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The Financial Secretary, Mr Antony Leung, has in the 2002-03 Budget released today (March 6) set out his vision for Hong Kong's economic development, proposed measures to restore fiscal balance by 2006-07, and announced a package of one-off relief measures to help out the community.
The Financial Secretary revealed that Hong Kong's economy grew by 0.1% in 2001, and was forecast to grow by 1% in 2002, both in real terms. A trend growth rate of 3% in real terms was predicted in the medium-term (from 2002 to 2006).
Consumer prices fell by 1.6% in 2001 and were forecast to decline by 2.8% in 2002.
The Financial Secretary said Hong Kong had to capitalise on its strengths and needed to focus on high-added-value economic activities in moving up the value chain.
He believed there were four economic sectors that could foster further economic development and create jobs - financial services, logistics, tourism and producer and professional services.
To this end, the Government would upgrade the quality of manpower and increase the number of talented individuals, by improving education and attracting outside talent. It would also enhance flows of people, goods, capital, information and services to and from the Mainland.
"Everyone in Hong Kong, whatever his or her particular walk in life, must seek to excel," Mr Leung said.
He underlined the importance of using quality, speed and creativity to produce and deliver services and products.
The Government would facilitate the development of the local community economy which is closely linked to daily life and involves people such as small traders and those providing personal services.
This, Mr Leung said, "can promote domestic consumption, create employment opportunities and highlight Hong Kong's unique characteristics".
On public finances, a budget deficit of $65.6 billion was forecast for 2001-2002 compared to the original estimate of $3 billion.
A deficit of $45.2 billion was forecast for 2002-03 from revenues of $214.6 billion and expenditure of $259.8 billion.
The Financial Secretary made a firm commitment to restore fiscal balance by 2006-07. From 2003-04 onwards, government spending would only be allowed to grow by 1.5% in real terms per year over the medium-term, half of the trend economic growth rate of 3%.
In addition, the Government's expenditure forecast assumed a 4.75% civil service pay reduction from October 1, 2002 and a corresponding reduction of the salary-related portions of its subventions to various organisations.
In so doing, public expenditure as a percentage of GDP would also be reduced. Mr Leung set a target of bringing it down to 20% of GDP or below by 2006-07.
"The growing share of public expenditure in the economy consumes scarce resources that could otherwise be used by the private sector more efficiently," he said.
"To maintain Hong Kong's competitiveness we must contain public expenditure as a percentage of GDP."
The Financial Secretary plans to raise an additional $400 million a year by increasing in 2002-03 the duty rate on wine from 60% to 80% (on ex-factory price) and by reducing the amount of duty free cigarettes and wine allowed to be brought back into Hong Kong by residents.
These were modest, non-livelihood related revenue proposals.
"Under the present economic conditions, I consider it inappropriate to make any major changes on the revenue front in 2002-03," Mr Leung explained.
To help restore fiscal balance by 2006-07, the Financial Secretary proposed to introduce a Boundary Facilities Improvement Tax in 2003-04. This would raise additional recurrent revenue of $1 billion if set at $18.
Mr Leung cautioned that even with the revenue and expenditure measures outlined in the Budget and an assumed 4.75% civil service pay cut, it would not be possible to balance the Government's Operating Account by 2006-07.
To balance the Operating Account, the Government would need to increase recurrent revenue, or decrease recurrent expenditure, by $2 billion a year from 2003-04 onwards; by another $3.5 billion a year from 2004-05 onwards, and by a further $3.5 billion a year from 2005-06 onwards.
And to achieve overall fiscal balance in 2006-07 capital revenue would also have to increase, or capital spending decrease, by $20 billion.
Mr Leung said the Government would have to consider other options for raising revenue or reducing expenditure other than those outlined in the Budget.
These would include the options outlined in the recent report by the Advisory Committee on New Broad-based Taxes, which recommended the introduction of a Goods and Services Tax, a Land and Sea Departure Tax (akin to the Boundary Facilities Improvement Tax), an increase in rates and a reduction in personnel allowances under salaries tax.
"Apart from these options the Government will consider other options for raising additional revenue," he said.
"The Government is considering how to tackle illegal soccer betting more effectively, including options that may bring additional revenue to the Treasury. "
"I understand the community's concern about the recommendation for a Goods and Services Tax."
"The Chief Executive and I have stated clearly that the Government will not introduce such a tax while there is a downswing in the economy."
"Nevertheless, the Government will continue to study the details of a Goods and Services Tax for implementation as and when necessary."
Despite the medium-term strategy of containing expenditure growth, the 2002-03 Budget was counter-cyclical.
"Having regard to the current state of our economy, I have decided to allow government expenditure in 2002-03 to grow by 2% in real terms over the original estimate for 2001-02, or 7.7% over the revised estimate, higher than the forecast economic growth of 1% in real terms for 2002," he said.
Recurrent expenditure would amount to $204.9 billion, a 5% increase in real terms over the 2001-02 revised estimates.
Recurrent expenditure on education is estimated at $49.3 billion (up 8%); health $32.4 billion (up 4%); social welfare $32.1 billion (up 9%); support $28.4 billion (down 2%); security $24.8 billion (up 2%); infrastructure $11.8 billion (up 4%); environment and food $9 billion (up 10%); economic $8.8 billion (up 12%); community and external affairs $7.6 billion (up 3%) and housing $0.6 billion (down 1%).
Capital expenditure of $49.4 billion is estimated for 2002-03, a 21% increase in real terms over the 2001-02 revised estimates.
This was mainly due to provisions for establishing the Continuing Education Fund, support for small and medium enterprises and increased capital works spending.
Spending on capital works is estimated to be $28.5 billion in 2002-03 and would range between $25 billion and $30 billion a year until 2006-07.
Mr Leung unveiled a $6.4 billion relief package to help Hong Kong citizens and businesses ride out the economic downturn.
Measures include reducing rates payments by up to $5,000 for one year; reducing water and sewage charges and trade effluent surcharge for a year; waiving the business registration fee for one year; extending the duty concession for ultra-low sulphur diesel for another year; and freezing government fees and charges for one year.
The concessions will mean that about 85% of ratepayers (about 2.3 million) would pay no rates for one year, 80% of households and businesses would pay no water and sewage charges for one year, and over 600 000 businesses would be exempt from paying business registration fees for one year.
In addition, Mr Leung announced plans for a $400 million Youth Work Experience and Training Scheme to provide on-the-job training for about 10 000 young people.
He said that during Budget consultations he had been asked to review the appropriate level of fiscal reserves and had subsequently determined that reserves equivalent to 12 months of government expenditure were adequate.
Fiscal reserves was estimated to be $369.8 billion by the end of March this year, and would fall to $271.2 billion in 2006-07, equivalent to 12 months of government expenditure.
Delivering his first Budget since taking up the Financial Secretary's post in May 2001, Mr Leung called on the entire community to set aside discord, "pitch in" to help Hong Kong overcome current difficulties and challenges and revitalise the economy.
"Hong Kong is a vibrant and dynamic place. With determination and hard work, we can achieve our goals," he said.
"In these difficult times I see many people rising to the challenge, working harder and holding their heads up high. I am confident that we will scale new heights."
End/Wednesday, March 6, 2002
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