Budget Speech by the Financial Secretary (14)

Revenue Concessions

123. Members of the public expect the Government to sense the public pulse and share their burden.  Although it is expected that a larger deficit will occur in 2009-10, for the long-term interests of the community as a whole and having regard to the Government's financial position, I have decided to introduce some one-off revenue concessions.


124. First of all, I propose to waive rates for the first two quarters of 2009-10, subject to a ceiling of $1,500 per quarter for each rateable tenement.  It is estimated that about 90 per cent of domestic properties and 60 per cent of non-domestic properties will be subject to no rates in these two quarters.  This proposal will cost the Government approximately $4.2 billion.

Rental Concession for Government Properties and Land

125. Moreover, I have decided to provide a 20 per cent rental reduction for most government properties and short term tenancies of government land for three months.  This proposal will benefit more than 17 000 tenants.  Details of the concession will be announced shortly by relevant departments.  It is estimated that this proposal will cost the Government about $83 million.

Freezing Government Fees and Charges

126. Last July the Chief Executive announced a freeze on government fees and charges related to people's livelihood for one year.  I have decided to extend the freeze until 31 March 2010.

Salaries Tax and Tax under Personal Assessment

127. I propose a one-off tax reduction of 50 per cent of salaries tax and tax under personal assessment for 2008-09, subject to a ceiling of $6,000.  The reduction will be reflected in the taxpayer's final tax payable for 2008-09.  This proposal will cost the Government about $4.1 billion and benefit all 1.4 million taxpayers.

Medium Range Forecast

128. I now give a brief account of the 2009-10 estimates.  I have adopted a counter-cyclical fiscal strategy and set total government spending at $301.6 billion.  While operating expenditure for 2009-10 will be slightly lower than that for 2008-09 as the latter includes the costs of a number of one-off measures, it is higher than actual expenditure in 2007-08 by 19.2 per cent.  In comparison, the GDP for 2009 is forecast to increase by only 1.8 per cent over 2007.  I forecast a deficit of $9.8 billion in the Operating Account and a deficit of $30.1 billion in the Capital Financing Statement. This results in a deficit of $39.9 billion in the Consolidated Account, equivalent to 2.4 per cent of our GDP.  Fiscal reserves are estimated at
$448.1 billion by end March 2010, equivalent to 18 months of government expenditure.

129. For the medium term, I estimate that the annual average growth rate will be 3.5 per cent in real terms for the period 2010-13, while the inflation rate forecast will average two per cent.  I forecast a deficit in the Operating Account for the next three years, and followed by a return to surplus in our Operating Account in 2012-13, with a further increase in surplus in the subsequent year.

130. As regards capital revenue and spending, I will continue to invest heavily in infrastructure so as to counter the financial crisis, create employment and enhance the long-term competitiveness of Hong Kong.  With the major infrastructure projects entering their construction peaks and an expected decrease in land revenue, I forecast a capital financing deficit for some time in the future.  Our annual capital works expenditure will be at a very high level over the next few years, and may reach $50 billion.  This will pose challenges to the construction industry.  We will pay close attention to the construction industry's capacity to avoid bunching of projects causing tension in the supply of construction workers and cost fluctuations.

131. In this time of economic turbulence, the preparation of this year's Budget has been a great challenge.  Following the principles of prudent financial management and keeping expenditure within the limits of revenues as stipulated in Article 107 of the Basic Law, I have prepared a Budget that is in the best interests of the public.  In light of the current economic environment and needs of the community, I hold to the view that expenditure for next year should be maintained at a high level despite a fall in revenue.  Although this will lead to a deficit in 2009-10, requiring us to draw on the fiscal reserves, I consider it appropriate.  The Government should show its commitments to the community during exceptional times.  In the medium term, with the recovery of the economy and our control of operating expenditure, I forecast that the consolidated deficit will gradually decline and we will largely achieve fiscal balance by 2013-14.  I estimate that the fiscal reserves will be about $390 billion by end March 2014, equivalent to 14 months of government expenditure.

         2009-10  2010-11  2011-12  2012-13  2013-14
         ($       ($       ($       ($       ($
         billion) billion) billion) billion) billion)

Operating  234.2    235.3    253.7    273.5    290.0

Operating  244.0    249.4    258.1    267.1    276.4

Operating   (9.8)   (14.1)    (4.4)     6.4     13.6

Capital     27.5     44.3     52.1     53.7     56.3

Capital     54.1     55.2     69.6     68.9     71.2
(including payments
from the Capital
Investment Fund)

Repayment of  3.5      -        -        -        -
bonds and

Capital      (30.1)  (10.9)  (17.5)   (15.2)   (14.9)

Consolidated (39.9)  (25.0)  (21.9)    (8.8)    (1.3)
- as a         2.4%    1.5%    1.2%     0.5%     0.1%
of GDP

Fiscal        448.1    423.1   401.2    392.4   391.1
- as           18       17      15       14      14
number of months
of government
- as a        27.2%     24.6%   22.3%   20.9%   19.9%
of GDP

Public        319.4    326.8   350.0    358.7   370.9
- as a        19.4%    19.0%   19.5%    19.1%   18.9%
of GDP

(To be continued)

Ends/Wednesday, February 25, 2009
Issued at HKT 12:39