Following is the speech (English only) delivered by the Financial Secretary, Mr Antony Leung, at the Joint Business Community Luncheon today (March 12):
Distinguished guests, ladies and gentlemen,
It is a pleasure to join you for this traditional post-Budget lunch. It provides me with a good opportunity to share with you some insight into the Government's thought processes, as well as address some of the comments made since I unveiled the Budget last week. I also want to talk about how the Government and business can work together to nurture economic development in Hong Kong.
About 170 years ago, the US President at the time, Andrew Jackson, said 'the wisdom of man never contrived a system of taxation that would operate with perfect equality'. After almost two years in the job, I can understand what he meant.
Nevertheless, I believe we have one of the most liberal and simple tax regimes in the world; and this will still be the case if all of my proposals get the green light from the legislature. But whatever we do, some people will feel aggrieved by certain measures, and others may think we have not gone far enough. For some, it is a case of too much too soon; for others too little too late. I have tried to strike the right balance.
The Budget has precipitated a wide-ranging community debate on the Government's management of public finances. This I welcome, even if it means I have to take the flak. The more people discuss our fiscal difficulties, the more they will come to understand why some tough decisions need to be taken now for the long-term health of our fiscal system. I hope that when people look at and dissect the figures, they will see that my proposed measures are necessary to get our public finances back on track. I also hope that they come to accept the proposals as fair, reasonable and affordable; and will see that everyone who lives and works here is sharing the responsibility of balancing the books.
As Financial Secretary, I have a duty to ensure the viability of Hong Kong's fiscal system is maintained. But if we continue to run such a huge deficit, if we continue to draw down our reserves, if we continue to rely on a narrow revenue base, and if we continue to spend beyond our means, then our fiscal system will not be viable at all. The resultant fallout for the community would be far worse than the tax proposals I put forward last week. For a start, our currency could come under pressure. This would push up interest rates, which would knock the steam out of any nascent recovery we may be experiencing. The International Monetary Fund and Moody's have recently sounded similar warnings. So status quo is not an option, and I sincerely hope that all members of the community will be able to fathom the seriousness of our fiscal deficit, and why it is necessary to act decisively now to tackle that problem.
I have been encouraged by the generally positive reaction to the Budget from the business community and the chambers of commerce. I am heartened that business is prepared to shoulder more of a burden as we grapple with a record Budget deficit. I know some of you would like me to have introduced a Goods and Services Tax (GST). But as I have explained, GST would have a dampening effect on what is already fragile consumer confidence. Given that our domestic economy is not good and is in a deflation, we cannot introduce such a tax now. As I said in the Budget, I do agree that a broad-based tax like a GST will be needed in the long run. However, it can only be implemented when the time is right.
The changes to the salaries tax rates, allowances and progressive bands have generated a fairly robust reaction from members of the public. I have been grilled on a few radio shows over the past week. But, in all honesty, it would have been rather surprising if that had not been the case. Any Finance Minister who introduces tax increases will inevitably face public criticism. Hong Kong people have never been backward in coming forward. We are fortunate to live in a society where our citizens can call up the radio station to express their feelings about a policy that has an impact on their lives.
Some have criticised us for not being aggressive enough with our expenditure cuts. Unlike the private sector, we do not have as much flexibility to trim costs quickly. In the private sector, you can make a commercial decision to cut one service or another, or to drop one or two items from your product line. Such decisions are made having regard to the profitability and cost-effectiveness of the moves, or the impact on customer base and cash flow.
In Government, we cannot choose our customers: essentially, everyone in Hong Kong is our customer. Any cuts in services have to be carefully assessed, often across more than one policy area. And if we do have to make cuts we have to ensure they have a minimal impact on the public we serve; or to try to maintain service levels while saving costs through reorganisation, reprioritisation and re-engineering of our work practices, and by making better use of the market.
And here I would like to make an appeal: if anyone here has an idea on how we can achieve more with less, or how we can better enable the market or stimulate the economy, please let us know. We are always open to constructive suggestions. Indeed, the Chief Executive will be establishing a task force that will look at how we can further cut red tape, outsource services and develop public-private sector partnership projects. Your input is most important to make it a success.
It is understandable that a lot of people have focused on the revenue and expenditure measures. But our number one priority, as I mentioned earlier, is to revive the economy.
I wish I had a magic bullet, or could announce one grand measure, that would help us to do that in one fell swoop. But that is just not realistic, and it runs counter to our philosophy of 'big market, small government'. In practice, it will be a range of initiatives that will allow the Government to step back, and the private sector to step up. We can provide the framework for the economy to grow, but we will rely on the private sector to get the economy moving along at a healthy pace. This is the partnership that I want to see develop further over the next few years. There are many examples of what I mean in the Budget. Let me just talk about some of them.
