured but cannot be taken for granted, says John Arbouw.
Singapore's Finance Minister Dr Richard Hu has an unusual way – in Australian terms at least – of stimulating the economy: he cuts taxes. In his Budget delivered in March he intends lowering the corporate tax rate to 24.5 percent from 25.5 percent and give small businesses a 75 percent exemption on the first $10,000 of income and 50 percent exemption for up to the next $90,000 chargeable income. Property taxes will be reduced from 12 to 10 percent and personal income taxes to 26 percent from 28 percent. The tax measures represent only part of a government move to make things easier for business and for individuals now that the heady days of 10 percent economic growth has slowed to 4.5 percent. "The Government has introduced a slate of measures in Budget 2001 to reposition ourselves for the future," Dr Hu said in his Budget speech. "The Budget this year is aimed at creating a framework for businesses to flourish, and maximising the potential of all Singaporeans. Stirring stuff, and governments over the years have continued to deliver on their promises. It is a vital part of the unwritten social and political contract between government and people that says social engineering and authoritarianism will be tolerated so long as economic prosperity is assured.
While other Asian countries have had decidedly mixed economic performances, Singapore continues to grow, albeit at a slower rate. From a third world island state in 1965, Singapore has become a financial and trading powerhouse and its citizens are better off per capita than most Australians. In the process, Singapore has effectively transformed itself from a low-skilled, labour intensive economy to a modern, highly skilled nation which is the envy of not only its Asian neighbours but many Western countries as well. The Singapore Government has also announced an Industry 21 plan in which it identifies a number of strategic economic sectors and has set industry targets on development in Singapore's manufacturing and servicing industries. The aim is to bolster the identified industries so that they account for around 40 percent of GDP and create around 20,000 jobs every year. Two out of three of these jobs will be for knowledge and skilled workers in the manufacturing sector and three out of every four of the jobs in the exportable serviced sector.
Singapore is targeting 150 new electronic projects to generate $150 billion worth of output, growing 8 percent a year. The island state hopes to triple its present annual capacity for ethylene production to three million tonnes. In the life sciences, the Economic Development Board hopes to attract 15 "world class" life sciences companies to establish Singapore as the regional centre for clinical trials and drug development. In achieving its aim, the Government backs its own judgment by providing a range of incentives such as tax-free holidays to ensure that overseas investment and companies are welcomed. While Singapore is determined to maintain its status as a high-tech manufacturing base, its desire to be the leading regional finance centre and has also taken a step forward with the Australian Stock Exchange and the Singapore Exchange establishing an electronic link from July 2001 that will allow Singaporeans and Australians to buy shares on each other's exchanges. With many government companies such as SingTel slowly becoming publicly-owned entities and investing offshore, the opportunities for investment have become both easier and more attractive.
One issue that needs to be resolved is cross-border jurisdiction. The issue is whether the Australian Corporations Law would still apply and which listing rules – Singapore's or Australia's – apply. Whether the stock exchange co-operation leads to a more formal integration of the two markets has still to be worked out with neither country likely to cede their corporations powers. It should be remembered that the mooted merger between the stock exchanges of New Zealand and Australia also faltered on these issues. But there is little doubt that Singapore is well ahead of its neighbours in terms of establishing and enforcing corporate regulation and prosecuting corporate wrong-doers as was shown with the imprisonment of Barings derivatives trader, Nick Leeson. Economic relations with between Singapore and Australia have been mixed. A common complaint from Singaporeans and from other Asia countries is that Australia is a fair-weather economic friend. The push by the Keating government for closer economic and political relations in the late 1980s and early 1990s helped lift Australia out of the recession and turned a new page in this country's relationship with the region.
The Asian economic meltdown halted progress and confirmed a common sentiment among Asian business leaders that Australians have a surge in investment in the region every 10 years or so but there is little long-term commitment. Australia's merchandise trade with Singapore in 2000 was $5874 million in exports and $3712 million in imports. Services exports stood at $1816 million and imports at $2099 million. In 1998-99, Singaporean investment in Australia was more than $17 billion while Australia's investment in Singapore was around $5 billion. With SingTel taking over Optus and Singapore Airlines effectively owning Ansett, the level of investment has increased dramatically. In November last year, Singapore and Australia held discussions to establish a bilateral free trade agreement and this has already provided benefits with Singapore Power investing $2.1 billion in Victoria's high voltage transmission network. The lure for Singapore Inc to target Australia is simple. The US market, as many Australian corporations found out to their detriment, is a difficult market to crack and Australia is closer and there are historical ties.
Political relations between Australia and Singapore have always been robust despite the quote, inaccurately attributed to former Singapore Prime Minister Lee Kuan Yew, that Australians were in danger of becoming the "poor white trash of Asia". Singapore students flock to Australian universities and many senior ministers in the Government have been educated in Australia. The Hanson diatribes on revisiting the white Australia policy have had no discernible effect. Australia has moved a long way from the period where the only time Australian business and political leaders saw Asia was on an airplane on the way to London. However, the cargo cult mentality that still permeates sections of Australian industry and business needs to be revisited. Singapore or any other Asian country cannot be seen simply as a convenient place to dump excess goods and services when the Australian economy is proving bumpy.
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