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G. Challenges Ahead
188. Mr President, I joined the Government more than 40 years ago as an Executive Officer II, and worked my way up to become the Chief Executive. I have witnessed the ups and downs as well as changes in Hong Kong and I have also grown along the way. Now I have reached the last stage of my public service career, with only eight more months to go before the end of my term of office. As for my performance as Chief Executive, that will be for the public to judge. However, I feel obliged to share with the public my experience in administering Hong Kong over the past seven years.
189. I believe that there are major economic, livelihood and political challenges for Hong Kong, which cannot possibly be fully overcome by the current-term Government within a short time. Whether Hong Kong can overcome these challenges in future will have far-reaching implications.
Role of the Government
190. Over the years, we have been administering Hong Kong under the core principle of "Big Market, Small Government", giving precedence to a free market with the Government assuming a subsidiary role. This has formed the basis of our financial management philosophy of maintaining a low tax regime, keeping expenditure within the limits of revenue, and strictly controlling recurrent government expenditure. The economic restructuring of Hong Kong in the past three decades was a response to the changing global economic trend, rather than centrally planned. It was driven by the market and entrepreneurs, and actively supported by the Government. However, this approach is being challenged.
191. First, the wealth gap has given rise to the demand for income redistribution. Economic globalisation and job polarisation have led to competition for local well-paid jobs among people from around the world, while the income of low-skilled workers remains stagnant. Furthermore, technological development and the migration of local industrial operations to the Mainland have resulted in the gradual loss of certain blue-collar jobs and middle management jobs. People in such posts need to upgrade their skills to cope with the demands of a knowledge-based economy if they are to keep their jobs. The widening wealth gap resulting from all these changes has prompted the public to call for government intervention to redistribute income and narrow the gap between the rich and the poor through public policies and fiscal measures. People are having higher and higher expectations of the Government's role.
192. The wealth gap has become a structural cause of social tension. Those working in globalised and high-end economic sectors, such as the financial sector, have seen their pay rising continuously. On the contrary, those in low-end service sectors have had to live with a consistently low income. In addition, the disappearance of middle-level positions has removed a rung on the ladder for upward mobility. The wealth gap generated by globalisation is all the more acute in a city economy like Hong Kong. I believe that it is difficult to solve the problem completely. However, we will ease the resulting tensions through various policy measures.
193. I think Hong Kong should continue to follow the fundamental principle of maintaining a low and simple tax regime and a market-led economy. It is simply not feasible to support a significant increase in recurrent welfare expenditure by raising taxes or issuing bonds. In the wake of the financial tsunami, many European governments have been caught in public finance crises and forced to cut expenditure, which gives rise to social unrest in the end. We have to remind ourselves at all times not to follow in their footsteps. While increasing public welfare spending is always popular, we have to be aware of the consequences of over-expansion. Also, we have to bear in mind that raising taxes will make Hong Kong less attractive to enterprises, and running a fiscal deficit and issuing bonds regularly will adversely affect Hong Kong's credit ratings. As a highly open economy, Hong Kong must preserve the distinct economic features that have underpinned our success.
194. Market forces represent collective wisdom. The Government should not step in without good reason. But neither should it adopt a completely hands-off approach. When the market fails, the Government should intervene as appropriate. The introduction of subsidised housing and the statutory minimum wage, for example, highlights the importance of appropriate government intervention.
195. At present, under the principle of fiscal prudence, public expenditure is targeted at a level not exceeding 20% of our Gross Domestic Product. We should maintain this fiscal discipline, which practical experience shows will help us maintain our long-term competitiveness and respond to sudden changes in the global economy. Nevertheless, this does not mean that the Government pays no heed to the hardships of people in need. The Government should help low-income families in a strategic way. During my term of office, I put through legislation for a statutory minimum wage and introduced a direct transport subsidy for low-income workers. I introduced many direct relief measures when fiscal conditions allowed.
196. Another challenge to our philosophy of public administration comes from the expectation that the Government should do more in economic planning and the selection and nurturing of industries in order to sharpen our competitive edge.
197. We have to be pragmatic in this regard. Macro planning, market intervention and favourable industry-specific policies should strictly follow the principle of "capturing opportunities and capitalising on strengths" instead of being dictated by dogma or the wishes of senior officials. Hong Kong is a small and open economy. We cannot turn back the global tide of change, but we can ride on the wave of change. Very often, entrepreneurs are more sensitive to business opportunities than government officials. What the Government should do is support them by, for example, allocating land, providing financial assistance, facilitating business matching and concluding economic agreements. The aim is to do what we can do best, as well as maximise our existing strengths.
Ageing Population
198. Apart from the challenges concerning the Government's role, Hong Kong is beset with the problem of an ageing population. Advanced economies around the world face the same problem. With a lower birth rate and longer life expectancy, the number of dependent elderly people has been increasing, calling into question in many countries the sustainability of their public healthcare and welfare systems.
