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Following is the speech by the Financial Secretary, Mr John C Tsang, at the Joint Business Community 2012-13 Budget Speech Luncheon at the Hong Kong Convention and Exhibition Centre today (February 22):
Ladies and Gentlemen,
Good afternoon.
I am delighted to join you all for this traditional post-Budget gathering. This is the fifth and final Budget of the current administration. I would like to take this opportunity to thank the business community for all your ardent support over the years.
We are grateful to you, our entrepreneurs, for your vision and hard work. We are grateful to our investors for your confidence and insight. And we are grateful to the business chambers, associations and federations, all of you out there, for your guidance, your encouragement as well as your uncompromising support and commitment to this great city. Thank you.
I think you would be happy to learn that I shall keep my remarks today shorter than the Budget Speech on February 1. That was my longest delivery in five years, but I can assure you that I was not going for any kind of record. In terms of speeches in all categories, the honour of making the longest speech used to belong to Fidel Castro, but I learned that Hugo Chavez of Venezuela has recently outdone Fidel. His recent nine-hour speech to the National Assembly was longer than Fidel Castro's best effort, which is truly remarkable. But in terms of speeches of a similar nature, that honour belongs to William Gladstone, Britain's former Prime Minister and Chancellor, whose marathon budget speech in 1853, according to our research, ran for 4 hours and 45 minutes. So, by comparison, mine was just a mere half marathon.
I mention this because the Gladstone era of the mid-19th century provided the inspiration for my talk this afternoon. In particular, I have been inspired by the great writer Charles Dickens, who was born 200 years ago this month.
One of Dickens' best known works, Hard Times, was published in 1854. The overriding theme of the novel can be summed up by that timeless axiom: you reap what you sow.
Although the novel makes more of a political statement than an economic one, both the title and the theme of the novel resonate eerily with the recent global economic environment.
The financial tsunami that crashed onto our shores in 2008 and 2009 has abated somewhat in the past two years, but the danger of a second dip remains.
Many of the debt-laden economies in Europe remain stalled and the eurozone is at a crucial crossroads in dealing with the crisis. While there are hopeful, albeit weak, signs of recovery in the US, the indications are that 2012 will be a rough ride for all of us.
Just last week, Moody's downgraded the credit ratings of Italy, Spain and Portugal, among others, and gave Britain, France and Austria negative outlooks.
At the World Economic Forum in Davos last month, the renowned economist Nouriel Roubini described the eurozone as, and I quote, "A slow-motion train wreck."
Also last month, the World Bank lowered its outlook for global growth this year to 2.5 per cent, down from its previous growth forecast of 3.6 per cent.
The IMF (International Monetary Fund) recently cautioned that a sharp downturn in Europe could cause growth in Mainland China to contract by 4 percentage points this year. That would have deep and serious implications for us here in Hong Kong.
In this unpredictable climate, I have forecast GDP (gross domestic product) growth for Hong Kong this year of between 1 and 3 per cent, significantly lower than our trend growth rate of 4 per cent, as well as our growth rate last year of 5 per cent.
Fortunately for us though, the economic climate in Asia, particularly China, is still relatively bright. We have also developed strong economic links with major emerging economies, which have helped diversify our trade, and above all, our city's finances remain healthy and sound. The last point is most relevant for us because our fiscal strength has enabled us on this occasion to sow in a timely manner the seeds of economic relief. The necessary support measures that we have planted will be firmly in place when - or indeed, if - we need them. In other words, we are well prepared not just psychologically, but also in a substantive manner, in coping with the worsening economic, situation worldwide.
In the Budget I have allocated some $80 billion worth of measures to stabilise our economy, to safeguard people's livelihood and to secure future growth.
In formulating these measures, I have stuck to three basic principles. In fact, since my first Budget in 2008-09, I have not wavered from these principles.
First, the Budget must be sustainable. Among other things, we keep expenditure within the limits of revenue, and we aim to avoid deficits. Not only is this a sensible strategy, it is also clearly stipulated in the Basic Law.
My second principle is pragmatism. We aim to deal with livelihood, development and other issues at hand in a practical and direct manner, while maintaining the "big market, small government" mission as our core philosophy.
