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Relief Measures
153. We have just gone through the worst time of the financial tsunami, but its impact on many people is not yet over. Some people have yet to enjoy a salary rise in line with the recovery, whose burden may be further increased by the emerging inflationary pressure, particularly rises in food prices. During the Budget consultation period, many people suggested that we should introduce short-term measures to alleviate people's burdens. In addition, some were of the view that in the early recovery stage more consumer spending would contribute to consolidating the recovery. After taking into account our financial position, I propose a series of one-off measures as follows:
(1) Paying two months' rent for around 700 000 public housing tenants. The Government will pay the base rent for tenants who are required to pay extra rent to the Hong Kong Housing Authority. For non-elderly tenants of the Hong Kong Housing Society's Group B estates, the Government will pay two-thirds of their rent. This measure will involve expenditure of approximately $1.8 billion;
(2) Providing an extra allowance to CSSA recipients, equal to one month of the standard rate CSSA payments; and an extra allowance to Old Age Allowance and Disability Allowance recipients, equal to one month of the allowances. This proposal will involve an additional expenditure of about $1.8 billion;
(3) Reducing 75 per cent of salaries tax and tax under personal assessment for 2009-10, subject to a ceiling of $6,000. The reduction will be reflected in the taxpayer's final tax payable for 2009-10. This proposal will cost the Government about $4.5 billion and benefit all 1.4 million taxpayers;
(4) Waiving rates for 2010-11, subject to a ceiling of $1,500 per quarter for each rateable property. 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 the year. This proposal will cost the Government approximately $8.6 billion;
(5) Waiving the business registration fees for one year. This proposal will cost the Government about $1.8 billion; and
(6) Providing an allowance of $1,000 in the next school year to students in kindergartens, primary and secondary schools and tertiary institutions receiving CSSA or student financial assistance, so as to ease the financial burden on their parents of paying the expenses for the new school year. This proposal will involve an additional expenditure of about $570 million.
154. To counter the financial tsunami, since 2008 we have introduced fiscal stimulus, job creation and relief measures amounting to $87.6 billion. This will rise to nearly $110 billion with this year's measures. Such measures, introduced on top of the current expenditure on health, housing, education and social welfare, are effective in stimulating the economy and safeguarding social stability and people's livelihood during the exceptional times of the financial tsunami. However, I must stress that these exceptional means employed at exceptional times cannot continue for long. Otherwise, they will affect the health of our public finances and dampen the enthusiasm for economic progress. I hope that these temporary measures will help our citizens tide over their present difficulties, assist our economy to regain its footing, and safeguard people's livelihood.
Current Financial Position and Estimates for 2010-11
155. I will now give a brief account of the revised estimates for 2009-10 and the estimates for 2010-11.
156. In preparing the 2009-10 Budget, I made an estimate of government revenue that reflected the downslide in the global economy and the highly volatile financial markets back then. However, the economy showed signs of gradual improvement from the second quarter of 2009, leading to better-than-expected revenues. The huge inflow of funds resulting from the global low-interest environment and the quantitative easing policy adopted by the many countries has given rise to hectic trading in both the stock and the property markets. As a result, revenue from stamp duties reaches $40.5 billion, which is higher than the original estimate by $15.5 billion. The revised estimate for operating revenue is $255 billion. The revised estimate for land revenue is $37.3 billion, more than double the original estimate. The revised total revenue is $308.5 billion, $46.8 billion higher than the original estimate.
157. The revised estimate for operating expenditure is $236 billion, slightly lower than the original estimate. With a number of public works projects entering their construction peaks, capital expenditure is expected to reach $55.2 billion, and total expenditure will be $291.2 billion.
158. Overall, I forecast a surplus of $19 billion in the Operating Account for 2009-10. For the Consolidated Account, after repayment of government bonds, I forecast a surplus of $13.8 billion, equivalent to 0.8 per cent of our GDP. By 31 March 2010, our fiscal reserves will have increased to $508.2 billion.
159. In 2010-11, I will continue to invest in infrastructure, promote the development of our industries and adopt various measures to achieve the objectives of consolidating the recovery, developing our economy and building a caring society. Operating expenditure for 2010-11 will be $251.4 billion, an increase of 6.5 per cent over 2009-10.
160. Capital expenditure for 2010-11 is estimated to be $65.8 billion, including $49.6 billion in capital works, which is an all-time high. I forecast that total government expenditure will reach $317.2 billion, an increase of $26 billion, or 8.9 per cent, over 2009-10. Public expenditure will be equivalent to 19.8 per cent of our GDP.
161. I estimate that total government revenue for 2010-11 will be $292 billion. Earnings and profits tax, which will still be our major source of revenue, are estimated at $123 billion.
162. Taking all these into account, I forecast a deficit of $3.8 billion in the Operating Account and a deficit of $21.4 billion in the Capital Account. This will result in a deficit of $25.2 billion in the Consolidated Account, equivalent to 1.5 per cent of our GDP. Fiscal reserves are estimated at $483 billion by end-March 2011, representing approximately 28 per cent of our GDP and equivalent to 18 months of government expenditure.
163. At this early stage of recovery, we need to maintain government expenditure at a certain level to fortify the momentum of our domestic economy. Where affordable and without compromising our long-term financial integrity, I consider it necessary to continue to run a budget deficit in the next financial year so as to ensure a solid economic recovery without exerting excessive pressure on inflation.
Medium Range Forecast
164. For the medium term, with the gradual recovery of the global economy, I estimate that the annual trend growth rate will return to four per cent in real terms for the period 2011-14, while the underlying inflation rate forecast will average three per cent. I forecast a surplus in the Operating Account for the period between 2011-2012 and 2014-15, which will help meet the capital deficit arising from our enormous expenditure on infrastructure in these few years. The deficit in our Consolidated Account is expected to decrease gradually in the next few years, and we will achieve a balance by 2013-14. I estimate that the fiscal reserves will be around $470 billion by end-March 2015, representing approximately 22 per cent of our GDP and equivalent to 15 months of government expenditure. The total deficit for the financial years between 2010-11 and 2014-15 is estimated to reach around $40 billion.
(To be continued)
Ends/Wednesday, February 24, 2010
Issued at HKT 12:42
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