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Following is the speech (translated from Chinese) by the Financial Secretary, Mr John C Tsang, on Second Reading debate on the Appropriation Bill 2011 in the Legislative Council today (April 13):
Mr President,
Introduction
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Since the announcement of the Budget, Members of this Council and members of the public have expressed valuable views on different occasions, including the debate held on two consecutive days last week.
Government officials have just responded in detail to the views on individual policy areas. I shall now give a brief account of the latest economic situation. I shall also address, from a macro perspective, a number of key issues of concern to the public.
Economic Situation
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So far this year, Hong Kong's economic activities have continued to see sustained expansion. The consumer market remains buoyant. Exports of goods and total retail sales recorded strong growth in the first two months of 2011. With continuous improvement in the labour market, the latest unemployment rate fell further to 3.6 per cent. We anticipate strong economic growth figures for the first quarter of this year, and Gross Domestic Product (GDP) will grow by four to five per cent for the whole of 2011.
Income has risen due to the strengthening economy, benefiting the grass roots and the public as a whole. This is evident in the latest figures. Taking full-time employees in the lowest decile of income distribution as an example, their average monthly income increased by seven per cent year-on-year between November 2010 and January 2011. After adjustment for inflation, there was still improvement in real terms.
However, many challenges lie ahead in the coming year. Signs of inflationary pressure are becoming more evident in Hong Kong. This is to be expected given our low unemployment rate, continuous expansion of the economy, rising salaries and market rentals, and the implementation of the statutory minimum wage. As food, oil and other commodity prices are on the rise, and Europe, the US and Japan are sticking to a loose monetary policy, the pressure of imported inflation remains high.
Hong Kong's underlying consumer price inflation was 3.6 per cent for January and February combined. The underlying inflation rate is expected to rise further in the near future. All these issues had largely been taken into account when I forecast an average inflation rate of 4.5 per cent for the whole year in my Budget Speech.
The US economy is recovering slowly and the unemployment rate remains relatively high, despite a recent drop. Europe's sovereign debt problem has yet to be fully resolved, and some European countries face major financial and social crises. The massive earthquake in Japan and the nuclear crisis triggered by the disaster will stifle the country's economic growth. This will have an adverse impact on trade in the region. Also, the surge of global energy prices arising from the political unrest in the Middle East and North Africa will exacerbate global inflationary pressure.
An unstable global economic environment is expected to linger for some time. Market fluctuations will continue. As such, the economic prospects for Hong Kong remain uncertain. I shall closely monitor developments and their impact on our economy, and make timely responses.
Fighting Inflation
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Fighting inflation is one of our priorities this year. Although we cannot use interest rates as a tool to contain inflation, we have introduced a package of fiscal measures to help alleviate the pressure faced by the public. In the short term, the Government will implement a number of one-off measures. We shall continue to forestall property market exuberance and prevent excessive credit growth. The macroeconomic adjustment in the Mainland, which is targeted at easing the inflationary pressure, will also help reduce imported inflation in Hong Kong.
Mounting inflation has added to the burden on our citizens. I have proposed in the Budget a number of relief measures to provide timely assistance to our people. These include granting an electricity charge subsidy, waiving rates, paying rent for public housing tenants, providing an extra allowance to Comprehensive Social Security Assistance (CSSA) recipients, increasing the allowances for maintaining dependent parents/grandparents and children, and reserving funds for the continuation of the short-term food assistance services. I also proposed tax rebates and disbursement to eligible citizens. These measures are meant to leave wealth with the people and let them have more disposable money, helping to ease their burden.
Risk of a Property Bubble
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The public has always been concerned about the development of the property market. To many of them, property is an important asset, while mortgage payment is a major family burden. Home owners do not want to see asset depreciation, but they also have deep anxiety about an overheated property market. For those who wish to own their home but have yet to do so, they would like to see property prices staying at affordable levels. Some malpractices in selling properties have also given rise to grievances and complaints.
I understand our people's concerns about the development of the property market. In line with public aspirations, our target is to ensure the stable and healthy development of the property market for the benefit of the community. We also need to prevent wild fluctuations of the property market from dampening the economy. This issue is so closely related to the immediate interests of our people, our financial stability and overall economic development that we have never taken it lightly.
Last November I announced measures to curb short-term speculative activities, including the proposal to introduce a Special Stamp Duty. To prevent excessive expansion in mortgage lending and ensure that banks undertake mortgage business in a prudent manner, the Hong Kong Monetary Authority (HKMA) also introduced regulatory measures in August and November 2010. Banks are required to lower the maximum loan-to-value ratio, determine a prudent debt servicing ratio and stress-test borrowers' repayment ability. The HKMA is stepping up its efforts to examine the banks' mortgage business to ensure compliance with the regulatory requirements promulgated.
