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Economic Performance in 2014
9. Global economic performance was less than spectacular in 2014. Despite the steady performance of the Mainland's economy and signs of recovery in the US, our trade performance was beset by Eurozone's weakening economy and Japan's relapse into recession. Merchandise exports grew by one per cent and service exports by 0.5 per cent in real terms. As a result, our economy grew by only 2.3 per cent last year, the third consecutive year with a growth rate lower than the annual average of 3.9 per cent over the past decade.
10. The unemployment rate averaged at a low level of 3.2 per cent for the year as a whole, sustaining a state of full employment. Private consumption expenditure maintained moderate growth, but investment expenditure was soft and sentiment turned cautious.
11. Inflation continued to ease. Overall rentals rose, but the rises were generally modest. With steady increases in labour costs and mild imported inflation, the headline inflation rate for 2014 was 4.4 per cent. Netting out the effects of Government's one-off relief measures, the underlying inflation rate was 3.5 per cent, lower than the four per cent in 2013.
12. Prolonged political bickering is detrimental to public administration and the international image of Hong Kong as a stable, law-abiding and efficient city. It may even dampen investors' confidence in Hong Kong. Such self-inflicted harm does not serve the city well. The occupy movement affected tourism, hotel, catering, retail and transport industries, etc. to varying degrees. To offset the impact on economic confidence, I shall implement an array of support measures targeting affected industries and launch a new round of efforts to promote Hong Kong.
Targeted Support Measures
13. I shall launch the following short-term measures to support the affected sectors –
(a) waive the licence fees for 1 800 travel agents for six months;
(b) waive the licence fees for 2 000 hotels and guesthouses for six months;
(c) waive the licence fees for restaurants and hawkers and fees for restricted food permits for six months, benefiting 26 000 restaurants and operators in total; and
(d) waive the fees for vehicle examination once for the renewal of vehicle licences of taxis, light buses, franchised and non-franchised buses, goods vehicles, trailers and special purpose vehicles within a year.
Rebuilding Confidence
14. More importantly, we need to rebuild international investors' and tourists' confidence in Hong Kong and uplift our international image. Starting from January, the Hong Kong Tourism Board (HKTB) has launched a new round of publicity in Japan, Korea, Southeast Asia and major Mainland cities.
15. I shall allocate an additional $80 million for HKTB to step up its promotion efforts in the coming year. These activities will include running overseas promotions, organising shopping festivals and offering merchandise concessions and electronic discount coupons in collaboration with the retail industry, and arranging large-scale familiarisation tours to Hong Kong for overseas trade missions. HKTB will expand the scale of overseas promotion fairs this year and waive local traders' participation fees.
16. I shall also allocate an additional $26 million to the Information Services Department for inviting overseas media organisations and opinion leaders from around the world to visit Hong Kong, arranging for more overseas visits, and launching another round of publicity campaign for Brand Hong Kong. The Invest Hong Kong (InvestHK), Hong Kong Trade Development Council and Hong Kong representation overseas, and in the Mainland and Taiwan will also organise promotional activities.
17. This series of support measures and promotion efforts, costing $290 million, will render the affected sectors some tangible assistance, help rebuild confidence in Hong Kong, and enhance the city's image.
Economic Outlook for 2015
18. The year 2015 will be a challenging year. Amid improvement in the US economy, the US Federal Reserve Board is preparing to raise interest rates, running counter to the further easing measures pursued by the central banks of Europe and Japan. The stance of the new Greek government has added uncertainties to the market.
19. The drop in international oil prices is beneficial to Hong Kong and other net energy importers. Excessive oil price volatility, however, will pose a real threat to the global economy and financial markets.
20. The interaction of these factors will further complicate the external environment: (a) the US inflation outlook will be affected, making it more difficult to forecast the pace of interest rate rise; (b) rising deflation risks in Europe and Japan will add headwinds to the economic recovery; and (c) some oil exporting countries face huge pressures on finance and exchange rates due to geopolitical tensions and dropping oil prices. All these macroeconomic factors will upset the stability of global financial markets.
21. Emerging Asian markets are showing a better performance in general. The Mainland's economic growth is relatively stable but faces downward pressure this year. The global economy as a whole is likely to stay on a slow-growing path in the post-financial tsunami period. This, amid a stronger US dollar, will continue to put a drag on Hong Kong's trade performance.
