Press Release

 

 

Speech by the Financial Secretary

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Following is the speech by the Financial Secretary, Mr Donald Tsang, at the Joint Business Community Luncheon today (Friday):

"Exploding the Myths"

Chairmen, distinguished guests, ladies and gentlemen,

Thank you for inviting me to speak to you today. As some of you know, I appreciate the chance each year, soon after the Budget Speech, to respond to any criticism that may have emerged. So I am particularly grateful to the organisers of today's event for this opportunity to address such a distinguished and large gathering and explain the Budget proposals.

This year the community's reaction to the Budget has been generally supportive. I am very gratified and grateful. Without appearing smug, I am not totally surprised by this outcome. Hong Kong people are famous for their pragmatism and common sense. They realise that times are hard and that the Government's room for manoeuvre is limited. Everyone knows that it is in the community's best long term interest to maintain our reputation for sound public finances. We could throw away a reputation earned over so many years with the sacrifices of previous generations in a year or two of profligate spending. And if we were ever tempted to be foolish, the stern discipline of the Basic Law is there to keep us on the straight and narrow.

At the same time, to try to make expenditure slavishly follow the rate of GDP growth each year would be very difficult and irrational, given the occasional surges or falls that buck the underlying trend. This is also extremely disruptive to sensible planning. Which is why our practice of using the trend growth rate is the best possible technique. It allows for sensible long term planning so that expenditure programmes can develop steadily over time in a purposeful way.

The title of my speech is "Exploding the Myths". What are they? And why do they need exploding?

First is the myth that the Budget does nothing for the grassroots. Nothing could be further from the truth. Our total recurrent spending in the coming financial year will grow by 6.5% in real terms. The main areas of growth are -

* social welfare, up 13.6% to $29 billion

* education, up 5.1% to $44 billion

* health, up 3.5% to $30 billion

* security, up 4.1% to $25 billion

Total public expenditure on housing will increase by 11.9% to over $46 billion. All of these growth figures, let me emphasise, are in real terms, net of inflation. They are the clearest evidence that the 1999 Budget is a people's budget, addressing the specific interests and hardships of the less well-off members of our community.

All this at a time when our economy shrank by over 5%. And when we are expecting only marginal growth this year and modest growth thereafter. Indeed one of the criticisms of the Budget has been our use of 3.5% as a trend growth rate figure for the whole of the forecast period. We think it is justified, but some regard it as optimistic.

Against this backdrop of bold real increases at a time of unprecedented economic and budgetary difficulty, the response from some of our commentators has been, dare I say, disappointing. Regrettably, they have claimed that the Budget has failed to address the needs of those most worthy of help. By focusing only on revenue proposals, and totally ignoring the expenditure side, they seek to create and sustain a false impression of an uncaring Government.

Disappointment apart, this misdirected response carries the seeds of danger too. Every year as we in the Administration, and indeed the community at large, debate spending priorities for the future, people are bound to have regard to the reaction in previous years. If the response to significant real increases in a sector - made, inevitably, at the expense of other areas of potential spending - is a cacophony of mindless abuse, it naturally raises the question as to whether that sector deserves extra support in future.

I believe this community and our Administration have the moral courage and strength of purpose to continue to do what is right. But I would urge those who have made strident criticisms in this area to be mindful of the fable of the boy who kept crying wolf. They would best help their own cause by tempering their language.

The second myth that needs exploding is the idea that the Budget does nothing for the unemployed. At a time when the unemployment rate has touched 6%, which for us is historically high, I can appreciate the community's concern. It has been my main concern over for the last year. But that is no excuse for unjustified condemnation. The fact of the matter is: this is a Budget for jobs. The proposals I announced will lead to creation of some 32,000 jobs in the local labour market in the near to medium term. These new opportunities will be in addition to the 122,000 new jobs to be generated by major initiatives, infrastructural projects and public works programme of the Government in the next two years.

The cyberport alone will create some 4,000 jobs during construction, and 12,000 jobs in the information and technology related fields and other supporting services on completion. The boost we have given to the shipping industry will generate 16,000 jobs in the next three years. And the Disney project, if we are able to pull off a reasonable deal, will create many thousands more in the theme park itself and in tourism-related sectors.

A related criticism is that somehow there may be the wrong kinds of jobs, not appropriate for the Hong Kong labour market. I dare say that such critics may have overlooked the profile of our unemployed. We need jobs in construction because it is construction workers who are looking for work. We need jobs in the retail and service sectors because those are precisely the areas hardest hid by the present downturn. Not everyone is a stock broker or a foreign exchange dealer. Nor for that matter an armchair economist. The truth is that jobs require different skills, just as the people who need jobs have a range of skills.

There is one final myth that I feel obliged to demolish. That is the idea that we can somehow have our cake and eat it too. I have been talking about real increases in spending to look after the needy, and more jobs for those out of work. But it is vital that at the same time we maintain our reputation for prudent fiscal policies. To try to achieve these conflicting objectives we have put forward a carefully balanced package. The package provides short term relief but also sows the seeds for long term recovery. Inevitably that means some charges have to go up.

I realise that such increases however modest are never popular. But that is no excuse for the blatant cherry-picking that now seems to be gaining ground in some quarters. I do not expect many happy volunteers to come forward offering to pay more. But I do expect those opposing tax measures to spell out what alternatives they have to offer.

The rating agencies and indeed potential investors here and overseas are watching closely the outcome of our revenue proposals. They see these proposals as the litmus test of whether this community can take some pain in redressing the fiscal deficits over time. Whether the Administration and the Legislature behave responsibly enough in agreeing to the reasonable tax increases. Whether they mean what they say in upholding fiscal prudence. Indeed it is the responsibility of both the Administration and the Legislature, with the support of the community, to balance our budgets. The Administration cannot do it on its own.

There is one other subject that I would like to touch on today. Because it serves as a backdrop to all of the four Budgets I have had the honour of presenting. Hong Kong is the best place in the world for business. This is a mantle I inherited from my predecessors. And it is my bounden duty to preserve this same proud status.

To do this we need to have a clear vision of what we want the Hong Kong economy to look like in 10, 20 or 50 years down the road. Our focus must be on a small number of key areas. I have already referred to how we are aiming to be the best in the tourism and high tech sectors. Let me also remind everyone of the reform packages we have announced for the banking sector, the financial services sector, and for the civil service.

Everyone can see that we have put forward a bold but essential set of proposals. Let no-one doubt our resolve to see them through. Any short term pain will be more than offset by the long term benefits for all. For it will not be enough in the next century to aim to be simply among the best in Asia. Our target must be to be among the best in the world.

Thank you.

End/Friday, March 19, 1999

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