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Following is the speech by the Financial Secretary, Mr John C Tsang, at the Joint Business Community Luncheon today (March 10):
Ladies and gentlemen:
Good afternoon.
It's a great pleasure for me to join you today for this traditional post-Budget get-together. I hope that together with the cordial companionship, you will be enjoying a sip of duty-free wine or duty-free beer.
Many of you will be familiar with the expression "The future is now". I guess the conventional wisdom of what it means, is that what you do today, has a bearing on what happens tomorrow. Of course, we can't predict the future – but if we could, there would be an awful lot of Mark 6 winners! But, we can certainly try to shape the future. In fact, the future guru Wolfgang Grulke goes much further to say that you can actually choose your own tomorrow with what you do today.
This was my first Budget and I felt it important to spell out the principles behind my fiscal deliberations – the principles that have shaped my thinking and will continue to do so in future, while I am still fortunate enough to serve in this tremendous job.
I would like to recap: First, our fiscal policies should demonstrate the Government's commitment to society. Second, our fiscal policies should be sustainable. Third, our fiscal policies should be pragmatic.
As far as spending goes, we have concentrated on four areas: one, promoting long-term economic and social development as an investment for the next generation; two, supporting disadvantaged groups to improve their living standards; three, leaving wealth with the people to share the fruits of economic development; and, four, providing for future challenges.
So, this Budget is as much about meeting current needs, as it is about shaping the future of Hong Kong. Today, I would like to concentrate on the future.
I've been in the job now for eight months. It's been a challenging but totally enjoyable experience so far. In theory, one of the major goals of a Financial Secretary is fairly simple and straightforward – to ensure that our policies and actions support economic growth. With growth, comes increased revenue and higher living standards. Increased revenue gives us more flexibility – we can not only pay for the things that we need, we can also pay for some new things, or put some cash back into the pockets of the people, or invest in projects that will help spur growth in the future. This is what we did this year.
The complicated part of the job is trying to carve up the fiscal pie appropriately to meet the many, varied and competing demands in society. But I do believe that if we frame our decision making with certain well-defined goals in mind – in this case supporting economic growth – then focusing on what needs to be done becomes that much easier.
That is why you will see in this Budget spending plans and policy initiatives that help to lay the foundations for new opportunities, as well as help sustain growth. We all know from painful experience over the past decade that external shocks, or tragedies such as the SARS outbreak, can have a debilitating effect on growth, confidence, employment and, ultimately, Government revenues.
And because Hong Kong is such an open and international economy, we will never be immune from the ups and downs of a changing global market. What the Government is trying to do is make sure that when these challenges do come our way, the foundations upon which our economy has been built are sure and strong. So that even when we have our downs as well as ups, the effect will be more like a gentle see-saw, rather than one of those really scary roller coaster rides that makes you hang on for dear life, clench your teeth, close your eyes and hope that it will all be over fairly quickly.
The other huge factor, of course, is the ongoing opening up, reform and development in the Mainland. Hong Kong is in a unique position to benefit enormously from this process over the next 30 years, just as we have over the past 30 years since the opening up and reform process started. That means building on the unrivalled access and experience we have in that market; building up our knowledge bank of international best practices, so that we remain a valuable resource on which our nation can draw; and building on our credentials as the major international business and financial centre in Asia. There is too much at stake – for our nation and for Hong Kong – to think for one minute that we can rest on our laurels.
I mentioned earlier the three principles that guide my fiscal deliberations. All of them have an impact on Hong Kong's future.
When I talk about the principle of commitment to society, it's not just about helping the less fortunate in society by providing a safety net. It's as much about spending priorities that will help people to help themselves. Hong Kong's never been a city built on handouts; it's been a city built by people determined to get a hand up on the next rung of the ladder. That is why we will spend a lot of money on education and retraining. We want to provide our people with the learning opportunities that can help them upgrade their skills; that provide them with the knowledge to move up onto the next rung of the ladder of life.
When I talk about the principle of sustainability, it's not just about ensuring that we spend what we can afford. It's as much about setting spending priorities that can help sustain growth. This covers a multitude of areas, such as investing heavily in research and development, pushing ahead with major infrastructure projects to create jobs and ensure Hong Kong's status in the league of global cities; tapping new markets and developing our creative economy; strengthening pillar industries such as financial and business services, tourism and logistics; environmental protection, efficient land use, heritage preservation and attracting talents. All of these have an impact on our competitiveness. And if we can't remain competitive and relevant, then we can't expect economic growth.
