PART III OF FY94 BUDGET STATEMENT

Mr Speaker, Sir, let me turn next to the fiscal position and the proposed tax changes.

The better than expected growth in 1993 yielded a healthy budget surplus. While next year's economic performance is not expected to be as strong, the projected growth of 6-8% will nonetheless exceed our medium term target range of 4-6%. Revenue collection in FY94 is estimated at $18.9 billion. With operating and development expenditures budgeted at $16.7 billion, a surplus of $2.2 billion is anticipated.

As our economy matures, we will be looking towards a consolidation of the fiscal measures we have introduced over the years to promote growth. There will be more adjustment to and extension of existing schemes. Last year, I introduced a package of tax incentives to promote our external economy. These should be given time to work through. I also announced a 3 percentage point reduction of corporate tax rate. As the economy is expected to grow at a rate well above the target range of 4-6%, there is no need to adjust our tax rate this year to further stimulate the economy.

As part of our major tax reform, GST will be introduced. Corporate and personal income tax rates have been cut. A package of tax and non-tax rebates has been given to offset GST. Total GST to be collected in FY94 is estimated at $960 million. The tax cuts and rebates introduced will reduce Government revenue by $1.2 billion. The net effect is expected to be revenue-negative.

The operating framework for GST is now in place. From 1st April 1994 we will be operating one of the simplest and most flexible GST systems in the world. With GST in place, we will have a more balanced tax structure, better suited to support the next phase of our economic development. Our medium term goal is to bring our corporate tax rate down to 25% to maintain our competitiveness in an increasingly competitive world market. Personal tax rates will also be kept low to reward effort and enterprise. Provided we exert careful control over operating expenditures and sustain good economic growth, we should have adequate revenues even though the GST rate will remain at 3% for at least 5 years.

1993 was a very successful year. A strong fiscal position gives the Government scope to pass part of its surplus back to the economy and to enhance the assets of its citizens. I will elaborate on the details later.

Let me now deal with the tax changes for companies.