Finance Minister Tharman Shanmugaratnam on Wednesday mounted a robust defence of the government's decision to hike the Goods and Services Tax by two percentage points last year, countering MPs who had said it was not necessary in the face of last year's huge Budget surplus of $6.45 billion.

Holding back the GST hike, he said, 'would have been the wrong approach' for three main reasons.

For one, the tax was not a revenue stream for the last fiscal year, but a long-term move to fund increased social and other expenditures over the next five years.

The purpose of the GST increase was to fund payouts to low-income Singaporeans, under a new permanent scheme called the Workfare Income Supplement.

Secondly, revenue collected from the higher GST last year was given back to Singaporeans in other ways.

The collection from the two-point hike alone was $1.4 billion, which was equal to the amount paid out in GST offsets and Workfare, he said.

In fact, low-income households got back much more than what they forked out in GST, he pointed out.

The bottom 20 per cent of resident households contributed five per cent of total GST revenue last year. In comparison, they received five times more from offsets and workfare payouts.

Higher-income Singaporeans as well as tourists and foreigners accounted for most of the GST collected.

Thirdly, the Minister argued, it was better to increase the GST while the economy is doing well.

He said: 'The last thing we should do is to wait until there is an economic downturn, households are facing financial difficulties and the Government faces declining revenues before we raise the GST. Because then, we would be unable to provide a full offset to Singaporeans.'

The Finance Minister's 80-minute speech on Wednesday capped three days of vigorous debate on the Budget statement.

Some 41 members of the House rose to speak in turn. While all supported the Budget overall, many also had questions about where the money was going to.

An issue that cropped up often was whether the government was taking too much into its coffers and giving back too little, as the debate over the GST hike suggested.

Raising the GST also enabled the Government to reduce the corporate income tax by two percentage points - from 20 to 18 per cent.