Third, we are committed to dedicating our resources to improve the well-being of our society. This includes our whole-hearted drive to preserve existing jobs as well as to create new jobs in the community, especially during difficult economic periods.
Our business community is the economic engine of this remarkable city. This well-tuned machine operates best in the free market environment, but there are now dark clouds on the horizon that might disrupt the normal operation of the markets. As a responsible Government, we need to assume a proactive role in correcting these market deficiencies by extending support to our business sector during difficult periods when it requires a helping hand. This, I feel, is the best way to keep our unemployment rate low, our standard of living high, and our finger on the pulse of new opportunities.
Over many years, different administrations of Hong Kong, including the current Government, have strived to preserve and nurture the environment that sustains our city's vibrant capitalist economy.
We have been able to maintain in Hong Kong today the rule of law, an independent judiciary, clean and efficient government, free flows of capital and information, and low taxes. These elements have actually flourished here over the years, and they have become precious assets that are ingrained into our city's DNA.
Small and medium sized enterprises, our SMEs, are the gears and cogs of our business engine. They employ around 1.2 million people, or about half of our work force, but these smaller firms are particularly vulnerable, operating in a small but totally open economy, to the twists and turns of the ever-shifting external environment.
I deeply appreciate the views of the business community, which I have taken to heart, on how best to support SMEs in the face of uncertain economic times.
Back in 2008, while in the grip of a major credit crunch, we introduced the Special Loan Guarantee Scheme. This proved effective in helping SMEs with their financing difficulties. It has since been replaced by the SME Financing Guarantee Scheme operated by the Mortgage Corporation.
In this year's Budget, I have enhanced this Scheme by introducing a higher loan guarantee ratio and lower guarantee fees. The Government will absorb the additional risks arising from these concessions, and provide a total guarantee commitment of $100 billion. This should go some way in helping our firms.
Some of our exporters are already feeling the pinch from slack demand among major traditional trading partners. The volume of our domestic exports in December 2011 fell by more than 38 per cent (38.4 per cent) year-on-year.
To help exporters further through this rough patch, we intend to halve the import and export declaration charges and abolish capital duty levied on local companies. We also intend to introduce special concessions for SMEs holding policies with our Export Credit Insurance Corporation, including allowing them to insure their exports only for places and buyers of their choice and offering them various premium discounts.
Another targeted initiative is a profits tax concession of 75 per cent for the current tax year, up to a maximum of $12,000. And for the next fiscal year, we intend to waive business registration fees as well.
The idea of lowering costs and easing the tax burden on businesses is to help them reap more than they sow during difficult times. This, according to a 19th century author, is the law of the harvest.
I commend our business community for making it a priority to preserve jobs during the 2008 financial tsunami.
By retaining employees during hard times, businesses displayed their commitment to corporate social responsibility, and we need plenty of that again during the difficult period that is looming. Keeping experienced and loyal staff also enabled local firms to respond more swiftly to the recovery when it came. It was a win-win situation for Hong Kong.
Our unemployment rate has currently dropped to the very low 3.2 per cent, and there is every indication that this rate will rise as the world economy deteriorates. We are keeping a close eye on the situation, and we will certainly implement additional suitable responses at an appropriate time. From the Government's perspective, it is important that our people have access to the most relevant job or training opportunities.
The construction industry is a good example given the massive infrastructural investment and development across Hong Kong.
Our construction workforce exceeds 300 000 people. Today, the construction industry is entering a boom period, with a number of mega projects under way and spending on capital works to top $70 billion annually over the next few years.
My Budget has earmarked an additional $220 million for the Construction Industry Council to help ensure that we have enough people with the right skills to meet anticipated demand.
We also expect our catering and retail sectors to provide good employment prospects in the near future. The Labour Department's Recruitment Centres for the Catering Industry and for the Retail Industry as well as the Employees Retraining Board are on the case of matching the right people with the right jobs. And we are ready and prepared to provide more resources to help meet the demands in these and other sectors.
Surviving any downturn not only requires support for the more vulnerable areas of our business sector, it also requires that we work on our strengths. This will benefit our city in the short, medium and long term.