22. Domestically, local consumption and investment sentiment will be dampened by the increased uncertainties over the US interest rate hike and weaker spending power of inbound visitors. In the face of internal and external challenges, I forecast Gross Domestic Product (GDP) growth at one to three per cent in 2015.
23. The labour market will hold largely stable. But if the domestic sector continues to be trapped in a slow-growing path, the pace of job creation by enterprises will be affected.
24. As regards inflation, with the softening of global commodity prices in the past year, imported inflation will remain mild. Retail sales have weakened recently, and rental pressure is less than that in previous years. I forecast that the headline inflation rate for 2015 as a whole will be 3.5 per cent with an underlying inflation rate at three per cent.
Support for Small and Medium Enterprises
25. Our external trade performance will be affected by a host of uncertainties this year. It can hardly drive our economic growth. As such, we shall need to rely on domestic demand for maintaining economic vibrancy and preserving employment. There are 320 000 small and medium enterprises (SMEs) in Hong Kong, accounting for 98 per cent of the total local enterprises and employing 50 per cent of the private sector workforce. This underscores SMEs' role as the mainstay of our economy. To support SMEs, I shall –
(a) extend the application period for the special concessionary measures under the SME Financing Guarantee Scheme to 29 February 2016;
(b) inject $1.5 billion into the SME Export Marketing and Development Funds;
(c) increase the maximum amount of funding support for each project under the SME Development Fund from $2 million to $5 million; and
(d) expand the scope of the SME Export Marketing Fund.
Relief Measures
26. I am aware that many of our citizens are expecting relief measures from Government to allay their burdens. In view of the challenging international macroeconomic environment, the unstable economic factors, the need to boost the local economy in the short term, and Government's relatively sound fiscal position in the short to medium term, I shall increase public expenditure in a prudent manner according to the principle of committing resources as and when justified and needed, and introduce the following one-off relief measures –
(a) reduce salaries tax and tax under personal assessment for 2014-15 by 75 per cent, subject to a ceiling of $20,000. The reduction will be reflected in the final tax payable for 2014-15. This proposal will benefit 1.82 million taxpayers in the territory and reduce government revenue by $15.8 billion;
(b) reduce profits tax for 2014-15 by 75 per cent, subject to a ceiling of $20,000. The reduction will be reflected in the final tax payable for 2014-15. This proposal will benefit 130 000 taxpayers in the territory and reduce government revenue by $1.9 billion;
(c) waive rates for the first two quarters of 2015-16, subject to a ceiling of $2,500 per quarter for each rateable property. It will benefit 3.15 million properties and reduce government revenue by $7.7 billion;
(d) provide an extra allowance to Comprehensive Social Security Assistance (CSSA) recipients, equal to two months of the standard rate CSSA payments, and an extra allowance to the recipients of Old Age Allowance, Old Age Living Allowance and Disability Allowance, equal to two months of the respective allowances. This will involve an additional expenditure of $5.5 billion; and
(e) pay one month's rent for lower income tenants living in the rental units of the Hong Kong Housing Authority (HKHA) and the Hong Kong Housing Society (HKHS). Involving an expenditure of $1.1 billion, this measure will not apply to tenants who are required to pay additional rent to HKHA and non-elderly tenants of the HKHS Group B estates.
27. I have to point out that recurrent measures and one-off measures serve different objectives and purposes. The former addresses recurrent needs of the community, while the latter serves counter-cyclical objectives to provide cushioning effects for the economy and alleviate imminent economic hardships. They are not interchangeable.
28. I raised the child allowances for three consecutive years from 2011-12 to 2013-14. Many parents want Government to provide more specific tax exemptions to ease their burden in taking care of their children. I understand the problems they are facing, but we need also to avoid complicating the tax regime. I shall increase the basic and additional child allowances from $70,000 to $100,000 from 2015-16 onwards. This will reduce government revenue by $2 billion each year.
29. Amounting to $34 billion, the six relief measures above should help alleviate the financial burden on the public, stimulate consumption, stabilise the economy and preserve employment. Together with other measures in the Budget, they will have a fiscal stimulus effect of boosting GDP by one percentage point.
(To be continued.)
Ends/Wednesday, February 25, 2015
Issued at HKT 11:16
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