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Revenue growth is expected to
slow in 1998 in tandem with slower economic growth.
Estimated revenue collection is $29.9 billion,
while operating and development expenditures are
budgeted at $27.2 billion. The operating surplus
for FY98 is therefore expected to be $2.7 billion
or about 1.7 per cent of GDP. As a percentage
of GDP, the surplus is much lower than the average
of nearly 7 per cent achieved over the five years
between 1991 and 1995 and even lower than the
3.8 per cent average of 1996 and 1997.
Apart from the direct impact
of the regional turmoil on lowering growth and
revenue in FY98, there are two other reasons for
the smaller surplus. One is a general slowdown
in the growth of revenue collection due to the
cumulative effects of tax cuts introduced over
the past 12 years. The other is the substantial
rise in development expenditures in recent years.
Over the 5-year period between 1991 and 1995,
development expenditures averaged 4.3 per cent
of GDP per year. In 1996 and 1997, development
expenditures jumped to nearly 6.5 per cent of
GDP when we embarked on major programmes to upgrade
and expand our economic and educational infrastructures.
Development expenditure will rise further to 7.5
per cent of GDP in FY98 as implementation of the
Education IT Master Plan, North-East MRT Line
and land reclamation programmes accelerate. These
expenditures are expected to peak in FY99.
Despite slower revenue growth
and higher development spending, the forecast
surplus of 1.7 per cent of GDP will allow us to
continue with the policy of adding to our surpluses
each year. The need to build up our financial
reserves cannot be over emphasised. The regional
crisis has clearly demonstrated the importance
of such reserves, especially for a small and open
economy like ours. If not for our strong fiscal
and reserves positions, our currency and stock
market would have been much more severely affected
by the fallout from the financial crisis. The
comfortable reserves position which we enjoy today
is the result of prudent fiscal policies steadfastly
pursued in the past 30 years. We are committed
to continuing with these policies, and remain
confident that our strong fundamentals will carry
us
through the current financial turmoil.
For the FY98 budget, substantial
increases in infrastructure expenditure will provide
stimulus to offset slowdowns in sectors affected
by the regional crisis. Although GDP growth is
expected to slowdown substantially this year,
a decline to negative growth is not foreseen,
so major stimulus initiatives are not contemplated
at this time. Our tax rates remain competitive
and no major tax changes will be made against
a background of declining revenue collections
and rising development expenditures. However,
as the economic outlook in the region this year
is volatile and unpredictable, the situation will
be closely monitored. If a sudden downturn should
take place, Government will not hesitate to respond
with off-budget measures, as we have more than
adequate resources to cope with any eventuality.
In thinterim, we will make some adjustments to
lower the cost for businesses. We will also provide
some assistance to individuals and households
to help them tide through a more difficult year.
I will elaborate on the details later. In addition,
we will continue to fine-tune our tax incentives
to promote activities with high growth potential.
In particular, there will be a package of incentives
to promote the development of the financial sector.
These refinements will sharpen our competitive
edge and ensure that when the region recovers,
we will be ready to take advantage of the opportunities.
Let me now deal first with the
tax changes for companies. |
