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The following is the transcript of the question and answer session following the speech given by the Chief Executive, Mr Tung Chee Hwa, at the joint chambers luncheon held today (January 10):

Question (American Chamber of Commerce): All of us have heard complaints about where we are and why we should not be there, and when I encounter that I usually make the party I am talking with an interesting offer. I say, given how hard things are it is no good just worrying about it. I say, if you look at what we have now, I think we are okay. How would you like us to be in another situation? How would you like to be in the situation that Singapore faces? An no one, so far, has taken up my offer to say that Singapore is better off than Hong Kong, for the reasons, I think, Mr Tung, you mentioned: we are well situated; we have our strengths.

However, at the same time, I think there is despondency in our community. You used the word "doldrums", I think, as a related word to this despondency. I think your leadership vision for going forward is wonderful. But in addition to that, I think I will ask that we need to involve the community - and the community, that includes us and includes the community outside of this room - into an active debate. Not just complaining, not just bitching behind the scenes, but an active debate about what else we can do constructively. And I think your openness is the way forward because that is the leadership we need.

Mr Tung: I think it is a wonderful suggestion. You know the example you can point out very quickly is about the Pearl River Delta. There is such a strong consensus about the importance and the benefits for Hong Kong, for the Pearl River Delta, and in fact for the whole of China as we move forward, if we do have a huge successful economic region. And the interesting thing is that this is now accepted community-wide, and I think people sitting around all these tables have made a really vital contribution to make this a very successful effort. You have made a good point. I certainly need to do a whole lot more work about all the other things we are doing. My colleagues in the Government need to do a lot of work. And I hope everyone sitting in this room, if you agree with it, please also help us push our agenda along.

Question: Mr Chief Executive, the Hong Kong financial markets, businesses, wage-earners, I think are all being subjected to considerable uncertainty right now about the outlook for taxation in Hong Kong, given the fiscal situation. You mentioned in your Speech that there would probably be reasonable and appropriate increases in taxes and fees as we go forward. I am hoping that you might take this opportunity to reduce some of these uncertainties by giving us some sense as to the magnitude as well as the areas where we might expect to see some of these increases and on what sort of timetable the Government might be considering these increases?

Mr Tung: The details of the arrangement will be announced by the Financial Secretary when he presents the Budget in early March. I know he will be going through one more round of consultation exercise before making his final decisions. But let me tell you some of the principles that I think you will be interested in when we look at the taxation issue.

One is that Hong Kong is very successful and well known for our simple tax structure and low tax base. Now, whatever we are going to do, we are not going to change that, it is critically important to Hong Kong.

The second point is this: we are only too well aware that tax increases can be very regressive, can exasperate an already pretty rough situation on the deflation front. So we will be weighing these areas very, very carefully before we would make a final decision. For instance, I can tell you categorically, taxes on sales, sales taxes - Where is Selina Chow, is she here? She is always asking me about this - that will not happen. So we will be very careful in weighing all the options that are available and I am sure the Financial Secretary will come up with all the right answers.

Question: If I look around this gathering here, then you will notice that a substantial number of people here - I have to take off my glasses - are expatriates, Mr Tung. I know from government statistics that there are about eight per cent expatriates living and working in Hong Kong - about 600,000, including James Tien's 150,000 Filipino maids. You probably know that I am one of them. I have almost completed my first 40 years as an expatriate in Hong Kong and I am still kicking and alive and I still look forward to the next 40 years. When I was asked a few months ago at the Hong Kong General Chamber of Commerce Summit whether there was still a role and room for expatriates in Hong Kong in the future, my answer was - and I hope you agree with me: If Hong Kong wants to maintain its status as a cosmopolitan, international, world-class city, you need expatriates. I hope you fully agree with me because I am singing my own praises, I want to stay here. I have raised a family here, I have contributed to the 600,000. Not all those - a few of them.

But what bothers me is this: If you agree with me that we need an expatriate population here, young and old, experienced and non-experienced, entrepreneurs, why do you let your Minister of Education then come with a proposal to cut the subsidy of the ESF? I know you have 70 billion, and 300 million is only a drop. But, Mr Tung, if you go ahead with this, you will - you will cause a lot of expatriates to think twice whether to stay here, and even more, you will refrain expatriates that could contribute to Hong Kong to come here because they cannot afford to pay their school bills. Please explain it to us.

Mr Tung: I knew I should have stopped earlier. First of all, I don't know whether you have noticed it or not - you probably have not - actually, I devoted quite a bit of space talking about what is Asia's World City, in my Policy Address; how important the expat community is to Hong Kong. We are a world city of Asia and this is how we are successful. In our role, working together with the Pearl River Delta, we want to bring the world through Hong Kong to the Pearl River Delta and we want to take the Pearl River Delta to the whole world. That is our role. Our expat community in Hong Kong is really very important to us. And, in fact, in the closing of that particular paragraph I said I hoped every expat would think of Hong Kong as their home-away-from-home, and I mean this because you are really very important to us.

Now, on this very difficult question you have posed to me, we spend about $50 billion in education expenditure. It is one of the biggest expenditures we have. I have given a commitment that - and it is important to Hong Kong - that if we are going to succeed to restructure our economy, we need to continue to invest in education. If we stop investment in education, if we start cutting back substantially in education, we are going to be in real trouble because it would be foolhardy to do that.

Arthur Li, the Secretary for Education, is under tremendous pressure. We are not going to stop investing in education. But on the other hand, hey, there are areas (where) you really need to save some money. Because what we are saying to all the Policy Secretaries: where there is waste, we need to cut; where there is inefficiency, we need to improve; and where there are savings that can be made, you need to look at this. So, I think Arthur Li is probably looking at all the options available to him - what can be done, what cannot be done - and this is one area which I know he has spoken about recently. I do not believe, I am not aware - usually I am aware - I am not aware that a decision has been made on this issue. You have made a very good point to me and I have taken this on board and I will talk it through with my colleagues in the Government.

Mr Chan asked should I take another question. I think I should leave before my luck runs out. Thank you very much.

End/Friday, January 10, 2003

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