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Tax Reform
81. I pointed out in my last Budget that we must stay alert to the challenges ahead and face up to the long-term pressure on public finances brought to bear by such challenges as a narrow tax base, unstable revenue, economic restructuring and an ageing population. We launched a public consultation on tax reform last July to explore the best way of broadening our tax base. The community generally agrees that the Government should stabilise its revenue by broadening the tax base for the purpose of ensuring the health of our public finances and maintaining our competitiveness. Although the community cannot reach a consensus on the introduction of a Goods and Services Tax, it supports the Government in continuing discussions with the public on other options to broaden the tax base. We will prepare a report after the conclusion of the consultation period at the end of March and submit it for consideration by the Government of the next term.
Health Care Financing
82. Health care is a major public expenditure item. The Secretary for Health, Welfare and Food will consult the public on reform of health care service delivery and related financing arrangements this year, and will in that context study the proposal to provide a tax deduction for premiums paid to private medical insurance schemes.
Medium Range Forecast
83. If our economy grows as forecast, the medium range forecast for 2007–08 to 2011–12 will be as follows:
2007-08 2008-09 2009-10 2010-11 2011-12
($ billion)($ billion)($ billion)($ billion)($ billion)
Operating 221.4 244.7 258.2 270.6 287.2
revenue
Operating 214.2 221.7 229.5 237.5 245.8
expenditure
Operating 7.2 23.0 28.7 33.1 41.4
surplus
Capital 52.4 63.0 64.0 63.8 67.5
revenue
Capital 34.2 36.4 47.0 51.5 50.2
spending
(including
payments
from the
Capital
Investment
Fund)
Repayment - 2.7 3.5 - -
of
government
bonds and
notes
Capital 18.2 23.9 13.5 12.3 17.3
financing
surplus
Consolidated 25.4 46.9 42.2 45.4 58.7
surplus
- as a 1.7% 2.9% 2.4% 2.5% 3.0%
percentage
of GDP
Fiscal 391.2 438.1 480.3 525.7 584.4
reserves
- as a 19 20 21 22 24
number
of months
of government
expenditure
- as a 25.4% 26.9% 27.8% 28.7% 30.1%
percentage
of GDP
Public 267.8 276.5 295.6 308.8 316.0
expenditure
- as a 17.4% 17.0% 17.1% 16.8% 16.3%
percentage
of GDP
84. We forecast a surplus of $7.2 billion in the Operating Account for 2007–08, and this will build up to $41.4 billion in 2011–12. In respect of the Consolidated Account, a surplus of $25.4 billion is estimated to occur in 2007–08, and this will build up to $58.7 billion in 2011–12. We will increase operating expenditure moderately over the next few years to enhance the quality of government services and cater for inflation.
Concluding Remarks
85. Madam President, this is the fourth Budget that I have presented for Hong Kong and also the last for the Government of this term. I was born and grew up in Hong Kong. I am honoured to have had the opportunity to serve the citizens of Hong Kong. I feel greatly encouraged to have witnessed over the past three years that our economy has returned to prosperity, our people's livelihood has been steadily improving, and Hong Kong has regained its vibrancy and confidence. By displaying resilience and tenacity in the face of adversity, Hong Kong people have worked another economic miracle.
86. In preparing my annual Budgets, I have adopted a pragmatic approach based on the principle of prudent management of public finances, listened extensively to the views of the community, and borne in mind the long-term interests of Hong Kong and the well-being of our citizens. I believe that my Budgets have achieved good results in reviving the economy, promoting employment and improving people's livelihood, as far as possible benefiting people from all walks of life.
87. During my term of office, I have raised some controversial issues, such as the abolition of estate duty, the launch of a public consultation on broadening the tax base and a review of competition policy. While the community has yet to reach a consensus on certain issues, it is my firm conviction that I am duty-bound to raise any proposal that can contribute to the development of Hong Kong. Upon taking up office as Financial Secretary, I set myself the objective of reviving Hong Kong's economy. I am absolutely delighted to see that our economy has now improved so handsomely.
88. This year marks the 10th anniversary of Hong Kong's return to China. With the vigorous growth of our nation's economy and our competitive advantage in having the Mainland as our hinterland, coupled with our own international outlook, the economic integration between Hong Kong and the Mainland has been deepening. Because of this, I have full confidence in the future of Hong Kong. Our people can rise to any challenge. With solidarity and a determined effort to forge ahead, we will surely realise a bright future for our city.
Ends/Wednesday, February 28, 2007
Issued at HKT 12:00
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