Following is a speech by the Financial Secretary, Mr Henry Tang, at the Joint Business Community Luncheon on the 2004-5 Budget at the Hong Kong Convention and Exhibition Centre today (March 15) (English only):
Distinguished guests, ladies and gentlemen,
It's an honour and a pleasure to be here for my maiden post-Budget address to the Joint Business Community Luncheon. I don't need to tell you how important this audience of leading international business people is to Hong Kong's future prosperity. We value your huge economic contributions and support tremendously. The international business community was among Hong Kong's most steadfast supporters during last year's SARS crisis, and for that we offer our heartfelt thanks. Now that economic recovery is well under way, you deserve to share in the prosperity.
And you deserve to flaunt it as well. Under the new Personalised Vehicle Registration Mark scheme, you'll be free to put vanity plates on your car that say "RICH GUY" or "TOPNOTCH". Someone suggested I could display "TAX MAN" on my car, but I rather like "USER PAYS".
Today I want to talk about our economic and fiscal strategies, to give you some insight into the thinking that went into my maiden Budget. In order to give you more time to ask me questions afterward, I will keep my remarks short.
I am a staunch believer in free market economy. I firmly believe that the guiding principle in fostering economic development should be "market leads and government facilitates". The government's principal role is to create the best possible environment for business, and to facilitate the market's operation and promote its development. The market will then create employment opportunities. This is the best way forward to sustain our own competitiveness and to improve the standard of living.
The government is committed to being proactive and consistent in its policy making. We have a clear concept of how we want the economy to develop and the path we want to take to get there. I strongly believe that government policies should be consistent and predictable, to enable investors to make informed business decisions for the long term.
Hong Kong has enjoyed a dramatic rebound from the dark days of the SARS crisis a year ago. My overriding concern while formulating this Budget was to maintain the momentum of the recovery.
To that end, our economic initiatives focus on capitalising on CEPA and leveraging on our co-operation with the Mainland economy. I think it is not necessary for me to repeat the benefits of CEPA as you are an informed audience, and all the areas and opportunities presented by CEPA are well known to you. Some like to suggest that CEPA is a big present from the Central People's Government to Hong Kong, but as Premier Wen Jiabao reiterated yesterday, the greatest gift is actually the CPG's unwavering commitment to implement "One Country, Two Systems". CEPA creates an excellent two-way platform which is mutually beneficial to business in Hong Kong and the Mainland. This platform generates unlimited "win-win" opportunities for all. But blazing a road to success will actually depend on the efforts of various sectors to seize opportunities and showcase their strengths.
There's no doubt that we are one of the foremost financial hubs on this planet. Our stock market ranks eighth in the world. We are the world's seventh-largest centre for foreign exchange trading. Virtually all the world's major banks have a presence in Hong Kong. The launch of RMB business in Hong Kong signifies an important milestone in the financial co-operation between the Mainland and Hong Kong. And we are the preferred fundraising centre for Mainland companies, many of which are eager to list here. I can assure you that the government is working hard to enhance the quality of our market and reinforce our status as an international financial centre.
The government's other economic initiatives include promoting the tourism industry, and fostering high-value-added and creative industries. That's why I proposed the additional funding of $95 million for various tourism promotion and training activities, and the creation of a $250 million fund to launch the DesignSmart initiative.
Hong Kong is a major international port, and the government has made a priority of actively promoting logistics development. The development of a value-added Logistics Park on Lantau Island is a good example of this. In the next decade, Lantau is expected to become the focal point of economic and infrastructural projects. We need to plan it better in order to generate more business opportunities while balancing the environmental, social and economic considerations. This is an important objective of the Lantau Economic and Infrastructural Development Co-ordination Task Force.
To maintain our competitiveness in a globalised economy, we must continue to upgrade the quality of our workforce. We will continue to invest heavily in education, and focus on attracting talents to Hong Kong from around the world.