The number of short-term speculative activities has now been reduced. There was a significant drop of confirmor cases in the first three months of the year. The number of confirmor transactions decreased substantially from an average of about 320 cases a month between January and November 2010 to 134 cases in March 2011. Given the effectiveness of the Special Stamp Duty, I hope Members will pass the bill as soon as possible so that the Government can proceed with the initiative.
Although speculative activities have cooled off somewhat, the market continues to fluctuate. As low interest rates persist, property prices picked up again early this year, with an accumulated increase of 7.2 per cent in the first two months. The number of transactions rebounded, and there was a turnaround in the number of bank mortgage applications in January. I am deeply concerned that overall property prices in February have surpassed the peak in 1997. I shall pay close attention to developments in the property market. I shall not hesitate to introduce further measures to reduce the risk of a property bubble as and when necessary.
The factors that affect the property market have become more complex recently. Changes in the international landscape have brought further uncertainties. Externally, we have seen increases in interest rates around the world. Local banks have also tightened their mortgage lending terms. These developments have sounded the alarm that an interest rate rebound may arrive earlier than generally expected. I have to remind the public once again that the current environment of abundant liquidity and low interest rates will not last forever. Neither will rising property prices. The public should be cautious about the potential impact an interest rate rebound will have on the property market.
To address public concern about the transparency of property transactions, the Transport and Housing Bureau established a Steering Committee on the Regulation of the Sale of First-hand Residential Properties by Legislation. The Committee will discuss specific issues in this respect, with a view to stepping up regulation and enhancing market transparency. They will come up with practical legislative proposals in October 2011.
In the medium to long term, we shall tackle the problems of the property market at source by increasing land supply. To better meet the keen demand of the community for residential and commercial sites, I affirmed in the Budget that we would adopt the two-pronged approach comprising the use of the Application List and government-initiated land sale arrangement. We shall proactively make available more residential, commercial/business and hotel sites.
We have announced that the ex-Ko Shan Road Customs and Excise Service Married Quarters will be put up for sale by auction on April 27. Tender invitation for two Hung Hom sites with flat-size restrictions, one at the junction of Bulkeley Street and Gillies Avenue South, and the other at Lee Kung Street, will take place on April 29.
We shall put up three residential sites for sale by auction in May, including the former Lingnan College at Stubbs Road, the Begonia Road site in Kowloon Tong and the Ngau Tam Mei site in Yuen Long. This will be followed by the auction of two residential sites in June, one at Borrett Road and the other at Ping Shan, Yuen Long. Of these five residential sites, three sites (the three sites are located at Begonia Road, Kowloon Tong, Ngau Tam Mei and Ping Shan, Yuen Long respectively) are taken from the current Application List. We also plan to put up for tender a site with flat-size restrictions in Tung Chung in June.
Apart from residential sites, we have also decided to tender three specified sites for commercial/business and hotel use. We shall invite tenders in May for the sale of two sites, one located at Wai Yip Street, Kwun Tong for business use, and the other at Queenˇ¦s Road East for hotel use. In June, we shall put on the market a commercial site located at the junction of Kai Cheung Road and Wang Kwong Road in Kowloon Bay.
All in all, we shall put up a total of nine residential sites through government-initiated land sale by auction or tender between April and June. The number is larger than that put up for scheduled land auction in the past. These sites are expected to provide about 2 650 flats. Three commercial/business and hotel sites will also be offered for sale. The Lands Department will announce in due course the details of the land auction and tender in May and June.
The Government is determined to increase land supply. We shall closely monitor the development of the property market and shall continue to make available residential sites in the Application List for direct sale where necessary. We shall also consider announcing the Land Sale Programme in advance on a quarterly basis.
Regarding subsidised housing, some people have proposed resuming the Home Ownership Scheme (HOS) to bring more affordable flats onto the market. I understand their aspirations. The Government recognises the importance of a stable home, and is fully aware of our people's wish to improve their quality of life through home ownership.
Last year, the Chief Executive announced in his Policy Address the introduction of the My Home Purchase Plan (MHPP), which is premised on the concept of "rent-and-buy". The Plan will cater specifically for households which have the ability to pay mortgages in the long run but cannot immediately afford down payment. The Plan will allow them to save up over a period of time for home purchase. It will also help increase the supply of "no-frills" small and medium-sized private flats.
We shall continue to have an open mind and adopt a pragmatic approach in tackling the issue of subsidised housing. We shall be responsive to people's aspirations to buy their own home, review the Government's role from time to time, and study policy initiatives that will meet people's different housing needs.
