************************************************************
Following is the speech by the Financial Secretary, Mr John C Tsang, on Second Reading debate on the Appropriation Bill 2009 at the Legislative Council today (April 22) (translation):
President,
I would like to thank Honourable Members, various sectors of the community, the media and the public for the views they have expressed on the 2009-10 Budget. As always, we have received many views on the Budget, some expressing support and others levelling criticism. A prominent point this year has been the suggestion of additional relief measures. I will discuss this issue later. I will begin by giving you an account of the three major areas where Members have reached consensus during the Budget Debate.
First, we all agree that the economic crisis we face is highly volatile and that the Government must maintain its flexibility to cope with changes in the situation. This is why in the past year we introduced various targeted measures in response to changes in the global economic environment after the announcement of the 2008-09 Budget. These were chiefly in July and December, breaking free from the normal Budget timetable. We will continue to monitor the situation and consider introducing further measures where necessary. We will maintain this flexibility until the current financial turmoil has eased.
Second, we agree that it is appropriate to take short-term exceptional fiscal measures in the present circumstances. However, we should also ensure a return to the principles of prudent management of public finances in the long run, namely keeping expenditure within the limits of revenue, striving to achieve a fiscal balance, and keeping the budget commensurate with the growth rate of Gross Domestic Product (GDP). On the surface, some of the proposed measures are one-off in nature. However, in formulating these measures, we should consider carefully whether they would have any long-term, recurrent implications for public finances.
Third, in preserving jobs, the Government should provide short-term posts, temporary jobs and internship opportunities for those who are most in need. This will help some people change jobs, and better equip others to return to the labour market when economic conditions improve. However, we all agree that the Government cannot, and should not, take on everything and that the market must continue to play the most important role in providing employment.
In the Budget Debate, I noted that Members agreed with the direction in addressing the financial crisis but there were two different views among them on the intensity of the economic stimulus measures. One view was that we should introduce additional measures immediately. The other view was that we should take stock of the latest situation first and introduce the most appropriate measures at a suitable time. In view of the uncertainties of the financial crisis, I share the view that in deciding on any policies, we should pay due regard to the rationale behind and the timing of introducing relevant measures.
Responding Proactively to the Current Situation
I understand that the suggestion of additional measures is based on concerns that our already weak economy will deteriorate further. I share these concerns, and will continue to closely monitor the changes in the global economy as well as the local economy. Nevertheless, some Members insist that the current situation warrants immediate additional measures because they believe that the fiscal stimulus measures proposed in the Budget are inadequate and not counter-cyclical. I disagree.
We must be clear that the measures announced in last year's Budget and by the Chief Executive last July, as well as the fiscal stimulus measures that I proposed in this yearˇ¦s Budget, compare favourably in intensity with those of other economies. The total expenditure on all these economic stimulus measures exceeds $70 billion, representing 4.2 per cent of our GDP, the largest ever in Hong Kong. According to the report published by the International Monetary Fund (IMF) in March, the average cumulative expenditure of the G-20 nations on economic stimulus measures for countering the financial crisis in 2008 and 2009 accounts for just 2.3 per cent of their GDP. The figure for Hong Kong that I have just mentioned has not even included the $100-billion plus loan guarantees, the over $10 billion additional expenditure on capital works and the increase in other spending. It is evident that the intensity of our fiscal measures are stronger than those of many other economies.
Some Members queried why we have not adopted counter-cyclical measures in this year's Budget. The Secretary for Financial Services and the Treasury has provided detailed explanations for this in a newspaper article earlier. We can elucidate the counter-cyclical fiscal strategy in three aspects.
First, public expenditure is estimated to be $320 billion for this year, equivalent to 19.4 per cent of our GDP. In comparing this figure with that of 2008-09, we should note that some items of public expenditure for that year involved fund transfers and had no immediate effect on our economy or GDP. These include the endowment to the West Kowloon Cultural District Authority, the establishment of a Research Endowment Fund, injections into the Mandatory Provident Fund and the fund for Sichuan Reconstruction, which total more than $54 billion. As such, we should not take these items into account in considering the effects of government expenditure on the economy. Excluding these special items, public expenditure last year represented about 16.7 per cent of our GDP, 2.7 per cent less than the share of GDP this year. This illustrates that this yearˇ¦s Budget has an expansionary effect on the economy.
