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There will be no new taxes, no tax increases and no reduction in tax allowances, the Financial Secretary, Mr Donald Tsang, announced today (Wednesday) in the 2000-2001 Budget.
In a Budget he described as 'keeping a gentle hand on the tiller', Mr Tsang outlined a strategy to ensure Hong Kong 'scaled new heights' as it continued to emerge from the effects of the Asian financial turmoil.
The strategy would ensure that Hong Kong could meet the challenges of globalisation, enhance competitiveness, and satisfy greater demand for improved public services.
The Financial Secretary announced important initiatives in financial services, trade and investment services and civil service reform as well as a review of the taxation system.
GDP is forecast to grow by 5 per cent in 2000. The trend growth rate of GDP has been raised to 4 per cent for 2000-2003, against a 3.5 per cent estimate in the last Budget.
The Composite CPI declined by 4 per cent in 1999, the first annual decline since the index became available in 1982. For 2000, consumer prices are expected to decline by 1 per cent.
The Financial Secretary revealed a much better than expected outturn for public finances in 1999/2000, with a Budget deficit of $1.6 billion compared with an original estimate of $36.5 billion.
For 2000/2001, Mr Tsang forecast a deficit of $6.2 billion, with revenue of $244.2 billion and expenditure of $250.4 billion.
"This dramatic improvement in our financial position [1999/2000] comes about almost single-handedly from an unexpected growth in the earnings on our fiscal reserves invested with the Exchange Fund," Mr Tsang told members of the Legislative Council during his reading of the Budget speech.
"The investment earnings on our fiscal reserves have soared to $44 billion, almost double our original estimate of $22.2 billion."
The smaller deficit was also helped by: $3.1 billion more than estimated in land premia; $24.2 billion more revenue than estimated ($229.3 billion as opposed to $205.1 billion); and $10.7 billion less expenditure than the forecast $241.6 billion.
Mr Tsang unveiled a range of initiatives that would 'harness the forces of globalisation' by improving competitiveness in the financial services sector and providing better services to business and international investors.
These included an open and secure electronic network for straight-through processing of securities and derivatives trading, the development of a multi-currency capital market and clearing system, greater efforts to expand the regional debt market, ongoing reform of the banking sector and new securities and futures legislation to strengthen and enhance Hong Kong's regulatory regime.
Stamp duty on stock transactions will be reduced from 0.25% to 0.225% but Mr Tsang pointed out that brokerage commissions would also need to be lowered if there was to be any real impact in making Hong Kong's stock market more price competitive.
A major revamp of the government's trade, industry and investment setup was announced to streamline institutional arrangements.
The functions of the Business and Services Promotion Unit will be merged with the Trade and Industry Bureau to form a new Commerce and Industry Bureau, which will include a new agency to replace the existing investment promotion division of the Industry Department.
To provide a more efficient one-stop shop for services to business, the Trade Department will be renamed the Trade and Industry Department, taking over the Industry Department's responsibility for supporting industries and small and medium enterprises.
The Industry Department's innovation and technology-related functions will be taken up by a new Innovation and Technology Commission under the Commerce and Industry Bureau.
The Economic Services Bureau will take over responsibility for consumer protection and competition policy.
Mr Tsang announced plans to trim the size of the Civil Service by 10,000 over the next three years, reducing establishment to 188,000 or the same level as 1995.
Civil servants in designated grades will be allowed to take voluntary, early retirement, with fair compensation, to accelerate the pace of reform and provide the public with better value for money.
On public finances, Mr Tsang said Hong Kong had to be alert to potential problems that may erode the government's revenue base.
The greatest uncertainty came from the likely exponential growth of e-commerce and its impact on Hong Kong's tax regime, he said.
"Hong Kong's territorial-based tax system, under which we tax only locally-derived income, is likely to make our revenue yield even more vulnerable to the impact of e-commerce," said Mr Tsang.
"A possible loss in revenue due to changing global and domestic circumstances could be a problem. We would be failing in our duty if we hid our heads in the sand and hoped that the problem would never arise or somehow disappear."
Mr Tsang announced the establishment of a Task Force headed by the Secretary for the Treasury to monitor the correlation between recurrent income and economic growth and critically examine the viability of the existing tax regime.
"This should be able to identify whether we are indeed facing a short-term cyclical problem or a fundamental shift in our revenue base needing more radical remedies," Mr Tsang said.
"In parallel, we will set up an independent committee of tax experts, professionals and academics . . . to look into the suitability of introducing new types of broad-based taxes, including a consumption tax, and to consider what form such taxes should take and their practical implications."
In terms of revenue initiatives, the Diesel Duty concessionary rate of $2 per litre has been extended until December 31, while the exemption on First Registration Tax for electric vehicles will be extended until March 31, 2003.
On the expenditure side, the major focus is on improving education facilities and resources; increasing pre-employment and vocational training places; increasing community welfare services and residential places for the elderly; and more support to help CSSA recipients find work.
Ends/Wednesday, March 8, 2000
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