The first example is the private sector participation in infrastructure projects. Throughout the Budget consultation exercise, I heard many voices from the business community asking the Government to make more use of the market in infrastructure projects. This will not only speed up project delivery, but is also in line with our principle of 'big market, small government'. As I have mentioned in the Budget, the Government will be putting up recreational and cultural facilities projects worth 2.5 billion dollars to the market for development. This is only a start, and if the scheme is successful, it can be extended to other areas.
The second example is the promotional activities to attract more overseas companies to invest in the Greater Pearl River Delta and set up office in Hong Kong. We are glad to see many local businessmen indicating their interests to join hands with the Government and promote the unique advantages and investment strengths offered by Hong Kong and the Pearl River Delta (PRD) to overseas audience. I would like to take this opportunity to appeal to the chambers and the local business community for your support. Our investment promotion arm, Invest HK, will be coordinating the efforts.
My third example is the Harbour Lighting Plan to enhance the attractiveness of our number one natural asset - our scenic harbour. During the first week of Chinese New Year, the Tourism Commission with sponsorship from the private sector staged a multi-media light show at the piazza of the Hong Kong Cultural Centre to showcase some of the modern lighting techniques. Some 180,000 people saw the show and the response from the local community, visitors and the media has been very favourable. The Government is considering a co-ordinated plan to improve the lighting up of key buildings around the harbour. The tourism industry will undoubtedly benefit from this new attraction that will showcase some of the magnificent buildings that line our harbour. Together with the new sightseeing ferry service that will start operating in the middle of this year, visitors will be able to enjoy the most spectacular night view in the world from the ferries or from either side of the harbour. As there are both private and Government buildings along the harbour, cooperation from the private sector will be crucial to make the project a success.
My last example is the matching grants for donations to universities to encourage private sector involvement in the development of our human capital. I am sure you will agree with me on the importance of the quality and quantity of talents to Hong Kong's competitiveness. Many world-renowned tertiary institutions make use of private donations to enhance university education. The one billion dollar fund to award matching grants will encourage fund-raising activities among our universities. This, together with higher tax deduction ceiling for private and corporate donations to education organisations and charities, will help to mobilise resources of the whole community to enhance our human capital and make Hong Kong a more caring society.
All these proposals are real examples that show how the public and private sectors can work more closely together to bring imaginative and beneficial ideas to life. The Government is very keen to work hand-in-hand with the private sector to bring these plans to fruition. There are many more examples of ongoing projects coming on stream over the next three to five years that will help to spur economic activity, lift consumer sentiment, and reinforce our position as Asia's world city. Let me give you a brief account.
There are ongoing efforts to improve people and cargo flows to and from the Mainland. New procedures allowing Guangdong residents to visit in their own capacity will boost our local economy. Substantial investment in human resources, as well as relaxation of schemes to attract professionals and talents from the Mainland, will provide the intellectual capital needed for our development as a knowledge-based economy as well as new skills to those who find themselves out of work. Key infrastructure such as Container Terminal Number 9, new roads and railways, a new exhibition centre - all will boost our position as a transport and trading hub and a showcase of economic endeavour. The Cyberport and the Science Park are on stream now, providing a new focus to the development of innovation, technology and the creative industries.
Within the next three to five years Hong Kong's attraction as a regional hub for tourism, arts and culture will take off. We'll have Hong Kong Disneyland and the Tung Chung cable car. We'll see new tourist and entertainment areas emerge at the old Central Police station and the Marine Police Headquarters. Work will have started on our very own West End with a Broadway skyline - the new arts and cultural district in West Kowloon. We've just had one of our most successful Arts Festivals, and we can confidently predict that this year's success is the sign of even better things to come in the future. We'll see an improvement in the living environment as more new railways come on line to connect residents in the northwest and northeast New Territories to the city centre. There is a lot happening that will take us to a new plane of economic development.
Ladies and gentlemen, I know, from talking to many of you, that business leaders remain upbeat about Hong Kong's prospects. This confidence is based on our unique and historical advantages and our role as a strategic two-way platform for the rapidly developing Mainland market. It is also based on a big picture overview of what you know is coming on stream in Hong Kong over the next few years.
However, business is also worried about the current size of our deficit, and the size of the civil service. As I mentioned earlier, I have tried to strike a balance in this Budget to address your concerns and those of the public. I have laid out a clear blueprint to balance our books, while trying to minimise the impact on everyone in society.
All of this will take place amidst the backdrop of an expanding economy of the Mainland of China, an even more developed and affluent Pearl River Delta, and major new projects and initiatives coming on line in Hong Kong to make full play of our role as a hub for economic activities in this part of the world.
My greatest wish is that we can all accept the inevitability of change; to accept change for the opportunity it brings; and to share the responsibility to mould Hong Kong's economy into a vibrant model of 'big market, small government'. Thank you very much.
End/Wednesday, March 12, 2003