Mr Speaker, Sir.

1.13 We now live in a fundamentally changed world. Singapore is at a turning point. We face not just greater economic volatility, but also new political and security uncertainties. Competition is keener and changes are coming faster. To stay in the race and ahead of the pack, we must constantly adapt to the changes around us, and restructure our economy.

1.14 After many years of rapid growth and development, our people now enjoy a high per capita income and standard of living. But as our economy matures, it will be difficult for us to maintain the same high rates of growth that we experienced in the 1980s and 1990s. Structural unemployment will become a more serious problem. Older, less educated workers who fail to update and upgrade their skills will be particularly vulnerable. The Government's fiscal position will tighten as slower growth means less buoyant revenues, while an ageing population will lead to increased social spending. We must find new sources of growth or else stagnate and decline.

1.15 These challenges are formidable, but we can overcome them. Over the last 30 years we have built up our financial, physical and human resources through toil and teamwork. We have strengthened our social cohesion and institutions. We share ideals and values that help us to work harmoniously together for maximum results. These key advantages help us tackle difficult problems together, and restructure our economy for continued prosperity.

1.16 We have already begun the task of restructuring. In October 2001, the Government announced the establishment of the Economic Review Committee (ERC) to develop new strategies to take us forward. Last year, the Government accepted and implemented two major recommendations of the ERC.

1.17 Firstly, we decided to restructure our tax system. We are lowering corporate and top personal income tax rates substantially. This will help to retain and attract businesses and talent, and thus create good jobs for Singaporeans.

1.18 At the same time we are raising the GST rate. The Government provided a generous $4.1 billion offset package to help Singaporeans adjust to the GST increase, and ensure that no household will be worse off for at least five years. In addition, the Government is phasing in the GST increase over two years, instead of raising it to 5% in one step, as originally planned. This puts an additional $650 million in the pockets of Singaporeans.

1.19 Secondly, we restructured the CPF to focus on the basic retirement needs of Singaporeans and trim over-investment in housing. This will keep the burden of CPF contributions as low as possible, while meeting the essential needs of the majority of the population. To help older workers aged 50-55 stay employable, we also capped employers' contributions to their CPF at 16%.

1.20 Besides these ERC recommendations, we responded to the recession by moderating wage increases to maintain our competitiveness and retain jobs. Singaporeans have been guided by the National Wages Council's recommendation of wage restraint, which extends until June this year. Their willingness to accept these sacrifices reflects their pragmatism, as well as the close tripartite relationship between the unions, employers and the Government.

1.21 This clear response has distinguished us from other countries. Foreign investors and analysts have noted our decisive actions to restructure the economy and tackle the downturn, as well as our support for difficult but essential policies. This is a key reason why we have continued to attract investments, even as investment flows into other Southeast Asian countries have declined.