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Economic Outlook for 2016
15. Since the start of 2016, the global economic climate has continued to be unsteady, marked by increasing risks, amid the modest and patchy economic growth of advanced economies, downward pressures on emerging markets and heightened geopolitical tension.
16. The US Federal Reserve Board started an interest rate increase last year, but the central banks of the Eurozone and Japan have maintained their quantitative easing policies and adopted negative interest rate measures. The divergent monetary policies are causing volatility in the international financial markets and capital flows.
17. Emerging economies will be under the dual pressure of falling commodity prices and suppressed financial markets. The Mainland's economy will also face downward pressure.
18. As for Hong Kong, local consumption and investor sentiment have been dented by concerns over the uncertainties associated with the US interest rate increases and the dimmer global economic outlook, the lull in external trade and the slowdown in inbound tourism. The pressure may spill over into the job market and business operation of enterprises. The value of total exports of goods and the number of visitor arrivals in Hong Kong have both recorded a year-on-year decline since mid-2015, and the fall is likely to be more severe in 2016. I forecast Gross Domestic Product (GDP) growth in real terms at one to two per cent in 2016, lower than last year's growth.
19. Given the subdued global commodity prices, imported inflation is expected to be relatively mild. Slower economic growth and the adjustment in the property market will reduce rental pressure. I forecast that the headline inflation rate for 2016 will be 2.3 per cent, with the underlying inflation rate at two per cent.
Support Measures
20. The local economy is laden with risks in the year ahead; the outlook is far from promising. We need to take timely and appropriate measures to stimulate the economy, support local enterprises and safeguard employment.
Helping Small and Medium Enterprises
21. There are 320 000 SMEs in Hong Kong, employing 50 per cent of the private sector workforce. This underscores the role of SMEs as the mainstay of our economy. To gear up for the adversities ahead, I shall provide SMEs with appropriate support measures to stabilise the employment market.
22. To help SMEs tide over their liquidity needs, I shall introduce three measures –
(a) extend the application period for the "special concessionary measures" under the "SME Financing Guarantee Scheme" to 28 February 2017;
(b) reduce the annual guarantee fee rate for the measures by ten per cent; and
(c) remove the minimum guarantee fee for the measures.
23. To ease the burden on enterprises, I shall reduce profits tax for 2015-16 by 75 per cent, subject to a ceiling of $20,000. This proposal will benefit 130 000 taxpayers and reduce government revenue by $1.9 billion.
24. I shall waive the business registration fees for 2016-17 to benefit 1.3 million business operators. This proposal will reduce government revenue by $2.5 billion.
25. To enhance the long-term competitiveness of SMEs, I shall launch a Pilot Technology Voucher Programme under the Innovation and Technology Fund (ITF) to subsidise their use of technological services and solutions to improve productivity and upgrade or transform business processes. The three-year pilot programme will provide, on a matching basis, a maximum subsidy of $200,000 for each eligible SME. The estimated expenditure of this programme is $500 million.
Supporting Tourism
26. Tourism contributes five per cent to our GDP and employs 270 000 people. It provides plenty of job opportunities. For some ten years, tourism and other related industries have experienced rapid growth through the support of the Mainland's Individual Visit Scheme and its related policies. The number of inbound visitors has increased to 60 million, four times that of 2003. The local tourism industry is facing keen competition as a result of a weakening external economy, devaluation of currencies of neighbouring places and their relaxation of visa requirements for Mainland tourists since last year. This, coupled with the "one trip per week" measure for Shenzhen residents, has caused a drop in visitor arrivals.
27. Apart from external factors, some recent incidents in Hong Kong are causing concern. These include a handful of people choosing to express their views and political demands using irrational and uncivilised tactics, such as hurling abuses at visitors and kicking their suitcases. Furthermore, problems arising from coerced shopping have been plaguing the tourism sector.
28. These destructive acts have not only damaged the economy, but have also severely tarnished Hong Kong's reputation as a hospitality city internationally. While some have claimed that the acts were committed out of concern for "local" interests, their actions are in fact not the kind of behaviour that reflects love for Hong Kong. If they truly care about the development of Hong Kong, they should by no means exercise their right to freedom of expression at the expense of peace in our society and livelihood of innocent citizens.
