The first macro consideration in this Budget is to decide whether to aim for a surplus or a deficit. We need to run deficits in difficult years, but we must balance the budget when the economy recovers, and that is what we mean by fiscal prudence.

This year, we are running a deficit of $1.35 billion, which is 0.8% of GDP. Many MPs have supported this as an appropriate fiscal stance to support the economic recovery which is already underway. Mr Iswaran has asked if the projected deficit for this year is too conservative or cautious. I do not think $1.35 billion deficit is conservative, given that the economy is on the mend. We have to judge the fiscal stance with reference to the state of the economy. If the economy is down, we must do more. If the economy is picking up, we need to do less, or we may even have to dampen the economy. This year, the economy is recovering. I think a modest boost like this is about right. We are projecting GDP growth of 3½-5½% this year. In fact, if we look at the projections, they are at the top end of that range. But we have set the range this way, down to 3½%, because of what Donald Rumsfeld would call “unknown unknowns”. We do not know what may strike us. It could be a terrorist attack. It could be another virus. Or it could be some totally unexpected mishap. So, just to be careful, we are telling everybody, "Watch it." But if we are just going on momentum, I think the momentum is strong and there is no need for a larger fiscal stimulus.

I note that Dr Gan See Khem felt that the Constitution forces “extreme fiscal conservatism”, if I may quote her, and she argued that the Government should have a more aggressive fiscal policy and run budget deficits for many years to come. I am not an extreme fiscal conservative, but I do not think this is necessary or wise. It is not a sustainable path to take. We are prepared to run a deficit in a downturn, as we have done in the last few years, but we must not end up with structural deficits, as Hong Kong has done. Because that would undermine investor confidence, crowd out the private sector, and in fact, far from promoting growth, after a while, it will dampen growth and weaken the Singapore dollar, and inflation will go up.