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Public Finances
Revised Estimates for 2010-11
53. When I prepared the 2010-11 Budget early last year, both the economic situation and the external environment were not completely stable. Based on a 2.7 per cent economic contraction for 2009 as a whole and the prevailing economic trends, I estimated a four to five per cent GDP growth for 2010. With the implementation of our stimulus measures, the economic recovery has become more entrenched. This, coupled with the better-than-expected rebound of the global economy, particularly that of the Mainland, has enabled Hong Kong to achieve a GDP growth of 6.8 per cent in 2010, which is higher than the original estimate.
54. Income levels rose in parallel, leading to an increase in the revenues from profits tax and salaries tax, for which the revised estimate reaches $140.5 billion, higher than the original estimate by $22.2 billion. The stock and the property markets were buoyant, bringing in much higher than expected revenues from stamp duty. The revised estimate for revenues from stamp duty reaches $51 billion, $21 billion higher than the original estimate.
55. In 2010-11, developers were active in triggering the sale of sites, bidding for land and applying for change of land use. The Government also put sites on the market in a bid to meet development needs. We estimate that the land revenue for the year will reach $62 billion, $27.9 billion higher than the original estimate.
56. Far higher-than-expected land revenue and revenue from stamp duties, together with increases in other tax revenue, have resulted in significantly higher total revenue compared to the original estimate for 2010-11. The revised estimates for operating revenue and capital revenue are $301.5 billion and $73.3 billion respectively. The revised estimate for total revenue is $374.8 billion, $82.8 billion higher than the original estimate. Government expenditure for 2010-11 is $303.5 billion, $13.7 billion less than the original estimate, with operating expenditure accounting for $240.8 billion. For 2010-11, I forecast an operating surplus of $60.7 billion and a capital financing surplus of $10.6 billion. For the Consolidated Account, I forecast a surplus of $71.3 billion, equivalent to 4.1 per cent of our GDP. By March 31, 2011, our fiscal reserves are expected to have increased to $591.6 billion, equivalent to 23 months of government expenditure or 34 per cent of our GDP.
Fiscal Reserves
57. Our fiscal reserves, which comprise the balances of the General Revenue Account and eight other funds(1), serve various functions.
58. As our revenue is susceptible to fluctuations and the flexibility in expenditure is low, it is necessary for us to have a buffer to alleviate the impact economic cycles have on people's livelihood. Our fiscal reserves serve as such a buffer. Fiscal reserves are our provisions for rainy days. Apart from being used to meet daily operational requirements, fiscal reserves can also be drawn on in contingencies, allowing us to maintain our expenditure at a relatively steady level when government revenue is affected by economic downturns.
59. Fiscal reserves are also an important component of the Exchange Fund. The fiscal reserves placed with the Exchange Fund help reinforce public confidence in the Hong Kong dollar and our monetary stability. In 2010-11, the investment income of the fiscal reserves accounted for about one-tenth of government revenue. It is an important source of revenue for us.
60. Hong Kong adopts a cash-based accounting system with no provision for our liabilities, such as civil service pensions and government bonds issued in 2004. We rely on the fiscal reserves as a means of paying our liabilities and the expenditure on large-scale infrastructure projects already launched. Our ageing population will also place pressure on the expenditure on health care and social welfare. Making use of our fiscal reserves, we can build a solid financial foundation for our next generation.
61. Recently, the credit ratings of Hong Kong have been upgraded to the highest level. This will allow local companies to raise funds at relatively low interest rates. The relevant rating agencies indicated clearly that one of Hong Kong's strengths lies in its adequate fiscal reserves. Any drop in the fiscal reserves will put pressure on our ratings.
62. Maintaining adequate fiscal reserves does not mean that we are reluctant to increase expenditure. The revised estimate of government expenditure for 2010-11 reaches over $300 billion, an increase of over 29 per cent compared with 2007-08. This increase is greater than the 8.2 per cent nominal GDP growth. I will make good use of our valuable fiscal reserves to respond positively to the aspirations of the community and lay a solid foundation for our economy to meet future challenges. I will now elaborate on the two issues of "developing the economy" and "caring for people's livelihood".
