Our GST increase, together with the planned revisions in the rules for drawing on Net Investment Income, will provide the revenue for us to make these investments in our future.

Second, for 2007 itself, the GST increase was revenue neutral and had no impact on our surplus position.

Total collection from the additional 2 per cent of GST amounted to around $1.4 billion.

This was in fact equal to the GST offsets plus the WIS we paid out in financial year 2007 alone, not counting future years of GST offsets and the WIS.

Third, by introducing the GST increase at a time when economic growth was healthy and our revenue position still strong, we were able to fully offset its impact on the cost of living for most Singaporeans.

In fact, lower- and middle-income Singaporeans have received significant net benefits as a result of the GST increase last year.

This is because they pay only a small portion of the GST, but receive the bulk of the GST offsets.

The bottom 20 per cent of resident households paid only 5 per cent of total GST collected.

The next 20 per cent paid 7 per cent and the subsequent 20 per cent paid 10 per cent.

Adding up, this means that the bottom 60 per cent of all resident households contributed less than 25 per cent of total GST collected.

This is because upper-income Singaporeans, as well as tourists and foreigners, account for the bulk of our GST collections.

Let us now look at what Singaporean households are getting back.

Households in the bottom 60 per cent are getting back much more in terms of offsets than additional GST paid.

For the bottom 20 per cent, it is quite significant.

In 2007, the GST offset package plus the WIS was five times more than the GST they paid.

Fourth, given that the GST increase was an essential part of our strategy for funding future expenditure, it would have been quite unwise to wait until we had run out of revenues before raising GST.

The last thing we should do is to wait until there is an economic downturn, when households are facing financial difficulties and the Government faces declining revenues, before we raise the GST, because then we would be unable to provide a full offset to Singaporeans.

We should never try to game this, to wait until the last minute to raise revenues or to roll back the GST increase now in the hope that we can raise it again later.

We could do that if Singaporeans were simply shareholders in Singapore Inc.

But they are citizens and the Government's job is to anticipate their future needs, put in place the finances that allow us to meet these needs and help Singaporeans with the changes that are necessary by providing them with offsets to help them adjust.

Internationally, too, the trend continues of moving away from direct taxes on income to indirect taxes on consumption.

Even in Hong Kong, professionals and the serious money know that the GST will eventually be necessary to sustain their revenue and make the investments they need for the future.

Hong Kong's strong surpluses today are largely due to buoyant stamp duty and land sales collections.

As the Hong Kong Financial Secretary stated in his Budget speech this morning, 'revenues from land premium and stamp duties together will account for about one-third of total government revenue for 2007 to 2008. This is the highest contribution that these relatively less stable revenue sources have made to total government income since 1997 to 1998'.

To sum up, we made the right decision to raise the GST last year and put in place a strong and stable revenue position for the future.

We introduced it at a time of good economic growth, although no one expected that growth would be as strong as it was.

Doing so allowed us to provide substantial offsets to lower- and middle-income Singaporeans and to put in place the WIS as a long-term programme to support our low-wage workers.

The 2 percentage point increase in GST also did not contribute to the fiscal surplus in 2007.

Is Government giving back too little?

Several MPs referred to feedback that this year's surplus-sharing package, at $1.8 billion, was small compared to our surplus of $6.4 billion last year.

Couldn't we have afforded to give more, for example, through service and conservancy charge rebates and property tax rebates?

First, to clarify, the special benefits that we are providing to households through this year's Budget amount to $2.8 billion.

This is because, in addition to the $1.8 billion that comprises this year's surplus-sharing package, we will in fact be giving $1 billion in benefits that were previously announced as part of the GST offset package.

Second, it is useful to put in perspective the $6.4 billion estimated surplus for 2007. It is in fact not large by historical standards, relative to the size of the economy.

The surplus is a turnaround from the deficits we had been running in recent years.

