Following is the speech (English only) by the Financial Secretary, Mr Henry Tang, at the Hong Kong General Chamber of Commerce 11th Annual Hong Kong Business Summit - "Hong Kong in 2005: Continuing the Global Outlook" at the Hong Kong Convention and Exhibition Centre this (November 25) morning:
Thanks Anthony, for the kind introduction. Distinguished guests, ladies and gentlemen, good morning.
My thanks to the Hong Kong General Chamber of Commerce and The Asian Wall Street Journal for this opportunity to speak with you. It's always a great pleasure to meet with our business community, and to hear your valuable views. I wish everyone a happy Thanksgiving.
Before I talk about how we, as Asia's world city, maintain our global outlook and international profile while taking advantage of our unique relationship with the Mainland, I would like to spend a few moments on the 2005-06 Budget, as I am in the midst of my consultations and preparations for the next Budget. I am sure therefore I will be able to capture your attention at least for the first part of my speech as you will be listening very hard to see whether I am going to raise taxes.
Some of you here would certainly like me to promise to lower profits tax, abolish estate duty and reduce the duty on wine. I am afraid I will have to disappoint you, at least for today. I have heard different views and arguments in favour of different directions. But as the financial chief, it would be hugely irresponsible to make hasty decisions, dip into the cash box, giving out tax concessions and welfare, without due regard to our fiscal health and sustainable development.
As a government, we have a duty to balance the needs to foster economic growth while maintaining a caring society where no one is left behind. In fact, these two seemingly conflicting objectives are complementary to each other. Without a harmonious society where everyone shares some of the economic fruit, growth would not be sustainable. Similarly, we would not be able to uplift the less fortunate without a strong economy.
Having said that, you all know that in Hong Kong today, a small group of corporate and individual taxpayers bear a large burden of profits tax and salaries tax. In terms of salaries tax, about 300,000 salary earners shoulder 85 per cent of the burden. Similarly for profits tax, the top 500 corporations bear 60 per cent of the burden. The IMF's recent study, while giving us a clean bill of health on our economy, urged us to address the tax base issue, especially in light of demographic changes.
On the other hand, six successive years of operating deficits have depleted our fiscal reserves by 40 per cent. And we cannot rely on windfalls from non-recurrent revenue to fund operating expenditure. Non-recurrent revenue is subject to too much volatility. Since 1997, annual investment income has ranged from as low as under $1 billion to as high as $42 billion. Similarly, land premium revenue has varied widely from $5 billion to $71 billion.
We made a commitment in the March 2004 Budget to manage our finances prudently, to control our expenditures and to demonstrate to the public that we have the ability and determination to deliver our goals. We remain committed to these goals.
Indeed, thanks to the strong economic recovery which has a positive impact on our revenue streams, we actually might not need additional measures to reach fiscal balance so long as we continue our expenditure restraints. However, it is precisely when an economy is on upswing that we can afford to think about tax reform, particularly in broadening our narrow tax base.
I am keenly aware that it is very unpopular to talk about tax in general, and more so if you talk about new taxes. Yet, I believe that it is my duty being the Financial Secretary to ensure that our tax system is not only adequate to meet today's needs, but also robust and sustainable enough to meet the challenges ahead.
That is why I am proposing the option of a goods and services tax for public debate. We are at an early stage of studying a GST. An internal committee will submit a report to me by end-2004, and I will announce the next step in the March 16 Budget.
I want you to note that it would take at least three years from the time we make a decision on implementing a GST to the time we begin collecting such a tax. This is the case for almost all countries having a GST or sales tax. In other words, you do not need to agree or object to GST now. This is precisely the message I have been sending to all our honourable members in the Legislature. Keep an open mind, and wait until we thrash out more details. What we need for this society is constructive engagement and rational debates, so that we come to a consensus view about the best way forward, especially how to mitigate the impact of a GST on the less privileged, and achieve the effect of both securing a steady stream of government revenue and prioritising spending areas to address the challenges of the needy.
So much for the Budget. As you were smart enough to anticipate, I will be keeping my cards until Budget Day. I just want to give you an idea where I am coming from, and my door is always open to your views from a business perspective.
I think we can by now all comfortably say that our economy has finally turned the corner and is now onto a broad-based recovery. The 3rd quarter growth figures, which will come out tomorrow will confirm that we are on track to a 7.5 per cent full year growth rate. We are sustaining our momentum well into the final months of this year.