Long-term Planning for Urban Development
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At the beginning of the current term, the Chief Executive introduced the concept of "progressive development" in promoting Hong Kong's sustained development. Based on this concept, a balance should be maintained between economic growth and its impact on social development, environmental protection and heritage conservation. In parallel, the Government should respond pragmatically to public aspirations. As stated in the Hong Kong 2030 Study announced in October 2007, we would plan for Hong Kong's future development according to the concept of "progressive development". Our aim is to provide adequate land to cater for our population growth and sustainable economic development.
In recent years, we have been taking steps to implement the overall strategy recommended by the Hong Kong 2030 Study. We have made full and efficient use of developed areas and new towns through various initiatives. These include speeding up the redevelopment of old areas and carrying out infrastructure works in southern Tseung Kwan O. At the same time, we have pressed ahead with major new developments in areas where planning is completed or required. Examples include the Kai Tak Development Area where works have commenced in phases, the North East New Territories New Development Areas with planning and engineering studies underway, and the remaining development of Tung Chung and the Hung Shui Kiu New Development Area to be rolled out this year. The Study on Land Use Planning for the Closed Area was also completed in the middle of last year.
In preparation for the future, the Chief Executive put forward the concept of creating a land reserve in his Policy Address last October. To explore the options of reclamation on an appropriate scale outside Victoria Harbour and enhancement of rock cavern use, a public engagement exercise will commence in the second half of this year. We plan to conduct the exercise in two stages. In the first stage, we intend to engage the public and adopt a new mindset in reviewing the demand for land in the long run and exploring new land resources to create the land reserve. We shall also propose feasible options and seek views. In the second stage, discussions will focus on the selection of potential sites for reclamation and rock cavern development, and specific sites will be identified. We aim to reach a consensus and formulate proposals acceptable to the public in order to facilitate further planning and engineering feasibility studies.
To reinforce Hong Kong's position as Asia's world city, timely and effective supply of economic land is of vital importance. Based on the strategies set out by the Hong Kong 2030 Study, we are now integrating and enhancing the existing Central Business District, while also actively exploring new premier office nodes. Specific proposals were put forward in my Budget Speeches over the past few years. They include facilitating the development of business districts by transport infrastructure, revitalising industrial buildings and relocating government offices situated in the Central Business District. We shall take forward the overall planning for the long-term development of Hong Kong in a gradual manner, making Hong Kong a better place to live and further enhancing our competitiveness.
Investing in the Future
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Another main theme of the Budget is investing in the future.
Given the more-than-expected income in 2010-11, our sound financial position over the medium term and healthy fiscal reserves, I consider it an opportune moment to propose in the Budget fiscal measures to help alleviate inflationary pressure felt by our people. I have also invested in our people's future through initiatives such as setting up the $7 billion Elite Athletes Development Fund, establishing the $2.5 billion Self-financing Post-secondary Education Fund and making an injection into our citizens' Mandatory Provident Fund (MPF) accounts.
Since the announcement of the Budget, the public have expressed strong views on the proposed injection into their MPF accounts. Many views are related to the MPF System itself. I agree that the MPF System, as an important pillar of retirement protection, has room for improvement to better meet public needs. The Government will continue, in collaboration with the Mandatory Provident Fund Schemes Authority (MPFA), to review the existing MPF System and its operation. Moreover, the Government and the MPFA are working on legislative proposals on MPF intermediaries regulation, with a view to implementing the Employee Choice Arrangement next year. This will address the MPF fee issue, one of the biggest public concerns, through market forces.
I note the recent discussions on retirement protection. Some people have suggested that the Government, current employers and employees should all make contributions for pension payments to retirees. This is similar to the "pay-as-you-go" retirement protection scheme. Many developed countries which have adopted such schemes find them difficult to sustain after years of implementation, and are now revamping them. This is because, with an ageing population, such a scheme will place a heavy financial burden on future generations who are required to make contributions. Moreover, the pressure such a scheme adds to public finances should not be overlooked. Since retirement protection is an important issue related to the long-term development of Hong Kong, I hope that stakeholders with different views will fully consider the pros and cons of various approaches in a rational manner, and express their opinions.
Medium and Long-term Economic Development
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On economic development, the Budget has put forward specific proposals on promoting sustainable development of our economy in support of the directions set out in the Policy Address. Hong Kong will continue to put its strengths into play and move towards a high value-added, knowledge-based economy. The Government will optimise the business environment to facilitate the ongoing development of the four pillar industries, and promote the expansion of the six industries where we enjoy clear advantages in fostering economic diversification. In fact, despite the general economic contraction in 2009, the value added of the six industries recorded a growth of three per cent. This shows that the six industries are highly competitive and have vast development potential. We shall introduce timely measures to support the growth of these industries.
