Lee, who is also finance minister and son of founding prime minister Lee Kuan Yew, said the budget was aimed specifically at its critical financial services, logistics and tourism industries - areas under threat from Hong Kong and parts of Southeast Asia.
"If other countries can change and adapt, so can Singapore," he told parliament.
After years of 8 to 10 percent growth rates, Singapore now finds itself on an economic rollercoaster.
Following its deepest recession since 1964 in 2001, Singapore's economy grew 1.4 percent in 2003, among the weakest in Asia, before powering ahead last year with an 8.4 percent expansion - one of Asia's strongest.
"This is a budget aimed at re-engineering Singapore into a global hub. All the incentives, whether for financial sector, logistics or tourism, are focused on that," said Sanjeev Sanyal, economist at Deutsche Bank.
"The income tax cuts are also aimed at attracting talent and multinational companies," he added. These would be phased in at one percentage point a year over the next two years.
Lee projected a slim budget surplus of S$210 million ($128 million) in the fiscal year ending March 2006 - about 0.1 percent of gross domestic product. The year to March 31, 2005, saw a deficit of S$440 million.
During the two-hour speech he revised his own figures, first declaring Singapore had achieved a small surplus in its current year to March 31, 2005, of S$160 million, and qualifying this by saying he would release unspecified details later.