199. We should move fast to tackle this challenge. I have mentioned just now that we need new blood. We have to maintain an open immigration policy and attract more talent from outside Hong Kong. We should plan ahead and make preparations for the return of Hong Kong children living in the Mainland.
200. In regard to retirees, we will introduce policies to help the elderly to retire in the Mainland. Portability of their welfare benefits is the key factor in determining whether they choose to retire in the Mainland. We need to conduct a comprehensive study on the portability of various welfare benefits, including services provided by residential care homes for the elderly, hospitals and clinics. We will consider whether such services should be extended for our elderly people residing in the Mainland from the perspectives of law, policy and public finance.
Political Reform
201. Finally, on the political front, there has been intense debate in the community since reunification on the subject of universal suffrage. Now that the timetable is fixed, differences in public opinion are gradually narrowing. We should allow democracy to take root in Hong Kong, maintain high administrative efficiency and build consensus in the community. To this end, we need to focus our thinking and design a suitable political system accordingly. Matters to consider include the role of political groups, the relationship between the executive authorities and the legislature, the nurturing of political talent and political ethics. We also have to safeguard our core values of solving problems rationally and respecting one another. At the same time, with a humble spirit, we should study and compare the experiences of other democratic countries in implementing their democratic systems.
202. As for administrative reform, the global political and economic landscape is undergoing revolutionary changes. People are expecting their governments to do more. Here in Hong Kong, we have introduced the political accountability system to respond more swiftly to public aspirations. We need to review our administrative system to ensure it is compatible with future democratic development. Aspects to be considered include the definition of the roles and responsibilities of political appointees and civil servants; establishment and mobility; allocation of financial, manpower and land resources within the Government and the relevant procedures; further devolution of powers to district administration; division of work among heads of bureaux and their subordinate departments; and arrangements for policy formulation, advocacy and consultation.
203. Like other governments around the world, we are facing another unprecedented political challenge, which is the changing political landscape arising from the popularisation of online social media. The traditional channel of political participation in Hong Kong has been through the system of representative government, under which representatives of public opinion returned by elections are empowered to participate in policy formulation. With the emergence of new online networks, the younger generation now expresses their political views and participates in politics through social action. These online networks and youth-driven social action are transforming the conventional, mainstream political ecology. It is imperative for the Government to address the diverse demands of young people and improve communication with them. We are still exploring the way forward.
H. Believing in Ourselves
204. Throughout my years in public service, I have always believed in our people, in their rational and accommodating attitude, and in their ability to set aside differences and strive for consensus in the face of challenges. Although we experienced some setbacks after reunification, we have managed to get back on our feet every time. The following figures illustrate our achievements in the past decade or so.
205. First, the size of our economy expanded by 55% in real terms between 1997 and 2010; the number of jobs increased by 500 000; our employed population reached a record high of 3.64 million; and the average income of full time employees grew by 31% in real terms. By virtue of our economic strengths, Hong Kong's credit rating was upgraded to "AAA", making Hong Kong one of the two Asian economies with such a rating. Hong Kong's stock market capitalisation increased almost sevenfold to $21 trillion. In the past two years, funds raised through initial public offerings on the Stock Exchange of Hong Kong were the highest in the world. This year, Hong Kong topped the World Competitiveness Survey together with the US.
206. On people's livelihood, public expenditure registered an accumulated growth of 55%, which demonstrates our commitment to sharing the fruits of economic prosperity with our people and improving their living standards. As socio-economic conditions have improved, life expectancy is now three years longer than in 1997. The percentage of our young people in the relevant age cohort having access to post-secondary education has more than doubled. Free education has been extended from 9 years to 12 years, and pre-primary education is now also subsidised. For labour protection, a minimum wage has been enacted, and the Government now operates on a five-day week basis.
207. On the political front, we have set the timetable for universal suffrage and taken the two elections in 2012 closer to this ultimate goal by adopting methods that are more open and contain greater democratic elements. Compared with the pre-1997 era, political groups are now more active. The Government is more open and more transparent in policy making, and has gained successful experience in crisis management. We have upheld the rule of law, with our sophisticated common law system winning worldwide acclaim.
208. These are certainly Hong Kong's achievements, and the results of the hard work of every member of the community. Although we may not see eye to eye on our future development, we should not belittle ourselves and underestimate what we ourselves and Hong Kong have achieved and will go on to achieve.
209. Hong Kong is a city of migrants. Our forebears from diverse origins came to this tiny island simply to earn a living and build their homes. They worked hard through the years and, without realising it, created a unique city with its own character. We cherish freedom, respect the rule of law, and treasure equality, justice, integrity, pluralism and inclusiveness. These are the core values of Hong Kong.
210. There have been worries that our core values would be lost after reunification. In fact, these core values have remained intact. I love Hong Kong and our country as much as every one of you. By safeguarding our core values whole-heartedly, we will be able to continue making unique contributions to our country and ensure the lasting success of "One Country, Two Systems". Hong Kong will then go from strength to strength and build a brighter future.
Ends/Wednesday, October 12, 2011
Issued at HKT 13:02
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