But, at 2.7 per cent of GDP, it is in fact not large compared to the Budget surpluses we were running in the 90s.

There is no assurance that we will continue to run significant surpluses and we do not expect to.

This is why, while we have provided a substantial package of benefits in the $2.8 billion that we are providing to households this year, we are also setting aside resources for the endowment funds that are dedicated to the long-term social expenditures that are necessary for Singapore and for R&D.

By doing so, we are ensuring that long-term needs such as Medifund, Eldercare and continuing education obtain a secure stream of funding independent of the ups and downs of the economic cycle.

In total, therefore, when we take into account the amounts set aside for endowment fund top-ups as well as for surplus sharing, we will be spending $5.4 billion.

This is a large sum we are putting aside to meet the needs of Singaporeans, both in the immediate term as well as for the future.

2 Are we doing the right things to sustain competitiveness?

Rising business costs

Many MPs have spoken up for local businesses and SMEs.

Local costs are rising because the economy is doing well and there is increased competition for resources, especially labour and industrial and office space.

Mr Inderjit Singh attributed all this to what he said was the Government's 'grow-at-all-costs' policy, which he says had overheated the economy and has been the cause of our inflation in business costs and prices of consumer goods, including even food.

In other words, the problems faced by businesses and households are the result of a flawed growth policy.

It made for very entertaining listening, but it is in fact Inderjit's analysis that is flawed.

The Government has not pursued a 'grow-at-all-costs' policy.

We 'went for growth' not by over-stimulating the economy with fiscal spending but by making Singapore more competitive through building up capabilities, keeping taxes competitive and investing in infrastructure.

3 Are we doing the right things to help Singaporeans?

Helping households

We cannot avoid global inflation, but we are mitigating its effects.

Our efforts to diversify our food sources and our policy on the Singapore dollar exchange rate have helped mitigate the effects of inflation.

We are also helping Singaporeans directly.

First, by helping them own their homes, which provides a large hedge against inflation.

The 95 per cent of Singaporeans who own their homes are not affected by inflation in the rental market, which is especially worrisome if you are a retiree householder.

In fact, the Annual Value revision simply recognises the fact that HDB flats have become more valuable. It does not mean that home owners are worse off.

Second, by helping needy Singaporeans directly.

Because we had a large surplus last year, we have been able to provide a substantial package of benefits directly to Singapore households.

It will, in fact, exceed the cost-of-living increases most lower- and middle-income households will experience.

The total amount two-room retiree households spent last year would have been about $980 a month on average, or $11,900 per year. This year, their total spending could go up by about $650 for the year because of inflation, taking the top end of the forecasted inflation range of 4.5 per cent to 5.5 per cent.

However, they will get around $3,100 in benefits from this year's surplus-sharing package and the GST offsets that they continue to get, more than four times the increase in their cost of living.

Their total expenditure due to inflation in 2008 is about $2,200, and they will receive around $4,100 in benefits from the 2008 transfers, almost twice their cost-of-living increase.

Their total expenditure arising from inflation in 2008 is about $3,100, and they will receive around $4,400 in benefits from the 2008 transfers, more than their cost-of-living increase.

These illustrations are before taking into account the increased wages that working households would experience in a growing economy.

Mr Yeo Guat Kwang also said that the only lasting way to help low-income Singaporeans cope with rising costs is to improve their employment prospects through training.

The only reliable and sustainable way to address this problem (of rising costs) is for both workers and companies to improve productivity and so justify a higher standard of living for ourselves.

Zero-rating GST on essentials

Mr Inderjit Singh and Ms Sylvia Lim had asked if we could exempt GST on certain essential items to help the lower-income.

I had explained fully in last year's Budget debate why this was not a good idea, especially not for lower-income Singaporeans.

It is still not a good idea today.

There are two reasons:

First, most of the GST revenue collected on essentials comes from the higher-income households and foreigners. They contribute the bulk of GST on essentials, just as for all other types of expenditure.

