By DAVID SANDISON
GUEST COMMENTATOR

LAST year's Budget, delivered admittedly in comparatively good times, could be said to have met expectations at the time. There was no need to bring down corporate taxes as a general proposition and in the face of a potential pick up in inflation, personal tax reductions would only have added to the risk of unwelcome retail liquidity. So tax rates stayed where they were.

Twelve months down the road, the world finds itself in a state of extreme economic distress with credit all but dried up and asset values crashing all around us. Businesses that were household names have gone down with all hands. Singapore, as a small economy almost entirely dependent on external trade, finds itself tossed around at the mercy of an economic storm that, for the time being at least, appears to be out of control and is possibly getting worse.

In his Budget speech of 2003, the then-minister for finance, Lee Hsien Loong (now Prime Minister) was well aware of Singapore's vulnerability when he observed that 'there is no safe harbour where our ship can shelter to rebuild and refit'. Clearly, the economy is on the high seas and emergency action was required from this Budget to allow the ship to shelter from the worst, and enable it to find a place to drop anchor and hunker down until the storm blows over. The fact that the Budget speech was brought forward by a month demonstrated the urgency of the situation in its own right.

Many of the targeted handouts that were announced in the speech had already been hinted at in the press, thus there were few surprises yesterday. The only uncertainty was how much the rescue package might be. The principal aim of course, was to help tide Singapore over the worst recession in its history; but the record $20.5 billion package also kept a firm eye on the need to emerge better, fitter and faster when the world economy turns around, as inevitably it will. The five components of the package were centred on creating jobs for Singaporeans, stimulating bank lending, enhancing business cash flow and competitiveness, supporting families, and building a home for the future.

As expected, the rate of the Goods and Services Tax (GST) remained untouched (although some had a tingling feeling that it might be raised). However, against expectations (but not against hope), the corporate tax rate was lowered for income earned in 2009 to 17 per cent from an already competitive 18 per cent. This, of course, is of use for those that survive the downturn, and remain profitable. It also raises the question of a possible increase in GST next year when the current measures have to be paid for, thus allowing a continuation in the transition from direct to indirect taxes.