Following is the full text of the Speech on the 2005-06 Budget delivered by the Financial Secretary, Mr Henry Tang, in the Legislative Council today (March 16):
I move that the Appropriation Bill 2005 be read a second time.
2. Hong Kong has faced many challenges since the reunification less than eight years ago. Mr Tung Chee Hwa, the first Chief Executive of the Hong Kong Special Administrative Region (SAR), has led us through those turbulent times. His selfless devotion and courageous commitment to Hong Kong is exemplary. The State Council has accepted his resignation on March 12. I respect his decision to resign and I am sure Mr Tung will continue to serve our motherland and the people of Hong Kong in his new capacity. I and other members of the SAR Government will work with each other to fulfill our public duties to the best of our ability.
3. With the support of the Central Government and the combined efforts of the Hong Kong people, we have successfully overcome these trials and tribulations, demonstrating our resilience, perseverance and "the Hong Kong Spirit". As President Hu Jintao says, seeking development, stability and harmony is the mainstream social consensus in Hong Kong. Confronted by change, we should show solidarity and each play our part in the community. We should also uphold the principle of "One Country, Two Systems". In this respect, we are fortunate to have a sound and efficient government structure and a well-established administrative system based on the rule of law. I will do my best to live up to the expectations our citizens have of me as Financial Secretary of the Hong Kong SAR, and to ensure the continuity and consistency of the Government's fiscal and economic policies, so as to maintain public confidence in the economic development and social stability of Hong Kong.
Economic Performance in 2004
4. Our economy recovered throughout 2004, moving out of the doldrums that had beset us since the Asian financial crisis. Last year, it grew by 8.1 per cent, the highest rate in four years and well above the average annual growth rate of 4.8 per cent over the past 20 years. This suggests that our economy is back on an upward track following the adjustments over the past few years.
5. Our external trade in 2004 remained buoyant: total exports of goods and offshore trade both surged by 15 per cent. The number of visitor arrivals for the year reached an all-time high of 21.81 million. Private consumption increased significantly, by 6.7 per cent. Likewise, investment in industrial machinery, after falling for several years, resumed positive growth, with an overall increase of 20 per cent for the year, the highest since 2000. Property values rebounded, and the number of homeowners with negative equity fell drastically from about 106 000 in the middle of 2003 to around 19 000 at the end of 2004. The number of bankruptcy petitions also decreased from more than 22 000 in 2003 to about 12 000 in 2004, and was the lowest in four years.
6. With the economic upturn, the unemployment rate fell steadily from its peak of 8.6 per cent in the middle of 2003 to a three-year low of 6.4 per cent earlier this year. The total employed population rose at a remarkable pace to an all-time high of 3.34 million, up by about 154 000 over the trough in 2003. There was a surge in vacancies across many sectors.
7. In July 2004, the deflation that had persisted for nearly six years finally came to an end. With brisk local consumer demand and vibrant inbound tourism, 2004 has seen a progressive return of local retailers' pricing power. In the first half of the year, the Composite Consumer Price Index still experienced a 1.3 per cent year-on-year decline, but in the second half of 2004 this reversed to a small increase of 0.5 per cent. For the year as a whole, the average price decline was only 0.4 per cent.
8. As our economy put in a strong performance last year, revenue from various sources was higher than expected.
9. For the Consolidated Account, I estimate that a surplus of $12 billion will be achieved in 2004-05, equivalent to 0.9 per cent of Gross Domestic Product (GDP). This is the first time since 1999-2000 that the Consolidated Account has recorded a surplus, and is mainly due to lower-than-expected expenditure and higher-than-expected revenue this year, capital revenue in particular. For example, land premiums amount to $31.3 billion, more than two and a half times the original estimate. Operating revenues such as salaries tax, profits tax and stamp duty are also higher than expected, with increases in these items ranging from 9 to 40 per cent.
10. I must, however, stress that the main reason for the surplus is that revenue from land premiums is far greater than expected. As such revenue is volatile and is affected by a number of factors, we cannot rely too heavily on it to fund operating expenditure. Moreover, the sums raised by issuing bonds in 2004-05 will have to be repaid. Discounting the proceeds from bond issuances, the Consolidated Account will still record a deficit of $13.4 billion.
11. As far as the Operating Account is concerned, I am pleased to announce that operating expenditure for 2004-05 will be lower than that for 2003-04. Barring two special accounting arrangements with the former municipal councils, this is the first time in over 50 years that operating expenditure has fallen.
12. This demonstrates that the various control measures taken by the Government are gradually producing results. These include reduction in the civil service establishment, adjustments to civil service pay, reprioritisation of service provision, structural reorganisation and streamlining of procedures. I am grateful for the joint efforts of Directors of Bureaux and my colleagues in the civil service. This also shows that our civil service has the flexibility to try new approaches and has striven to reduce operating expenditure while maintaining a quality service. The operating deficit for 2004-05 is forecast to be $14.1 billion, much lower than the $46.6 billion originally estimated.
13. Despite the fact that people's incomes decreased and deflation persisted in the wake of the Asian financial crisis, the Government's operating expenditure continued to soar. I know that members of the public are unhappy about this. Last year, I pledged that the Government would first cut down on spending in order to demonstrate our readiness for action. One year later, we have succeeded in checking the trend of our operating expenditure, which had been on the rise for over 50 years. This clearly demonstrates that we have the determination and capability to contain our spending.
(To be continued)
Ends/Wednesday, March 16, 2005