III REVENUE AND TAX CHANGES

GDP growth in 1997 is projected to be between 5 to 7% . For FY97, revenue collection is estimated at $28.6 billion, while operating and development expenditures are budgeted at $23.9 billion. The budget surplus for FY97 is therefore expected to be $4.8 billion, the lowest since FY92.

There are two main reasons for the decline in the projected surplus. One is the slowdown in the growth of revenue collection, due largely to the cumulative tax cuts over the years. The other is the rise in development expenditure, mainly because of increased spending on economic development projects, implementation of the Education IT MasterPlan, and the construction of the North-East MRT line and the Bukit Panjang LRT.

In the past five years, we have cut the corporate tax rate from 31% to 26% . We have similarly reduced the top marginal rate for personal income tax from 33% to 28% , with corresponding reductions to the other marginal tax rates. Property tax was brought down from 16% to 12% . We also abolished the stamp duty for a number of instruments and reduced the rates for others. All these measures resulted in an average revenue loss of about $2.5 billion a year. The revenue loss amounts to about one and a half times more than the additional GST collection of $1.7 billion a year. Development spending, on the other hand, has grown by more than two and a half times from $3.6 billion in FY92 to $9.6 billion in FY96.

The tax cuts and higher development expenditure are in line with our policy of keeping taxes as low as possible, and directing spending to productive infrastructure which will yield lasting returns. This policy has served us well. It has provided the basis for Singapore's economic growth. It will remain a cornerstone of our economic strategies. We will continue to give priority to investments in infrastructure and ensure that our tax rates are competitive.

We reduced our corporate tax and personal income tax rates last year. The lower rates will take effect from Year of Assessment 1997. There is therefore no need to make further adjustments to these tax rates so soon after the last revision. As it is, our tax rates are already among the lowest in the world. However, we will continue to fine-tune our tax incentives to promote activities which are of high value-add and high growth potential. We will also adjust some of the personal reliefs for income tax.

The projected surplus for FY97, although lower than previous years, is still at a healthy level. Government will therefore continue to return part of these surpluses to Singaporeans. I will elaborate on the details later.

Let me now deal with the tax changes for companies.