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Following is the transcript of remarks by the Financial Secretary, Mr John C Tsang, at the question-and-answer session of the Joint Business Community 2011-12 Budget Speech Luncheon held at the Hong Kong Convention and Exhibition Centre today (March 1):
Question: Financial Secretary, in Federation of Hong Kong Industries we are glad to hear that you will take up the chairmanship of Steering Committee on Innovation and Technology. Actually what is your plan to spur Hong Kong's innovation and technology development? And also, do you think would the Government offer more incentives and support measures to encourage the private sector to expand investment in R&D and in turn help to build up a new cluster of higher-value industries in Hong Kong?
Financial Secretary: Thank you very much Roy. Innovation and technology has been identified as one of the six new industries that we will pursue for the future. It does not take up a large percentage of our GDP as yet, but I think this will grow. And I believe, I truly believe that as Hong Kong becomes more, even more of a knowledge-based society, we are going to require quite a lot more people who would be versed in innovation and technology. But indeed we do have a pretty good base already in our universities, what we have now for example in the Science Park, some of the operations that I have seen in our industrial estates, recently I¡¦ve seen a genomics institute in one of our industrial estates which is world-class, and we've seen some pretty incredible research in our local universities. Even though we're not a farming community, I've seen in one of our universities not so long ago some really incredible research about rice plants with a very hard outer coat so that it can stand up straight so that each acre could grow a lot more plants. And at the same time they were also doing some research on using salt water for planting rice, and so forth. So I think a lot of these issues would really help in terms of alleviating poverty or hunger in the future, especially now we're looking at a shortage of food in many of the places which have been raising prices around the world on food. But I think one of the objectives that I have for the Innovation and Technology Committee that I will be chairing ¡V I have not attended a meeting yet ¡V is to really blend what we are doing in academia together with business. Because to make any of these initiatives beneficial to society, we need to operationalise it in a business context. So I will be looking into things like venture capital, of making some of these initiatives useful in a business sense. We will need to do a lot more business matching with people who would be interested in promoting this sort of products. So there will be quite a lot of work to do in the future and I hope that the chambers in Hong Kong will be able to provide us with some of your thinking on all these different aspects and we can surely make use of it.
Question: Financial Secretary, with imported inflation do you think it's time to look at the peg again?
Financial Secretary: I seem to get this question every time. Inflation in Hong Kong basically comes from two sources. One is as you said the imported inflation, particularly with regard to food. We import basically everything that we eat; our fantastic lunch that we had, I'm sure we didn't grow any of that. It comes from food as well as from rental. So the imported inflation aspect is an important aspect that we need to deal with. And as you know we have the link since 1983, and during this period we have seen a lot of ups and downs and we have been able to deal with it. And I think that link provides us with that solid anchor, gives us a sense of certainty, and this is something that we truly need because in the coming year I see a turbulent year. I see, the world around, in Europe with the sovereign debt issues that they have, different countries facing different degrees of problems, even seeing some of the banks in some of these countries have CDS of about eighteen hundred, and then in the United States, one of our export markets is also facing huge unemployment problems which I think is going to last a bit of time. So the coming year is going to be extremely volatile and what we have in terms of the linked exchange rate provides us with a very solid anchor that provides the certainty, so we have no need or indeed no intention of making any changes.
Question: I saw that in this year's Budget you reserve quite a number of more land than last year for the housing. I'm afraid if the Government sets the reserve price too high it will scare away the developer to buy. In that case, maybe at the end of this year only a small portion of the land could be auctioned or could be sold. In that case the housing problem in Hong Kong will not be solved. Could you let us know what's the guideline you set for the reserve price of the land and then how to help the people (so that they) can buy the houses at more reasonable prices. I think the only way is the Government to reset the reserve price at the more reasonable level. That could solve the problem. Will you please elaborate and let us (know) the guideline for the reserve price of the land.