Market is the centre of our economy. The role of the Government is to monitor, guide and support the healthy development of the market. To capitalise on Hong Kong's tenacity and entrepreneurship, we must maintain a favourable business environment and a simple tax regime. On the supply side, we shall strive to strengthen infrastructure, invest in education and manpower training, and promote Hong Kong brands. This will be complemented on the demand side by our efforts in speeding up our integration with the Mainland market, forging closer regional co-operation and tapping new opportunities in emerging markets.
The opportunities brought by our integration with the Mainland market provide the strongest impetus to the economic development of Hong Kong. Apart from playing a vital role in our country's future development, the 12th Five-Year Plan approved will also present fresh opportunities for Hong Kong's development.
This year marks the start of the 12th Five-Year Plan. Our nation has, for the first time, dedicated a chapter to Hong Kong and Macao in mapping out the planning for the coming five years. This is a full recognition of Hong Kong's unique position in our nation's development and the particular contributions that we can make. In the Plan, there is specific reference to Hong Kong's positioning, and the support for Hong Kong's development into an offshore renminbi business centre and an international asset management centre. This will help enhance our global influence as a financial centre.
The 12th Five-Year Plan also highlights the importance of co-operation between Hong Kong, Guangdong and Macao. We shall seize the opportunities brought by the Plan and complement the initiatives with a view to helping Hong Kong's economic development reach new heights.
Improving People's Livelihood
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The Government has always attached great importance to improving people's livelihood. Every year, the Chief Executive sets out in the Policy Address the overall policy objectives and long-term social development strategies to care for people's livelihood, and bureaux would implement the policy initiatives within their respective ambits. In support of such policy objectives and initiatives, the Budget allocates resources appropriately.
I place special emphasis on policies which directly affect people's livelihood.
Increases in the recurrent expenditure on the policy areas of education, social welfare and health care show our long-term commitment to people's livelihood. These three areas will together account for 56.4 per cent of recurrent government expenditure for 2011-12, an increase of more than $10 billion when compared with 2010-11. The estimated recurrent expenditure on education will be $54.5 billion, an increase of six per cent over the revised estimate for 2010-11. The estimated recurrent expenditure on social welfare will be $42.2 billion, an increase of 11 per cent over 2010-11. On health care, the estimated recurrent expenditure will be $39.9 billion, representing an increase of nine per cent.
In support of the relevant policy initiatives, recurrent expenditure for 2011-12 is estimated to reach $242.1 billion, representing an increase of about $18 billion, or eight per cent, over the revised estimate for 2010-11. It represents an increase of over 20 per cent when compared with 2007-08. The increases in recurrent expenditure reflect the ongoing commitment of the Government in improving people's livelihood and promoting economic development. We shall continue to commit adequate resources as and when needed to projects catering for the needs of the people and the economy.
Adjustments to the Budget
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I shall now give a brief account of the adjustments made to the Budget, which cover both expenditure and revenue. On expenditure, I propose to give a sum of $6,000 to all Hong Kong permanent identity card holders aged 18 or above.
We are now working out the details of this proposal. We are discussing with banks to see if we can make use of the branch network to facilitate people's registration for and collection of the payment. This must be done without compromising people's privacy. We shall also consider making staggered arrangements when implementing the proposal. When the details are finalised, we shall submit the proposal to the relevant panel of this Council for discussion in accordance with established procedures and then seek funding approval from Finance Committee. Once funding approval is given, we shall immediately take forward the proposal so that registration will start as soon as possible.
With some 6.1 million persons eligible for the disbursement, and allowing for "savings bonus", which serves as an incentive for savings, and expenditure on administrative cost, this proposal will cost about $37 billion. Assuming 80 per cent of the total expenditure will be required in 2011-12, I propose to earmark $29.6 billion for the proposal.
Meanwhile, I plan to inject additional funds into the Community Care Fund to provide assistance to those with financial needs, including new arrivals. The Steering Committee on Community Care Fund is studying how to assist those in need. I propose to earmark $1.5 billion for this initiative.
To meet the expenditure likely to be incurred by the adjustments in 2011-12, I shall move a Committee Stage Amendment to the Appropriation Bill 2011 to increase the provision under Head 106 Subhead 789 by $7.1 billion to $58.831 billion, after offsetting the $24 billion earmarked for the proposed injection into MPF accounts.
