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    Following is the transcript (English portion) of the question and answer session given by the Financial Secretary, Mr Henry Tang, during his Budget press conference today (March 16):

Reporter: ... How do you see ... the surprise story of renminbi and yuan the prime minister was talking about?

Financial Secretary: That's a very searching question. The movement of renminbi obviously will have implications for Hong Kong dollars and our economy because the Mainland is now our largest trading partner, and also we have huge investments in the Mainland. We are still the largest source of foreign direct investment into the Mainland, so the movement of renminbi will have huge implications for us. On the other hand, this implication does not necessarily have a direct effect because if the renminbi were to revalue upwards it would make our exports more competitive because we are pegged to the US dollar. So there are other implications. It would make us relatively more competitive but of course these are very speculative scenarios because Premier Wen has already said very clearly that the movement of renminbi would have far-reaching ramifications - not just for China, not just for Hong Kong , but for the world. Whatever movement of the renmini they are considering they will take it a holistic manner rather than just domestic considerations.

Reporter: You would prefer the peg to stay?

Financial Secretary: Yes.

Reporter: Do you plan to bring it (GST) in this year, if not when? About the change of leadership. I wonder if the change of CE will affect the Link REIT going ahead?

Financial Secretary: I said in the Budget that we are committed to securitising or privatising as many things as possible at the right time because I very much believe in our market economy and our low and simple tax system. Very fundamental principles that make Hong Kong what we are today. I have emphasised that we are committed to giving the private sector as much room to invest in Hong Kong as possible. The principle has not changed. But as far as the timetable is concerned, we will take each project on its own and devise a timetable that will give us the best value for our investment. Land sales have exceeded our expectations and for our planning purposes land revenue will be a fairly good source of non-recurrent income or capital income. So as long as I stay with the principle that we will pay for capital expenditure with capital income, that will include land sales, the timetable will depend on when we will get the best value for our investment. So the principle has not changed but the timetable will depend on what will give us the best value for our investment.

Reporter: So are you saying that actually that politics recently has given delays to the timetable so far?

Financial Secretary: No, not really. It's not because of the politics but the sheer economic numbers. Because we are getting a lot more land revenue than we had anticipated, the pressure is less for us to privatise. But we are given a better timetable so we have more room to nurture a project until we can get the best value for it.

Reporter: My first question was GST. Do you plan to bring it in this year or if not, when do you see it coming in?

Financial Secretary: We will launch a consultation this year. When we will launch the consultation, I believe I would like to consult with the new Chief Executive when he is elected on July 10.

Reporter: On the one hand you say the economy is doing really well. Aren't you being a bit stingy not giving away more in tax cuts and to the poverty?

Financial Secretary: Our economy is recovering reasonably well. But it is still a fairly fragile situation because our revenue is beginning to improve, but we are still suffering from quite a lot of volatility. Based on what happened in the last five years, we know what kind of damage that volatility can do to us. So therefore I feel it would be prudent for me not to make large tax cuts, especially in income tax because suspending the second stage increase in salaries tax would cost Government $3.3 billion in our operating income, and I feel it is $3.3 billion that we should not forgo quite so easily. So it is within the principle of prudent financial management that I have decided not to suspend the second stage increase.

Reporter: What about poverty?

Financial Secretary: As far as poverty is concerned, since Mr Tung announced the setting up of the Commission on Poverty, the reaction in the community has actually been very interesting. I think it took most people by surprise that there was such a strong reaction from the middle-class, because the middle-class are beginning to realise they are the ones who are paying tax. The tax dollar is coming from their hard-earned dollars and how Government spends that money is very, very important - we are prudent and we are spending the money where we should be, and not as handouts. So I said very clearly today that poverty alleviation does not equal just giving out money and that's usually not the best way to alleviate poverty. So the Commission on Poverty is going to study how we can approach that subject the best way. And we will continue our work.

Reporter: What do you think will be the best way?

Financial Secretary: I can't answer you because that would be pre-empting the Commission on Poverty if I know the answers already.

Reporter: Your address to the legislature sounded particularly at the end very much like a campaign speech and it looks like the timetable at work here is to push off controversy until someone else  is on the job in the Number 1 position while delaying the day that you could hand out goodies to people closer to an election time. So isn't the prudence in this Budget at least as much political as it is fiscal?

Financial Secretary: I wouldn't exactly say it was a campaign speech. I think it is just a reflection, a very good reflection, of what I truly believe in. The economic recovery we are experiencing now is actually something which is very difficult. We came through many years of challenges and over those years Hong Kong people became tougher, we became more adaptable and we became harder working. So this recovery didn't come easy. So we shouldn't squander this window of opportunity for us to put our public finances, onto firmer ground so that we can build from strength to strength. In order to do this we have to continue to work together as a team in order to achieve that.

Reporter: So it's entirely  coincidental that this will work out very close to 2007, that the deficit will be gone, that's also an election year and that's just the way it worked out.

Financial Secretary: When former Premier Zhu Rongji was asked to make an inscription for the World Congress of Accountants, he said his calligraphy was very bad, normally he does not like to write calligraphy. But in that case he did. What he wrote was 「不做假帳」 "Make no false accounts" (translation). Accounts must be true and fair. Governments do not make up accounts. We take numbers as they come and publish them with a high degree of transparency.

(Please also refer to the Chinese portion of the transcript.)

Ends/Wednesday, March 16, 2005

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