That is why this year's Budget, as well as my previous budgets, pays close attention to our pillar as well as our growth industries.
I have mentioned SMEs and their remarkable contribution to Hong Kong's economy and job market. The prospects of many of these firms are linked either directly or indirectly to our four pillar industries of trade and logistics, financial services, professional services and tourism.
In 2010, these four industries together contributed some 60 per cent (58 per cent) of our GDP, increasing by 15 per cent over a year earlier. They employed around 1.7 million people.
Some of the infrastructural projects that are under way and creating jobs now will give a huge boost to our trade and logistics industry and to our tourism sector when they are completed.
These projects include the Guangzhou-Shenzhen-Hong Kong Express Rail Link, the Hong Kong-Zhuhai-Macao Bridge and midfield expansion work at the airport.
I would like to mention also our financial services industry, which contributes about 15 per cent of our GDP. We continue to reap rewards from our city's status as the main offshore centre for Renminbi business.
Liberalisation of the Mainland currency is not just a China phenomenon, but also a global trend. Hong Kong is right in the thick of the action for offshore Renminbi banking, bond issuance and trade settlement.
Another recent highlight of our financial development has been the IPOs (initial public offerings). With a combination of hard work, great timing and a little luck, our stock market has led the world for total IPO funds raised for the past three years.
We shall continue to develop these and other areas, such as the local bond market and Islamic finance, to promote our financial services.
Turning to the six industries where Hong Kong enjoys a competitive edge - namely, education services, innovation and technology, testing and certification services, medical services, environmental industries and creative and cultural industries, it is worth noting that these industries were singled out for special attention in 2009, at the height of the financial tsunami.
Since then, through various avenues - including my past three Budgets - the Government has unveiled a range of initiatives to clear the way for these industries to develop further in order to reach their full potential.
I do not intend to speak about these industries in detail. Suffice to say that they have made substantial progress in their contribution to our economy both in terms of value as well as jobs.
The four pillar industries and the six new industries carry a strong bias towards services, and for good reason. In 2010, services accounted for around 93 per cent of our GDP, and employed over 88 per cent of our total workforce. Since 2007, our exports of services have increased 47 per cent in real terms.
The "China factor" remains Hong Kong's single biggest advantage in expanding our services markets.
We shall continue to work within CEPA (Mainland and Hong Kong Closer Economic Partnership Arrangement), and also the Framework Agreement for Hong Kong-Guangdong Co-operation, to open wider the doors, particularly the so-called "small doors", for our businesses to access Mainland markets.
CEPA was recently expanded to cover 47 services areas, so there is even more opportunity for our companies to enjoy this unique advantage.
By end-2015, we aim to achieve full liberalisation of trade in services between Hong Kong and the Mainland.
The National 12th Five-year Plan, which covers the period up to 2015, also highlights key areas for Hong Kong's full participation in our nation's rapid development.
These areas include financial services, Renminbi business, trade and shipping. The Plan also supports the six emerging industries that I spoke about earlier.
Another proposal in our nation's development blueprint is to raise the share of the value added by the services sector to the Mainland's GDP by 4 percentage points by the end of 2015. This is, indeed, a huge opportunity that Hong Kong's world-class services sector cannot afford to miss. To put this in context, the 4 percentage points in the Mainland's GDP is equivalent to Hong Kong's entire GDP.
Ladies and Gentlemen, I have just highlighted the business focus of my Budget.
Over the past five years, I have increased government expenditure by some 70 per cent, raising the level of services to everyone in our community at large. I have remained true to the principles of prudent financial management. Remember also that, during this period, Hong Kong has weathered the worst global financial crisis in a century. And our economy has remained healthy and strong, with full employment as well as double digit rise in income for the lowest income decile.
Needless to say, and putting it mildly, the last five years has been an interesting time for me.
So, allow me to thank you once again - our business community - for your hard work and your optimism during the ups and downs of the past few years.
With our collective experience, with sound finances and with the extraordinary acumen of you folks, our entrepreneurs, I am confident that Hong Kong's economy will be able to cope with the stormy weather ahead. I am equally confident that our city will continue to live up to its great expectations.
Thank you.
Ends/Wednesday, February 22, 2012
Issued at HKT 17:34
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