4.2 The ERC Sub-Committee recommended that the Government cut corporate and personal income tax rates to 20% in 3 years. For this year, it recommended that the Government make "significant immediate reductions" in both corporate and personal income tax rates. We have considered carefully the appropriate size of the immediate cuts, and the exact timing of the GST increase. We had to strike a careful balance between the need to make a bold move now, and the need for fiscal prudence in view of the uncertainties in the external environment.

4.3 From YA 2003, I have decided to cut the corporate income tax rate from 24.5% to 22%. This 10% reduction will save businesses $700 million a year.

4.4 Also with effect from YA 2003, the top marginal personal income tax rate will be cut from 26% to 22%, with corresponding cuts in all income bands. This will reduce the tax payable by most taxpayers by 13% to 16%, saving them $620 million every year.

4.5 I have decided to raise the GST rate from 3% to 5% from 1 Jan 2003. The increase in GST is expected to raise an additional $1.3 billion of tax revenue per year.

4.6 On an annual basis, the combined revenue loss from cutting the corporate and personal income taxes to 22% this year is $1.32 billion, slightly more than the additional revenue of $1.3 billion from raising GST to 5%. In my judgement, this strikes the right balance between boldness and prudence, and sets us on track to reduce both corporate and personal income tax rates to 20% by the FY 2004 Budget.