Operating expenditure in FY98 is expected to be 9.8 per cent of GDP. As a share of GDP, this is consistent with levels in previous years, barring the one-time compensation of $1.5 billion to SingTel in FY96 for removal of monopoly privileges. At around the 10 per cent GDP level, our operating expenditure is also considerably lower than that of most developed countries. This is the result of a deliberate policy to keep the public sector lean and trim, avoiding welfarism and confining Government's role to one of providing basic public goods and services, thus freeing more manpower and financial resources to the private sector as the engine of growth.

At the same time, the growth of operating expenditure will not be held down dogmatically without regard to public expectations for new and higher quality services as well as increased workload. Where warranted, we will provide for increases in operating expenditure.

Since 1994, we have also introduced a financial management system called Budgeting-for-Results or BFR, to raise the quality and efficiency of public services. Under the BFR programme, the public sector is managed along the lines of Autonomous Agencies, or AAs. With effect from April last year, all AAs are required to pre-specify output and performance targets that they hope to achieve for the budgets voted to them in return for greater autonomy in financial and personnel management. Wherever possible, they will attempt to link their outputs directly to their funding. In this way, there is greater accountability for deliverables, and transparency in the utilisation of public resources. The aim is to ensure that public sector recurrent spending does not outstrip nominal GDP growth rate, with compensationmade for increased workload and new programmes and services.

The BFR framework is appropriate and effective in regulating the running cost of Government departments and Government-funded statutory boards. Running costs constitute more than 90 per cent of our operating expenditure. Since annual increases in cost factors are generally lower than GDP growth, any increase in running costs as a share of GDP is due entirely to new programmes and higher workload.

Transfers, the other component of operating expenditure, are budgeted at $1.2 billion. These constitute less than 10 per cent of operating expenditure. More than half will go to restructured hospitals as healthcare and medical subsidies, another 16 per cent will go to town councils to subsidise estate management costs, and 10 per cent will go to welfare and community self-help organisations. This reflects the Government's philosophy on subsidies. Subsidies are given selectively, and only on essentials such as basic healthcare and public housing on a cost-sharing basis. For example, medical subsidies on hospitalisation are fixed as a percentage of charges and skewed heavily in favour of the lower income groups. At the same time, genuine cases of dire need are never ignored. Medifund, set up in 1993 as fall-back for those who cannot afford to pay their share of medical cost, is expected to pay out some $18 million in medical subsidies in FY97 to cover the needs of those who cannot afford even the heavily subsidised C class charges.

Since its launch, the Medifund has received $600 million in transfers from the Government to build up its capital endowment. Based on the current level of capital in the fund, projected income will be adequate to meet projected drawdowns in FY98. I do not therefore propose to make a transfer of capital to the Medifund this year.

The absence of large scale public assistance programmes reflects the Government's stand on state welfarism. We believe that extensive welfare programmes damage the fabric of our society as they diminish individual responsibility, self-reliance, community support and the work ethic. Even in the UK, the Government has realised that welfarism is not the right way to go, and is trying to roll back many of the welfare programmes and policies introduced after the Second World War. Our approach is one of many helping hands, with co-funding from Government and public donations, and services rendered by volunteers and members of the community.