The Government's fiscal policy aims to provide a stable and conducive environment for the private sector to thrive. Our target is to contain expenditure within operating revenue and run a modest budget surplus over the long run, so that the public sector does not drain resources from the economy.

Our budget surpluses have averaged 4.4 per cent of GDP over the last 8 years. This healthy state of public finances is the result of careful expenditure and buoyant revenue. The Government has been very careful with its expenditure. It has embarked on projects only on their own merits, and not just because it has the money. Yet, we have not in any way stinted on investments for economic and social purposes. 30 per cent of government expenditure is devoted to development projects, like building schools, hospitals, roads and parks. Investors and analysts rate our infrastructure highly. Our people enjoy good public amenities and a high quality of life.

On the revenue side, despite successive reductions in income tax rates, collections have risen because of strong economic growth. At the same time, non-tax measures like Certificates of Entitlement (COEs) and Foreign Workers Levy, which were introduced for purposes other than revenue, have developed into significant revenue sources. These revenue sources are not as stable as taxes. They are likely to fall sharply in a recession, as demand for foreign workers falls, and Singaporeans have less to spend on buying cars. But because of their size, they must nevertheless be taken into account in our macroeconomic policy.

The Government's budget surpluses have not been a drag on the economy. Economic growth has remained high, and in some years has in fact exceeded the long term sustainable rate. The surpluses have enabled the Government to enhance the wealth of Singaporeans in good years, through schemes like the HDB upgrading programme and the Share Ownership Top-Up Scheme. There is therefore no reason for us to be apologetic about our budget surpluses or to make drastic changes to fiscal policy.

Over the longer term, our surpluses give us the flexibility to look ahead at how best our fiscal policy can support continued growth. As the Singapore economy matures, its growth will gradually slow down. When this happens, the Government will have room to reduce taxes, to strengthen incentives for individuals to do well, take risks, and save, in order to promote investment and economic growth, without running into a budget deficit. In previous Budgets, I had mentioned a target of 25 per cent for the corporate tax rate and 12 per cent for the property tax rate. Provided we continue to keep a tight rein on expenditure, these rates should still enable us to set aside a modest surplus to meet contingencies and cope with any unexpected economic downturns. I will elaborate on this year's adjustments later in Part III.

At the same time, our surpluses enable the Government to take non-tax measures to benefit those who pay little or no taxes, like remission of HDB conservancy and service charges for lower-income households, or the Share Ownership Top-Up Scheme. On the expenditure side, the Government will continue to evaluate projects on their economic merits. No worthwhile project will be held back. In fact the Government will make a special effort to conceive and implement projects which achieve specific social objectives. One good example is the Edusave Merit Bursary scheme, which has helped us to reach out to a large number of young Singaporeans from lower income families, and encouraged them to study hard in order to uplift themselves and their families.