Second, with respect to government revenue, the total estimated revenue for 2009-10 is $260 billion, which is $51 billion and $97 billion less than that for 2008-09 and 2007-08 respectively. This partly reflects the concessions to be provided by the Government this year.
As a result of a decrease in government revenue and an increase in expenditure, the fiscal deficit for 2009-10 is estimated to be $39.9 billion, equivalent to 2.4 per cent of our GDP. The revised estimate for 2008-09 shows that it has more or less achieved a balance. The significant increase in the fiscal deficit shows that the effect of this yearˇ¦s Budget is basically expansionary in nature and will help stimulate the economy and counter the recession.
Third, as I have just mentioned, the fiscal stimulus measures that we have proposed since last year are stronger than those of many other economies. This reflects our determination to combat the financial crisis as well as the cushioning effect that our measures can produce on our economy.
Preserving Jobs
Members have also made a number of comments on our measures to preserve jobs. In tackling the problem of unemployment, we must address the needs of different people in light of their different situations. For example, we have created about 67 000 jobs for the construction and renovation industries because the unemployment rate in the construction industry has surged from 6.3 per cent to 11.2 per cent and that in the renovation industry has even reached 17.2 per cent. It is also more difficult for construction and renovation workers to change fields.
The unemployment situation in the youth group is the most serious of all age groups, with unemployment rate hitting 10.5 per cent. The 35 000 training and internship places that we will provide will benefit our young people, especially those who are new entrants to the job market, by enhancing their employability. When the economy returns to normal, they will be better equipped to find themselves a job with their training, internship and working experience.
To help those in need to change fields, the Employees Retraining Board has reserved resources to provide an additional 20,000 training places in 2009-10, taking the total provision to 143,000 for that year, so as to meet the increasing training demand following the outbreak of the financial crises.
Providing job opportunities will benefit people in need and help them through the present difficulties, regardless of whether the jobs are full-time or part-time and whether they are high or low in position or salary. However, the Government should not and cannot provide jobs for all sectors by itself; enterprises have an indispensable role here. Therefore, we have also introduced measures to support enterprises with a view to achieving the goal of preserving their jobs. For example, we have set up the Special Loan Guarantee Scheme, which has so far benefited 4,800 small and medium enterprises employing more than 92,000 people. Therefore, the measure has had a positive effect on preserving jobs.
Making Good Use of Fiscal Reserves
Some people think that with its huge fiscal reserves, the Government should increase the budget deficit substantially. The fact that the deficit for 2009-10 is estimated to grow to $39.9 billion reflects my determination to propose drawing on the fiscal reserves to assist our citizens in overcoming the current problems. I will not hesitate to draw on the reserves to cope with difficulties we face, and I will only do so when fully justified.
In the Medium Range Forecast, I have estimated an accumulated deficit of about $100 billion for the next few years during which there will still be many uncertainties in the external environment exerting pressure on our public finances. But we must not forget that in the six years from 1998-99 to 2003-04, we recorded deficits for five years, leading to a depletion of our fiscal reserves by approximately $200 billion, equivalent to 40 per cent of our existing fiscal reserves. As custodian of the citizens' reserves, the Government must be prudent in managing public finances.
Tracking Closely, Acting Timely
President, the external environment now is worse than it was in February when I delivered the Budget. Reflecting this situation, the IMF has made four large downward revisions to global growth projections in the past six months. However, in recent months, stock markets around the world have stabilised, the US credit market has shown signs of improvement, and the decline in the US property market has slowed somewhat. Some people believe the US economy is showing green shoots of recovery. However, it is hard to predict accurately when full recovery of the external economy will come about. A financial official of the US Government recently said that problems still existed in some banks and the economy would take some time to recover. It is clear that the external environment is ever changing and required close monitoring. Regarding the local economic situation, I have special concern for the following areas.
First, the performance of the external sector. Sharp falls in exports is a widespread phenomenon in Asia. As far as Hong Kong is concerned, exports fell in the first two months of 2009 by 22 per cent compared with the same period last year. The situation is very bad indeed.
