There is a story, the details of which must remain vague, about the Australian author of a book which was mildly critical of a close political associate of Lee Kuan Yew, the father of Singaporean independence. The writer, who was visiting the former British colony three years ago, had ordered a cab to attend a function and was picked up as arranged, only to be surprised - and not a little alarmed - when the cab driver took an unplanned detour to a quiet spot.

This "driver" then delivered a homily, with thinly veiled threats, about the dangers of being critical of Mr Lee or any of his associates. The message was clear: Mr Lee might no longer have been in power, but his influence remained extremely powerful in the island state that he had nursed from its days as a British colonial possession to one of the economic powerhouses of South-east Asia.

Singapore under Mr Lee gained a reputation as one of the most authoritarian non-communist nations in Asia.

"Between being loved and being feared, I have always believed Machiavelli was right," Mr Lee famously said. "If nobody is afraid of me, I'm meaningless."

His reach extended into virtually every area of social behaviour - and even affected the hairstyles of visitors to the country (in the 1960s and 70s, hippies were famously offered haircuts on arriving in Singapore).

There were few signs of a shift in this authoritarian stance under Mr Lee's hand-picked successor, Goh Chok Tong. Westerners were horrified in 1994 when a young American, Michael Fay, was given eight strokes of the rattan, the bamboo cane, for defacing cars, despite the protests of President Bill Clinton.

This authoritarian attitude even stretched, famously, to a ban on chewing gum in 1992 on the grounds that it made a mess of Singapore's proudly clean city streets. The ban was eased in May this year for nicotine gum as the Goh government started a thaw in social policy that has included the lifting of a ban on gays in the public service.

And now, following on from the change to the legal status of gay civil servants and gum chewers, there are signs that the newly elected government of Lee Hsien Loong, 52, also known as Baby God, the son of Mr Lee senior, may be prepared to allow, even foster, further liberalisation in Singapore.

Mr Lee jnr, a graduate of Cambridge university, who served as Mr Goh's deputy and has solid business credentials (not to mention his impeccable political pedigree) announced in his first policy speech on Sunday that a casino may be on the cards, sending gamblers and property speculators into a seventh heaven.

More interesting still, though, was the open grumbling this proclamation was greeted with by political conservatives and religious leaders who say casinos will only open the doors to criminals and money-launderers. This open expression of dissent is another new phenomenon in Singapore promoted by the new Prime Minister - and a complete turnaround from the old order so cherished by his authoritarian father.

Just two years ago, an opposition politician Chee Soon Juan was in effect prevented from contesting the next general election when he was fined S$3,000 (pounds 970) for speaking in public without a permit. Mr Chee had made a speech at Singapore's lone public soapbox about three Muslim girls who were barred from state schools after they wore headscarves to class. Although registered to speak there, he did not have the specific police permit required. Such a fine prohibits a person from standing in a general election and in any case Mr Chee, a university lecturer, had done two stints in jail for refusing to pay fines for making unlicensed speeches.

Mr Lee says he will drop the licence requirements, and allow more topics for discussion at a "Speaker's Corner" inspired by the British tradition at Hyde Park. In an uncanny and, some might say, unsettling echo of Mao's "Let a hundred flowers bloom" speech Mr Lee, in his National Day Rally speech on Sunday said his critics "want to plant one hundred flowers" at Speaker's Corner. "I think, go ahead," Mr Lee said. "If they want to water the flowers, go ahead. They want to turn the flowers down, go ahead ... Our society is not perfect; none is. But if we have a problem, we discuss it, we can find some way to resolve it, we can tackle it."

In his speech Mr Lee painted himself as an advocate of "free expression - as long as you don't get into race and religion and don't start a riot." He added: "We have to be forward-looking."

A good start, say the doubters, would be by easing Singapore's draconian libel laws. Stuart Littlemore, an Australian barrister and media commentator, analysed the use, by government politicians, of the courts to stifle criticism. He says Mr Lee's People's Action Party had never lost a libel action in Singapore. Similarly no foreign publisher had ever successfully defended a libel action in a Singapore court while opposing a Singapore politician. Mr Littlemore also worked out in 2002 that the average award for a libel judgment was S$450,000 - more than 10 times the average wage.

No matter how many flowers are allowed to bloom, a legal environment such as this acts as pretty good weedkiller.

Certainly things will have to be allowed to loosen if the "new" Singapore is to become the "vibrant creative hub" promised last year by the government, which set aside S$200m for development of the entertainment, arts and media sector which will, it predicted, make up to 3 per cent of the economy by 2012.

The first fruits of this new policy were tasted earlier this month when the Hollywood director George Lucas announced plans to go into a joint venture with the government to bring an arm of his creative empire to Singapore.

However the expectation that this would signal the blooming of at least a few of the long-awaited flowers had cold water poured over it by Marceline Chau, Lucasfilms' chief operating officer, who, when asked whether Singapore's tendency to keep rigid censorship of content would be a problem, said: "We only intend to make family- friendly movies so I don't expect it to be a problem."

In few other countries outside the Islamic world would news of the development of a casino be imbued with such significance.

But in encouraging the project, the new Prime Minister has shown himself to be, superficially at least, independent of his father who has repeatedly declared that he is "dead set against" one. Mr Lee is ready to gamble that the island state can cash in on Asia's pounds 7bn legal betting industry, attracting wealthy tourists and creating at least 1,000 new jobs.

Singapore is not exactly averse to games of chance. Nearly 10 per cent of the nation's $16.6bn tax revenue comes from lotteries (people rush to the scene of a car accident to jot down the registration number, considered lucky). Most serious Singaporean gamblers cross the frontier every weekend to more than a dozen casinos in Batam, Indonesia, where they gamble away an estimated $140m annually. Malaysian casinos, which bar Muslims, garner a further $180m. Floating casinos, the brightly-lit cruise ships bobbing just offshore, account for annual takings of another $400m. Illegal gamblers, as in the rest of Asia, like to take a flutter on underground cock fights, bug baiting, poker games, or mah-jong dens.

Mr Lee is upping the ante with a luxury casino. But even here, he displayed something of the paternalism he has inherited from his father when he explained the measure was all about bringing in gamblers from overseas. His people, he explained, would not be encouraged to line up alongside the high rollers: "We will not make it easy for people to go broke and ruin their families in Singapore. But if a millionaire wants to bring another millionaire friend from China or India, I don't think I should say `no' to him. It may help lessen my other taxes."

News of Mr Lee's casino plans did not exactly come out of the blue to Singaporean insiders and investors. A purpose-built resort at Sentosa Island is under construction, and a motorway and cable-car link it to central Singapore. This design enables officials to limit access - the government says gamblers who earn under a certain amount will be kept away. Las Vegas Sands Inc, which opened a garish Las Vegas-style casino in Macau just three months back, has said it would pump US$2bn into a Singapore-based operation. The Hong Kong billionaire, Stanley Ho, is also sniffing at the project as is Harrah's Entertainment Inc, America's second largest gambling outfit, plus Casinos Austria International Ltd, in Vienna.