Second, the bulk of consumption by the lower-income is not on essential items, but on other items.

The eight most commonly cited essential items make up only 5 per cent of the expenditures of the bottom 20 per cent of households.

Even if we take all uncooked food into account, it is only one-eighth of the expenditures of a typical household in the bottom 20 per cent of the income ladder.

If we add their spending on public transport and utilities, the total comes to around one-quarter of their expenditures.

Therefore, it is far better for the lower-income groups that we help them directly.

Exempting certain items from GST is also not cost-free.

It will mean the need to impose higher GST rates on other items over time, in order for the GST to generate the same amount of revenues as before.

Widening income gap

As set out in both last year's Budget and this year's Budget, this has to be a key concern for Singapore.

As Dr Lily Neo puts it, if those at the bottom end of the income ladder stagnate or see declining living standards, Singapore's social compact will be at risk.

This is why we have embarked on major new initiatives in the last two years to help our lower-income workers with their income, their savings, their job prospects and the upgrading of their skills.

Workfare is a major addition to our social security system: It will give those at the lower end of the workforce a strong incentive to find a job, stay employed and save for their future.

But Workfare should not be the end game for any worker.

Our objective should be to help our low-wage workers up-skill and graduate out of WIS.

Workfare is not simply a means to supplement the income of low-wage workers. Another important objective of Workfare is to encourage as many people as possible to join the CPF system.

We know this will take time and will take considerable effort.

But getting as many workers as possible to join the CPF is the only real way we can more adequately address their needs.

Workfare is part of a broader fiscal system that supports Singapore's social compact.

It is a highly progressive fiscal system, despite our very low rates of tax on the middle- and upper-income groups.

The Singapore system is one that provides targeted help for the needy while keeping the overall tax burden low so that we reward work and enterprise.

Conclusion

The most important debate in the last two days has been about the basic ethic that we want to sustain in our society.

We all aspire to help and uplift the less fortunate members of our society.

Mr Siew Kum Hong says that the Government is only concerned about not eroding the work ethic, rather than caring for Singaporeans, and so we tend to provide the bare minimum to Singaporeans in need, such that they have just enough to survive.

His description does not square with the reality of government intervention to support the lower-income group.

Through Workfare, through our housing subsidies, through our CPF subsidies and top-ups, through the support we provide the poor with Medifund and through the many flexible schemes that ComCare offers, we are providing substantial support for lower-income Singaporeans.

His desire to see nobody left behind is noble and shared by us all. But his exhortation that we should ignore waste, ignore dead-weight loss, ignore disincentives to work is reckless.

To be able to help the poor, we must first create wealth, grow our GDP and provide every incentive for Singaporeans to strive and work to improve their lives and that of their families.

If our policies harm that for the noblest of reasons, we will be in serious trouble, as many other countries have found.

Instead of helping the people we all want to help, we will be doing worse for them.

The real issue is how we can keep our economy productive and vibrant and how we can keep our society resilient and caring, not just now or for a few years, but for many years to come.

Will it be achieved by the Government giving more and more and handing out more and more goodies?

Our basic philosophy has been and must remain:We must keep alive the incentive for every Singaporean to strive and maximise opportunities to do better for themselves and their families.

This Budget has given Singaporeans something to tide over their present difficulties. But far more important is what we are doing to help every individual upgrade himself through education and training, to stay in a job and keep advancing his skills and to save for retirement.

We have embarked on new initiatives and there is much more work ahead.

We will stay focused on this central task.

As Madam Halimah Yacob summed up, it is what we have to do, so that this continues to be a place where everyone has the opportunity to fulfil his dreams through hard work and can look forward to the future with hope.

This is the philosophy which will keep Singapore going through good years and bad, which will ensure that prosperity will last more than three generations.

And above all, which will make this a society where every Singaporean can be proud that they are playing their part, not just by doing better for themselves, but by contributing to Singapore.