The second area is consumer spending. Total retail sales in the first two months of this year posted a year-on-year decrease of 3.6 per cent, which is considered relatively mild. This shows that consumers still have some confidence. In view of this, I will definitely pay particular attention to any future changes in the consumer market.
The third area is the unemployment rate. In the first quarter of this year, the rate reached 5.2 per cent, up from 4.1 per cent in the fourth quarter of last year. I will be particularly watchful for any further sharp rise in the unemployment rate.
23. Fourthly, the credit market. The introduction of a series of financial measures last year has effectively ensured the stability of Hong Kong's financial system. Local interest rates stay low recently. Nevertheless, I will continue to closely monitor the credit situation.
The fifth area is our GDP. Our economy registered a year-on-year contraction of 2.5 per cent in the fourth quarter of last year. The situation warrants attention.
As a host of uncertainties in the external environment remain, I believe that a more prudent approach is to review the measures in the middle of this year. At that time, we will be able to assess Hong Kong's situation more accurately by analysing the updated data on areas I have just mentioned. We will then be able to devise appropriate plans at the most opportune moment. During the process, I will continue to discuss and exchange views on formulating appropriate measures with Members who are concerned about these matters as well as with other interested parties.
If the situation deteriorates rapidly, I will introduce further appropriate measures immediately in response to the needs during such exceptional times. Such measures may include those designed to assist the small and medium enterprises, relieve unemployment, and help members of our community, including the middle class and those in need, to tide over the present difficulties. I will try my best to ensure that these measures are appropriate, timely and effective to prepare for our economic recovery.
I would like to emphasise two points. First, if we need the Finance Committee's approval for new measures as soon as possible, we will endeavour to obtain the approval before the summer recess of this Council. Secondly, I will evaluate the fiscal measures in a pragmatic manner and use resources where needed, and increase the share of public expenditure to over 20 per cent of GDP at exceptional times.
I consider it appropriate to use an enormous amount of financial resources to counter the financial turmoil as exceptional means employed at exceptional times. Still, we must adhere to fiscal discipline. Otherwise, with our limited fiscal reserves and under our low and simple tax regime, we will eventually face the problem of where to get the money for implementing the relief measures. If we make any decision with long-term financial implications, we need to consider whether we have to raise government revenue in the future to meet the cost, or whether our next generation will have to pay for it. We should not make any hasty decisions on proposals with long-term financial implications before the community has thoroughly discussed them and we are fully prepared for them.
Concluding Remarks
President, in preparing this year's Budget, I have taken into account future anticipated developments and past experience. I firmly believe that it has struck the proper balance. The Appropriation Bill serves to support funding for expenditure on Government services for the 2009-10 financial year, including various measures introduced in response to the financial crisis. Since the majority of Members agree with the direction of this Budget and are concerned about our future development, they should support this Budget. We should also have confidence in our sound economic foundation. We have healthy fiscal reserves. Overall, our economy has a high savings rate and a low level of liabilities. Besides, the Mainland has demonstrated a strong ability to withstand the financial crisis and is commonly believed to be among the first economies to recover from it. This would be very advantageous to Hong Kong.
Furthermore, the Government is making every effort to prepare for economic recovery and pave the way for the long-term development of Hong Kong. We will deepen our integration with the Mainland, consolidate our strategic position in the Pearl River Delta, promote pillar industries, tap emerging markets and develop new growth areas such as the green economy, which is of special concern for many Members. Recently, the Task Force on Economic Challenges identified six economic areas with high potential for further study. This is also an important step forward.
President, the current global financial crisis remains a serious threat. We will require a concerted effort from the entire community in the months ahead. With confidence, perseverance and understanding, I firmly believe that we can overcome the present difficulties and that Hong Kong will achieve an early economic recovery.
Once again, I extend my heartfelt thanks to various sectors of the community for contributing valuable suggestions and ideas on ways to counter the financial crisis. We will take quick and decisive action to deal with the current volatile economic circumstances. I encourage Members to support this Budget that is in the interests of the community, and support the Appropriation Bill 2009.
Ends/Wednesday, April 22, 2009
Issued at HKT 12:48
NNNN
