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The following are further details of the special relief measures announced by the Government today (Monday):
Easing the Credit and Liquidity Crunch:
Measure 1: Exempt interest income earned locally from profits tax from June 22, 1998
To provide additional liquidity to the banking system, the Government will exempt from profits tax interest income accrued on or after today (Monday) from deposits placed locally with authorised banking institutions under the Banking Ordinance by corporations and individuals, other than financial institutions.
Removing the tax disincentive will encourage corporations to repatriate offshore deposits to Hong Kong. This will improve the liquidity and lending capacity of banks in Hong Kong.
The Hong Kong Monetary Authority estimates that Hong Kong corporations hold offshore deposits of some HK$200 billion in either HK or US dollars. The HKMA believes a large part of these are booked offshore to avoid profits tax liabilities in Hong Kong.
Revenue foregone is roughly estimated at HK$500 million per year.
Measure 2: Provide HK$2 billion capital to help small and medium sized enterprises (SMEs) to obtain loans from lending institutions.
SMEs with a good track record and business prospects are unable to obtain loans from banks or are having their credit line cut because of the credit liquidity crunch. However, SMEs in Hong Kong are a significant force in reviving the economy and creating employment opportunities. In this context, the Government has decided to establish a new scheme to help non-export-related SMEs to secure bank loans to meet genuine commercially viable business needs.
It will be modelled on the pilot Credit Guarantee Scheme (CGS) which benefits companies involved in exports.
The new scheme will adhere to the same underlying principles as the CGS, including leaving it to the lending institutions - not the government - to evaluate the credit worthiness of the company and its business. It will require an equal sharing of risks by the Government and participating lending institutions. It also imposes an appropriate maximum limit per loan for risk control and to ensure SMEs benefit.
Subject to Finance Committee approval, the Government intends to provide $2 billion capital for this purpose.
Measure 3: Stabilising property prices
Suspend all land sales by auction and public tender from now till 31 March 1999.
As a result of the liquidity crunch and the need to stabilise property prices, the Government has decided to suspend all auctions and public tenders of government land from now till the end of March, 1999. The processing of the six earmarked Private Treaty Grants (PTGs) to the Housing Society for development of Sandwich Class Housing will also cease.
However, the Government will continue with other PTGs including those relating to the Airport Railway, lease modifications and land exchanges where the initiative rests with the private owners.
Since the start of the new financial year, eight sites have been sold by auction or public tender. Under the tentative land sales programme for 1998-99, a further 29 sites were listed for auction and 26 for public tender.
The measures are aimed at sending a strong signal to the market that the Government does not wish to see any further rapid decline in property prices. It should also stimulate the property market.
The reduction in revenue is estimated at $30 billion.
Measure 4: Double the allocation for "Home Starter Loan Scheme" in 1998-99 from $3.6 billion to $7.2 billion
This Loan Scheme provides low interest loans of up to $600,000, or 30% of the purchase price of property, for households earning no more than $70,000 a month. The Finance Committee earlier approved an $18 billion loan commitment for this purpose, with expenditure spread equally over 5 years, i.e. $3.6 billion each year.
The Government has now decided, subject to FC approval, to double this amount in 1998-99 so that twice the number of households (i.e. 6,000 to 12,000) will be able to become home owners. No additional expenditure is involved but there will be cashflow implications for 1998-99.
Measure 5: The Housing Authority to consider increasing the quota for the "Home Purchase Loan Scheme" from 4,500 to 10,000 in 1998-99
Next month, the Housing Authority will consider increasing the quota for its "Home Purchase Loan Scheme", available to both green and white form applicants, from 4,500 to 10,000 in 1998-99. This together with the "Home Starter Loan Scheme" will help create an additional demand for 11,500 flats in 1998-99 in the private market.
Easing costs of families and business
Measure 6: Reduce duty on diesel by 30% from June 23, 1998 to March 31, 1999
An Extraordinary Gazette was issued this afternoon (Monday) to announce the reduction of diesel duty from $2.89 per litre to $2 per litre for the remainder of the current financial year. This represents a 30% reduction in diesel duty.
The measure will reduce considerably the cost to business and provide some relief to drivers of 18,000 taxis, and 4,300 public light buses. It will also significantly reduce the transportation costs of doing business as over 127,000 goods vehicles are currently diesel-driven. The reduction in revenue is estimated at $450 million.
Measure 7: Reduce declaration charge for imports from 0.035% to 0.025% and for domestic exports from 0.05% to 0.025% from August 1, 1998 onwards.
The Government will propose to the Legislative Council to reduce the charge on imports and domestic exports to 0.025%. Prior to this, the Government will consult the Trade Development Council (TDC) to seek its agreement to accept a corresponding reduction in the Government's subvention to the TDC. The Government hopes the TDC will agree to the proposal in the interest of reviving the economy.
The reduction amounts to $130 million for 1998-99 with the benefits passing entirely to exporters and importers.
Measure 8: Rebate the first quarter rates paid in 1998-99
This is a general relief measure which will benefit the greatest number of people (1.93 million domestic units and 0.34 million non-domestic units). The measure will relieve the burden on households and businesses.
The measure returns some $3.88 billion to rate payers, with an average of $540 for a public housing unit, $5,600 for a large domestic unit and $5,100 for a commercial unit.
The quarterly rebate works out at a 1.125% reduction in the overall rates charge for one year. The rebate will be credited against the 1998-99 third quarter rates bill of those who have paid rates in respect of a certain tenement in the first quarter.
The Government has agreed to seek funding from the Legco Finance Committee to make up for the loss of the rates revenue of the Provisional Urban Council and the Provisional Regional Council. This is estimated to be $1.5 billion for the PUC and $1.1 billion for the Provisional Regional Council.
To demonstrate that management of the administration shares the pain of the rest of the community
freeze salaries adjustment of D3 officers and above for 1998-99
This decision has been taken as part of the Government's response to the economic downturn. It demonstrates that those responsible for decision-making in the Government understand and are prepared to share the hardship caused by the current economic turmoil.
For parity, the freeze will apply to other directorate equivalent staff in government-subvented organisations and the Judiciary whose salary adjustments follow exactly those in the civil service. Approximately 330 senior directorate officers at D3 rank and above in the civil service as well as staff of equivalent seniority in the Judiciary, the ICAC and the subvented sector will be affected. This will save about $70 million.
End/Monday, June 22, 1998
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