In fact, our economy has created more than 100,000 jobs in the past year, and businesses are now complaining about shortages and higher turnovers of some professionals, such as accountants. Unlike last year when we saw empty hotel rooms and shopping malls, our hotel occupancy rates are in the 90's, and our retail sales grew by 7.8% in September. The property market of course turns for the better with much improved sentiments, and the number of mortgages in negative equity has plunged from over 100,000 to 25,000.
Exports of goods and services have not slowed as much as many people initially expected. Domestic consumer demand has also held up well, and investment in office equipment has registered substantial increases, signifying that many companies are taking a positive view of their future.
For those who are sceptical about the benefits of CEPA, you may wish to note that the growth of investment in industrial machinery for manufacturing use, having suffered several years of set-back, has been rising very rapidly since early this year, registering 18% growth in Q1, 12% in Q2, and a whopping 33% in Q3. The timing of these investments coincided well with CEPA.
But we are not complacent. We know there are many challenges ahead, not least how to tackle the effects of our economic restructuring and how to maintain Hong Kong's competitiveness. And besides, our economic future will continue to be subject to global economic cycles.
The volatility in crude oil prices will continue to be a cause of concern for the global economy next year. The continued weakness in the US dollar, which to some extent should give Hong Kong's exports a helping hand in 2005, would be something we need to continue to watch out for.
The Mainland, meanwhile, has also achieved some initial successes in addressing the imbalances in its economy while sustaining a reasonably rapid rate of growth. A "hard landing" that many people talked about earlier this year has not materialised, and I am cautiously optimistic that a "soft landing" can be achieved in 2005. Indeed, there may be no landing at all.
The businesses and the people of Hong Kong have demonstrated time and again our resilience and adaptability to change. I remain cautiously optimistic that 2005 will be a good year for Hong Kong's economy. The Government, for its part, will continue to facilitate business, both in the short term and for the long haul.
Which brings me to Hong Kong's international profile. Under the "One Country, Two Systems" principle, we have been proactively enhancing our international characteristics, while leveraging on our close ties with the Mainland. Quite unique in the region, both our hardware and software are world-class. Cosmopolitan lifestyle, fashionable tastes, and knowledge and experience with the Mainland market are what we offer; and more importantly, the rule of law, the respect for intellectual property rights and a virtually corruption-free government cannot be replicated by others overnight.
Hong Kong has the best of both worlds. The world's fastest growing economy and greatest potential market is right at our doorstep. Here in Hong Kong, you succeed or fail based on the rule of the game, which you all are familiar with.
The international business community has a strong presence here. It is a greater presence, in fact, than anywhere else in the Asia-Pacific region. There are more than 3,600 regional headquarters or regional offices of overseas companies in Hong Kong. That's a record high, and it is growing each year. So when it comes to talking about Hong Kong as an international city, you need only look at the membership of the many international chambers of commerce we have here.
Hong Kong's global credentials and our cosmopolitan setting have long attracted international conference organizers. Next week, the prestigious Luxury 2004 conference will be held in Hong Kong, for the first time outside of Paris. Next June, the Lions Clubs International Convention will draw 20,000 delegates from 110 countries. Hong Kong is the only place outside the United States to host the Lions twice.
In December 2005, the Sixth World Trade Organisation Ministerial Conference will be held in Hong Kong, a privilege that underlines Hong Kong's status as a founding member of the WTO in our own right. And two years from now, the International Telecommunication Union will hold the world's premier telecom event, ITU Telecom World 2006, in our new Asia World-Expo conference centre beside the airport. It will be the first time the ITU has held the world's premier telecom event outside of Geneva, and it is expected to attract 100,000 delegates.
On this strong foundation, we are enhancing our attractiveness as a place when you can take part and have a share of China's growth. Initiatives like CEPA and the Pan-PRD co-operation forum produce a win-win-win situation, benefiting both the Mainland's economy and Hong Kong's, along with the foreign companies that invest here. We are also boosting our cultural, entertainment and recreation offerings so that we are not only a great place to work, but also a great place to live.
Ladies and gentlemen, Hong Kong is Asia's world city because it draws people and capital, goods and tourists and entrepreneurs from all over the globe. Any policy decisions the Government makes, including Budget initiatives, will always have that factored in. I know that this is of great concern to the business community, and I want to assure you that we will continue to listen to your views.
Thank you very much.
Ends/Thursday, November 25, 2004