When I talk about the principle of pragmatism, it's not just about ensuring that every dollar is well spent and targeted to benefit those most in need. It's as much about keeping the size of the public sector small so that the market has maximum room to grow and flourish. It's also about facing up to problems such as our narrow tax base, and the long-term fiscal well-being of our health care system, and then taking practical steps to address these problems in a fair and reasonable way.
If we look at our spending approach and priorities for 2008-09, and beyond, you can see that many are also made with an eye on future economic development.
The $18 billion we are committing to fund research and development will help develop the knowledge-based industries that a services-based economy such as Hong Kong's depends upon. It will also help us attract the best and the brightest research talent from the Mainland and abroad, and that will further underpin our ambition to develop as a regional education and innovation hub.
The scrapping of duties on wine and beer – as popular a decision as it is – is not about making it cheaper for you all to enjoy your favourite tipple. It’s about creating new business opportunities in the storage, transport, selling and marketing of wine at a time when consumers across Asia are enjoying higher living standards, and becoming more discerning too. People in the trade expect that by removing these duties – and the associated compliance costs – then the volume of wine trading business in Hong Kong could increase by as much as $4 billion. Obviously that extra volume will help create jobs. And, we hope to attract a whole new range of wine traders to Hong Kong to do business in the region adding even more activities to our rather active economy.
The $21.6 billion earmarked for the West Kowloon Cultural District is not just about building a world-class and iconic cluster of cultural, arts and entertainment facilities. It's about investing in the hardware that can help our creative industries flourish, that can deepen and broaden the economic scope of these industries in Hong Kong, and underpin our viability and attraction as Asia's world city.
The same applies to the almost $22 billion we'll be spending on infrastructure development in the next financial year. If Hong Kong wants to remain in the league of world cities, we need world-class infrastructure. Many of the projects are designed to enhance connectivity within Hong Kong and interconnectivity with the Pearl River Delta and beyond – the futures of all conurbations in the PRD are very much tied together. We expect that this investment will create 27,000 jobs in the construction sector over the next year. And we plan to spend more on infrastructure in the coming years.
At the policy level, it is also important to know that our ongoing efforts to pursue closer links within the Pan-Pearl River Delta region – by leveraging on the benefits of CEPA as well as our own unique skills set – helps economic growth on a number of levels. First of all, it puts Hong Kong's expertise to good use within our nation. The more services we provide to the Mainland, the more jobs and wealth we can create for Hong Kong companies. Secondly, it provides Mainland companies with a platform to explore international markets from the most international of Chinese cities. Inward investment to Hong Kong creates jobs. It also adds to Hong Kong's attraction as a regional, if not global, base for large Chinese companies. Third, it adds to Hong Kong's attractiveness as a hub for international financial and business services. All of these benefits are mutually reinforcing. They help create jobs. They help strengthen the foundations of our economic development.
I think it's also important to note from this Budget that while we do want to share the fruits of our strong economic growth, we do not want to do so in a way that will impact on the medium-term health of our public finances.
Many of our concessions are one-off items that benefit both taxpayers and those in the lower income groups. I think it is particularly important to give something back to those taxpayers who had to bear the brunt of the fiscal pain when our economy was in the doldrums for more than five years after the Asian financial crisis.
And while sharing the wealth will have practical and positive benefits for the lower income groups, the way in which we have allocated these concessions is also designed to help alleviate the effects of higher inflation in the immediate future.
We believe that inflationary pressures are likely to persist this year as our economy continues to expand, with wages and rentals rising locally, food and energy prices remaining high globally, the renminbi appreciating, and the US dollar staying weak.
On the other hand, we must keep an eye on the evolving financial crisis that is now much more than a US sub-prime mortgage problem. While Hong Kong's economic numbers remain strong so far, we have to be prepared for the challenges that will arise, given the ongoing global economic slowdown and the continued volatilities in financial markets.
But, we do remain concerned about the impact of inflation on lower income earners in Hong Kong. So, the various measures we have announced – such as the waiving of rates and rents, and the electricity grant, should help alleviate the burden on the lower-income families and lower the headline inflation rate to 3.4%, even though we expect the CCPI to rise by 4.5% this year.
Ladies and gentlemen, as I mentioned in the Budget, I remain cautiously optimistic about our economic prospects for 2008. I know it's impossible to please all of the people all of the time. But I hope that with this Budget we've been able to please most of the people for at least some of the time. I also hope that the Budget will help lay the foundations for continued, broad-based and sustainable economic growth in the medium to long term. And I hope that I can count on the business community’s support and input to carve out an even brighter future for all of us in Hong Kong.
Thank you very much.
Ends/Monday, March 10, 2008
Issued at HKT 15:03
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