On the revenue side, I propose to reduce salaries tax and tax under personal assessment for 2010-11 by 75 per cent, subject to a ceiling of $6,000. The reduction will be reflected in the taxpayer's final tax payable for 2010-11. We shall introduce a bill to this Council within this legislative session to implement the proposal. This proposal will benefit 1.5 million taxpayers and cost the Government about $5.3 billion. In the Estimates for 2011-12, under Head 3 Internal Revenue Subhead 030 Earnings and profits tax, revenue from salaries tax will be reduced from $48.15 billion to $43.22 billion whereas revenue from tax under personal assessment will be reduced from $4.2 billion to $3.83 billion.
2011-12 Estimates and Medium Range Forecast
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In view of the adjustments to the Budget, I estimate that total government revenue for 2011-12 will be $369.7 billion, and total expenditure will reach $378.2 billion. The forecast surplus of $3.9 billion in the Consolidated Account will become a deficit of $8.5 billion. Fiscal reserves are estimated at $583.1 billion by end-March 2012, equivalent to 18 months of government expenditure, or 31 per cent of our GDP. The deficit for 2011-12 is mainly attributable to the one-off measures and will have no implications on our medium range finance. I expect an annual surplus in the Consolidated Account for the period between 2012-13 and 2015-16.
Concluding Remarks
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Mr President, we have seen ups and downs in our economy since the financial tsunami in 2008. The overall economic growth in real terms rose from its trough of minus 2.7 per cent to last year's 6.8 per cent. Overall income also increased. Our per capita GDP increased from some $231,000 in 2009 to an all-time high of over $247,000 in 2010. Thanks to the improving economy, our exports have recovered from rapid contraction and resumed strong growth. Individual consumption has reached a new high and unemployment has dropped to 3.6 per cent. People from all sectors of the community have enjoyed the fruits of economic development.
Our quick recovery from this once-in-a-century financial turmoil owes much to the concerted efforts of our people. The role of government during an economic downturn is to stimulate the economy using fiscal measures, maintain economic vitality and foster job creation. When the economy is recovering, apart from allowing the market to come into play, the government should strive to respond to public needs. When conditions allow, we should leave wealth with the people and help to ease their burden.
We adhere to the principles of prudent management of public finances, keeping expenditure within the limits of revenues and striving for a fiscal balance. This is not only due to the need to meet fully the requirements of the Basic Law, but is also based on the actual circumstances of Hong Kong as a small and open economy. As government revenue is highly susceptible to fluctuations and the flexibility in expenditure is low, it is necessary for us to maintain healthy and adequate fiscal reserves to cope with the impact economic cycles have on people's livelihood. Moreover, we must stay alert to the challenges ahead and be prepared for unexpected crises. In no case should we make, on account of an occasional increase in revenue, commitments that are difficult to sustain. This will bring nothing but tax increases and reduced competitiveness for future generations.
Managing public finances prudently does not mean committing fewer resources to improving people's livelihood and welfare. On the contrary, government expenditure increased by over 60 per cent between 2007-08 and 2011-12, much greater than the 15.8 per cent nominal GDP growth over the same period. This underscores our commitment to promoting the development of our society and improving peopleˇ¦s livelihood.
Our management of public finances is based on the principle of "policy leads and financial resources follow". As Hong Kong is an open and diversified society, discussions on many public policies related to people's livelihood often take time. In recent years, extensive public consultation was conducted for the preparation of the Budget. The exercise helps us understand fully the immediate needs of our people so that timely responses can be made in the Budget. It also provides another channel to gather people's suggestions on long-term policies for consideration and follow-up actions by the bureaux concerned. This is a constructive process that is consistent with Hong Kong's openness and diversity.
When allocating public resources for long-term and short-term needs in the Budget, we have to keep the balance right. We have to reserve adequate resources to complement long-term policy commitments on the one hand, and respond promptly to the immediate demands of the community on the other. As such, we have proposed in the Budget a number of relief measures to give people from all sectors of the community more disposable money and to ease their burden.
These measures are strongly supported and well received by the public. I would like to thank Members who have pledged their support for the Budget. With their support, we can hopefully see the early implementation of the relief measures. For Members who have yet to show their support, I earnestly ask you not to veto these relief measures for the sake of short-term political interests. These measures can genuinely benefit our people.
The controversy over this year's Budget sheds light on the expectations of our society and people. It is this positive energy which we want to harness as a driving force for encouraging more focused discussions on various livelihood policies in the community. Our people are always pragmatic. I believe that such positive energy will rally the support of various sectors in promoting Hong Kong's future development.
Ends/Wednesday, April 13, 2011
Issued at HKT 15:49
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