While striving to foster economic growth, we must at the same time pay attention to our society's development. To encourage various sectors of the community to work together to create a cohesive, harmonious and caring society, I have earmarked an additional $200 million on a one-off basis to promote the development of a tripartite social partnership between the government, the business community and the welfare sector, and to encourage corporations to take part in helping the disadvantaged. I am sure the business sector will continue to play an active role and demonstrate your concern for the society.
With the objectives of prudent management of public finances and leaving wealth in the hands of the people, I seek to strike a delicate balance between reducing the fiscal deficit and safeguarding people's livelihoods. I have set a target of restoring fiscal balance in the operating and consolidated accounts by 2008-09. I have also pledged to bring public expenditure down to 20 per cent of GDP or below, in line with the principle of "big market, small government".
Many people have pointed out that the government should cut down on expenditure before considering tax increases. I agree. I can assure you that the government will control expenditure strictly and is determined to reduce its operating expenditure to $200 billion by 2008-09. To minimise the possible impact on the community, expenditure cuts must be measured, pragmatic and gradual. Yet, at the same time, we need to establish that the government has both the determination and ability to control its spending. In order to reduce operating expenditure from $218 billion in 2003-04 to $200 billion in 2008-09, the total for 2004-05 should be $214.4 billion. Although the preventive health measures and extension of temporary jobs will require additional financial commitment, I have reduced further government operating expenditure for 2004-05 to $212.2 billion - i.e. $2.2 billion less than the target. This shows how serious we are about cutting expenditure.
Despite the tight fiscal situation, we must continue to invest into our future. When I announced our plan to issue government bonds, I reiterated that the purpose was to finance infrastructure or other investment projects that will bring long-term economic benefits, not to cover operating deficits. This is the prudent approach, to provide greater flexibility in the management of our liquidity.
The issuance of bonds will broaden and deepen our debt market and provide an additional investment vehicle for both retail and institutional investors. At the same time, it will give us more flexibility in the timing of our asset sales. I have said that value of these bonds will not exceed $20 billion for 2004-05. That is the appropriate amount for now, but we won't rule out further upsizing, taking into account market conditions, the amount of funds required for our investment projects and the implementation of our asset sales.
The statesman and philosopher Edmund Burke once said the capacity "to tax and to please, no more than to love and to be wise, is not given to men". Well, I can honestly say that I have not displeased anyone with new or increased taxes in last week's Budget. Of course, the financial secretary cannot please everyone, and I've undoubtedly displeased some people with the lack of new taxation. But I felt that now was not the time to impose any additional financial burden on the economy.
Nevertheless, I am fully aware that we need to broaden our tax base. An effective way to do that would be the eventual introduction of a goods and services tax.
Besides widening the tax net, a GST would achieve another important objective of providing a steady source of revenue to the government, particularly during economic downturns. One need only look at government land revenues over the past few years to see the necessity of smoothing out income flows.
Hong Kong is currently among a minority of advanced economies without a GST or value-added tax. We will look at the experience of other economies that have introduced a GST, to learn how to minimise the possible impact of the tax on low-income households, the business sector in general and the tourism industry in particular. Overall, the impact of introducing a GST in other economies has not had a large or lasting impact on prices.
We have no fixed timetable in mind for a GST. We have an internal task force looking at the feasibility of a GST and the issues that need to be addressed. Report of the study will be completed by the end of this year. We will make sure that members of the public will have ample opportunity to express their views. The government's desire is to encourage sensible and constructive discussions among the community on the best way forward.
Ladies and gentlemen, we as the government and I as financial secretary have a solemn duty to maintain Hong Kong's position as a leading international financial, trade and services hub. We will continue to create the optimal environment for all businesses to flourish here, and no doubt you will continue to seize the opportunities and strive for the best. By leveraging on our co-operation with the rapidly growing Mainland economy, and working hand in hand with the international business community, I am confident that the best is yet to come for Asia's world city.
Thank you very much.
Ends/Monday, March 15, 2004