Financial Secretary: Thank you very much. Before we go into that, indeed this year I have used quite a lot of paragraphs to talk about our intention to increase the supply of land in Hong Kong. In the past year we have announced a number of times ¡V actually three times for me, February, April and I think June or August ¡V introducing a series of measures to deal with the market situation. And the Chief Executive in his Policy Address again introduced further measures to deal with the short-term, medium-term and longer term issues. And I think in doing so we have sought to increase the transparency in our market and we wanted to cut out a lot of the over-leveraging in order to preserve the integrity of our banking system and so forth. And by November last year we saw a huge increase in short-term resale, a lot of so-called speculative activities. And we introduced a special stamp duty, and I think since the introduction of that, speculation has basically ceased. But what we have seen in the past few weeks, we have seen a return to higher prices. I think what that reflects is genuine demand for homes that people want, people would like to buy, and especially in the current low-interest rate environment. This is something the people are demanding and I have often reminded people that when they make the biggest investment decision of their lives they really need to think about affordability. The interest rates are very low now and I don't think it can ever get lower than what we have now, and the only direction is up. And so I would advise them that before they buy anything they should really think about what if the interest rates were to rise by two or three percentage points ¡V would they still be able to afford it. The affordability level is still very low, it's very affordable now, it's actually below our 20-year average right now, so people need to be extremely, extremely careful. And this year we think that for the medium term the solution is to increase the demand (supply). And for people right now, looking forward, I hope that they will get an understanding that for the expectation for the future that we will be increasing the demand (supply) steadily, and this year we have pushed out enough land that would be able to provide about 35,000 flats when completed. And over the next three to four years we're looking at another 60,000 flats, and over a 10-year period we're looking at 200,000 flats, so the supply, the stream of supply is there. And I hope that people will really find an opportune time that they should be able to make an investment wisely, an investment that would be affordable to them.
We set the reserve price at the market level, and experience tells us in the past, on most occasions, the final price is always higher than that. So I don't think it would be correct to say that we are setting up a reserve price that is too high, because I think that it's done by professionals, and it's totally professional and has no other consideration. And I think this is probably the best way for us to continue with our approach in terms of selling land so that we won't be selling the land in a too inexpensive way. So I've tried to explain that this is the way that we'll continue to conduct the business. And also you may have regard to, whatever the land is bought, the price at, it doesn't determine the price of the flat that will be sold later on. I mean, they're two independent events.
Question: About eight years ago the government was in pretty deep trouble with some very large fiscal deficits, and the business community was asked to agree to an increase in profits tax, and we did. We also got an understanding that it was a temporary measure, and then when the Chief Executive ran for re-election he agreed that it would come down to 15 per cent. When do we get our profits tax reduced to 15 per cent, sir?
Financial Secretary: I know there is a lot of expectation from the business community about profits tax at 15 per cent. Currently our tax at 16 and a half per cent is low, relatively. Our tax base is narrow, and we have a huge programme of spending in the future. You would say that our surplus is high, but our surplus these past couple of years, and these are one-off type of surplus, it's not a recurrent type of surplus. And you will agree with me that these past few years have not been normal times, these are very extraordinary times, and I can see, as I've indicated in my speech, that we are going to face a turbulent year this year. And in terms of the future, next year, next two years, I think it's going to be extremely challenging. I think we need to find a suitable moment to satisfy that pledge, but not this year.
Question: I would like to voice out the opinion of the middle class on the latest financial Budget. We welcome the Budget's return of 20 billions of wealth to the people of HK. Even though there are comments that the items are not really initiative compared with last year's, at the same time the suggested $6,000 for MPF accounts has aroused discussions from the floor. Being a husband and a father I do my best to secure the future life of my wife and my kids and therefore I choose to buy the insurance for them and this is what other parents would do when they can afford to do so. I believe that $6,000 contribution on the MPF has the same logic ¡V a concern about the future. However I would like to highlight the fear of inflation as it spreads around China and Hong Kong is no exception. And now it is a chance that the Government would consider more measures to fight against the fears of inflation by increase the funding than ever before. I would urge you Financial Secretary to help when the government has ability to. My question is, would the government consider to repeat the same tax rebate measures again in the Budget this year.
Financial Secretary: Thank you. In these past few days, actually since Wednesday, I have attended quite a few, I can't even keep count, quite a few sessions where I hear the views of the people, of commentators, and so forth, and I get the message loud and clear. The message from the middle class is very clear and very loud. I also had an opportunity yesterday to sit down with a number of legislators and they also reflected those views to me again, very loud, and so I have received that very clearly and I promise that I will look into the issues of MPF, particularly how the inequity would affect civil servants, that's an important point. I will look at the tax rebate that you have raised and I have also looked at what they call the "N-nothings" ¡V people who don't get anything ¡V and I will try to put that all together, consolidate, and come up with something that will be able to address all these three issues together quickly. I will work with the legislators and then announce it to everyone how we intend to take that forward. So bear with me a little bit longer ¡V I hear that loud and clear. Thank you very much.
Ends/Tuesday, March 1, 2011
Issued at HKT 19:02
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