Developing the Economy
63. In order to sustain the economic development of Hong Kong, I am of the opinion that we should foster favourable external and internal environment. Externally, we will strengthen and further co-operation with neighbouring areas. The Government will improve the internal conditions by investing in infrastructure, optimising the business environment and enhancing the competitiveness of our industries. I will now briefly explain the work to be done in these areas.
Furthering Regional Co-operation
64. To capitalise on the "China advantage", we must strengthen co-operation with the Mainland. At the national level, we strive to consolidate and elevate the functions and roles of Hong Kong in the development of our country by complementing the National 12th Five-Year Plan. At the regional level, we will strengthen co-operation with Guangdong Province, Macao, Taiwan and other regions in various respects to sharpen our competitive edge in the global market.
12th Five-Year Plan
65. To ensure that Hong Kong can continue to leverage its unique functions and advantages during the National 12th Five-Year Plan period, we will strive to further consolidate and enhance Hong Kong's status as an international financial centre and an international centre for trade and shipping. We will develop the six industries where Hong Kong enjoys clear advantages, deepen and enhance the implementation of CEPA, and further develop our service industries. We will work with Guangdong Province to seek recognition of the functions and roles of Hong Kong-Guangdong co-operation at the national planning level. We will also join hands with Shenzhen to develop Qianhai into a modern service industry innovation and co-operation exemplary zone, and capitalise on the opportunities presented by CEPA and such policies as early and pilot implementation, with a view to opening up development frontiers in Qianhai for the financial and professional service industries of Hong Kong.
Co-operation between Guangdong, Hong Kong and Macao
66. Last April, Hong Kong and Guangdong Province signed in Beijing the Framework Agreement on Hong Kong/Guangdong Co-operation, which provides a clear agenda for Hong Kong-Guangdong co-operation in various respects and sets out six long-term development positions. We will work closely with Guangdong Province in taking forward various policies and measures in the Framework Agreement, formulating the 2011 Work Plan, and implementing the initiatives therein.
67. Hong Kong, Guangdong and Macao have agreed to build a quality living area, strengthen planning co-ordination, and further improve the transport system between the Pearl River Delta region, Hong Kong and Macao. On the co-operation in building a quality living area, we will study how to improve environmental and ecological quality, promote low carbon development, improve energy supply structure and foster the development of a green transport system in the region. The Regional Co-operation Plan on Infrastructure Construction covers cross-boundary transport facilities, boundary control facilities, electricity supply, water supply, natural gas supply, cross-boundary high capacity information communication and technology infrastructure, etc.
Exchanges and Co-operation with Taiwan
68. On the development of Hong Kong-Taiwan relations, I led a delegation to Taiwan last August in my capacity as the Honorary Chairperson of the Hong Kong-Taiwan Economic and Cultural Co-operation and Promotion Council. We met with representatives of the political, business and cultural sectors, and reached initial consensus with the Taiwan authorities on various priority areas for co-operation between both sides.
69. On the premise of promoting the economic development of Hong Kong and Taiwan to our mutual benefit, we are actively discussing with Taiwan about ways to promote financial regulatory co-operation, update air services arrangements and avoid double taxation on shipping income. We plan to set up a multi-functional office in Taipei and are now working with the Taiwanese side on the relevant details for early implementation of this proposal. Separately, the Hong Kong Tourism Board is now going through the relevant procedures for establishing its office in Taipei, which are expected to be completed shortly.
(1) The eight funds are the Capital Works Reserve Fund, Capital Investment Fund, Loan Fund, Land Fund, Civil Service Pension Reserve Fund, Disaster Relief Fund, Innovation and Technology Fund and Lotteries Fund.
(To be continued)
Ends/Wednesday, February 23, 2011
Issued at HKT 11:46
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