Following is the full text of the Speech on the 2007-08 Budget delivered by the Financial Secretary, Mr Henry Tang, in the Legislative Council today (February 28):

Madam President,

Introduction

     I move that the Appropriation Bill 2007 be read a second time.

2. "Revitalising the economy, promoting employment and improving people's livelihood" have been my consistent policy objectives over the years since I became Financial Secretary.  They are also my guiding principles in formulating the 2007 - 08 Budget.  I believe that our economic development over the past few years confirms that they are on the right track.
 
3. My gratitude goes to various sectors of the community for the invaluable suggestions they have given me over the past few months.  In pursuance of the Chief Executive's "proactive, pragmatic, always people first" concept of governance, I hope, by means of this Budget, to leave wealth with the community where affordable, balance the changing aspirations of our society, and, while leaving room for the next Government, contribute in a visionary way to the long-term economic development, social harmony and stability of Hong Kong.

Economic Positioning

Economic Performance

4. In August 2003, when I took up the office of Financial Secretary, Hong Kong was beset with severe challenges.  After being successively hit by the Asian financial turmoil and the outbreak of SARS, the economy had dipped sharply.  At that time, consumer and investor sentiments were very depressed; deflation persisted: since 1998 the Composite Consumer Price Index (CCPI) had fallen by 16 per cent and the Gross Domestic Product (GDP) deflator had declined by the even greater extent of 23 per cent; and our fiscal deficit was worsening from year to year.  At such a crucial moment, the  responsibility of being Financial Secretary weighed heavily on me.  Although we were confronted with such adversity, I remained fully confident that, with the resilience, ingenuity and tenacity of Hong Kong people, we would surely ride out the storm together, and see our economy emerging again stronger than ever.

5. The spirit of Hong Kong prevailed, and with the full support of our nation, our economy has gradually come out from the doldrums and staged a strong recovery, standing out in stark contrast to 2003.  The number of negative equity cases had fallen from the peak of over 100 000 to 8 400 by the end of 2006, in tandem with a significant recovery in the property market.  Total visitor arrivals had also risen from some 15 million three years ago to more than 25 million in 2006, an increase in excess of 60 per cent.  As at mid-February, our stock market's total capitalisation had increased by 300 per cent over its 2003 trough.  Along with the strong recovery of our economy, the deflation that had persisted for years also ended in mid-2004.

6. GDP leapt by 6.8 per cent in 2006.  Our economy has continuously enjoyed above-trend growth over the past three years, registering an average annual increase of 7.6 per cent.  Furthermore, our economic growth has become more and more broad-based.  As for consumption, total retail sales for 2006 registered an increase of 23 per cent over those of three years ago.  And overall investment has been accelerating for four years in a row.  It grew 8 per cent last year, the biggest rise since 2000.

7. There have been extensive improvements in the labour market.  Total employment has hit successive new highs over the past three years, with the latest figure close to the 3.5 million mark, up by more than 310 000 over its low point in 2003.  The unemployment rate has fallen from its peak of 8.5 per cent in mid-2003 to a six-year low of 4.4 per cent.  The number of long-term unemployed has also fallen by over half from its 2003 level.  As at the end of January this year, the amount of unemployed Comprehensive Social Security Assistance (CSSA) cases was 14 000 less than the high of 51 400 in 2003.

8. Upon taking up this office in 2003, in order to address the serious deficit problem and to restore the health of our public finances, I set the following three fiscal targets:

* reduce operating expenditure to $200 billion;

* restore fiscal balance in the Operating and Consolidated Accounts; and

* bring public expenditure down to 20 per cent of GDP or below.

Due to the combined efforts of the Government and the entire community, we achieved all these targets in 2005–06, three years ahead of schedule.

2006–07 Outturn

9. The Government's financial position has improved markedly as a result of our strong economic recovery.

10. I estimate that operating expenditure for 2006–07 will be $195.7 billion, a moderate increase of 1.7 per cent over the 2005–06 figure.  That government operating expenditure has been contained within $200 billion for three years in a row is no mean accomplishment.

11. Due to government departments' efforts in implementing structural reorganisation and streamlining procedures, we will be able to reduce the establishment of the civil service to approximately 161 800 by the end of March 2007, and so attain our target.  My sincere appreciation goes to our clean, efficient and dedicated civil service for making strenuous efforts to rein in expenditure, implementing a wide range of policies and providing quality public services to the community, while coping with greatly-increased pressure from various austerity measures.

12. Government revenue is far higher than expected, due to the strengthening economy, increased corporate profits and salaries, the buoyant stock market and a stable property market.  For 2006–07, I am forecasting surpluses of $38.6 billion in the Operating Account and $55.1 billion in the Consolidated Account.

13. The variances between the revised and original estimates are essentially due to our economy's better-than-expected performance over the past 12 months.  Last year, our GDP grew by 6.8 per cent, significantly higher than the 4 to 5 per cent forecast by the market and the Government earlier in the year.  This has meant that investment income and revenue from land premiums, stamp duty, profits tax and salaries tax alone are about $31 billion higher than the original estimates.  Moreover, the preparation of the estimates is a mammoth exercise.  Given the fact that government revenue and expenditure total about $520 billion a year, involving more than 200 revenue items and a large number of expenditure items under some 80 expenditure heads and eight purpose-specific funds, it is understandable that some variances between the estimates and the actual figures will occur as a result of different factors.

(To be continued)

Ends/Wednesday, February 28, 2007
Issued at HKT 11:10

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