29. The tourism industry has entered a period of consolidation. In view of the changing mix and spending pattern of visitors, we need to review the development strategy of our tourism industry. Other than seeking growth in visitor numbers, we should move towards diversified and quality-driven high value-added services, with a view to attracting more high-spending overnight visitors to Hong Kong.
30. In light of this new situation, I shall launch short, medium and long-term measures to reduce the industry's costs of operation and enhance Hong Kong's attractiveness and competitiveness. I shall introduce three short-term measures, costing a total of $140 million, for related trades and industries –
(a) waive the licence fees for 1 800 travel agents for one year;
(b) waive the licence fees for 2 000 hotels and guesthouses for one year; and
(c) waive the licence fees for restaurants and hawkers and fees for restricted food permits for one year, benefiting 27 000 restaurants and operators.
31. In the medium term, I shall allocate $240 million for Government and the industry to jointly launch five measures –
(a) expand the scale of major events to be held this year, including holding the Formula E Championship for the first time, expanding the venue for the Hong Kong Wine and Dine Festival with more featured themes, extending the race of the Hong Kong Cyclothon to 50 kilometres to attract more overseas cyclists, staging additional Pulse 3D Light Shows at the Hong Kong Cultural Centre, and stepping up publicity for international sports events such as the Rugby Sevens, the tennis open tournament and the golf open tournament;
(b) through the Hong Kong Tourism Board (HKTB), re-package Hong Kong's tourism image with new promotional videos, launch a new round of publicity for short-haul markets, and step up publicity in the Mainland for quality and honest tours;
(c) through the HKTB, assist the industry to open up new visitor sources through various means, including implementation of the matching fund for promoting tourist attractions, promotion of shopping and spending, promotion of MICE (Meetings, Incentive Travels, Conventions and Exhibitions) tourism and "fly-cruise" tours, as well as waiving of local traders' participation fees for overseas promotion fairs;
(d) through the Travel Industry Council of Hong Kong, subsidise small and medium-sized travel agents, on a matching basis, to make use of information technology (IT) so as to enhance the competitiveness of the industry; and
(e) continue to promote Hong Kong's natural scenery as well as our unique history and culture, including enriching the contents of the Dr Sun Yat-sen Historical Trail with the theme of "Art across Time", in tune with PMQ and the former Central Police Station Compound which will open this year.
32. In the long run, we shall upgrade our tourism infrastructure. Hong Kong Disneyland will open in 2016 and 2017 respectively a new themed area based on Marvel's Iron Man franchise and a new hotel with a theme dedicated to the spirit of exploration. Government will continue to discuss with the Walt Disney Company the overall development of the theme park. The first hotel in Ocean Park and the Water World in Tai Shue Wan are also scheduled for completion in 2017 and 2018 respectively. Government will continue preparatory work for the tourism projects in Kai Tak and Lantau. The design work for the conference facilities above the proposed Exhibition Station of the Shatin to Central Link is underway.
33. We shall embark on a pilot scheme on food trucks this year. The concept has attracted wide interest from the community. I shall increase the number of designated spaces for the food trucks to 16. The initiative will enhance the appeal of our tourist attractions and enrich the local food culture.
Easing Financial Pressure
34. Local consumption has been a key driver for Hong Kong's economic growth in recent years. Easing the burden of citizens will have a stimulus effect. Taking into account the current macro environment, Government's fiscal capacity and the need to boost the economy in the short term, I shall introduce three relief measures –
(a) reduce salaries tax and tax under personal assessment for 2015-16 by 75 per cent, subject to a ceiling of $20,000. This proposal will benefit 1.96 million taxpayers and reduce government revenue by $17 billion;
(b) waive rates for four quarters of 2016-17, subject to a ceiling of $1,000 per quarter for each rateable property. This will benefit 3.17 million properties and reduce government revenue by $11 billion; and
(c) provide an extra allowance to social security recipients, equal to one month of the standard rate Comprehensive Social Security Assistance payments, Old Age Allowance, Old Age Living Allowance or Disability Allowance. This will involve an additional expenditure of $2.8 billion.
35. As regards recurrent measures, I shall adjust two categories of allowances under salaries tax and personal assessment from 2016-17. First, the basic allowance and the single parent allowance will be raised from $120,000 to $132,000 and the married person's allowance from $240,000 to $264,000. These proposals will benefit 1.93 million taxpayers and reduce tax revenue by $2.9 billion a year.
36. Second, I shall increase the allowances for maintaining a dependent parent or grandparent. Benefiting 600 000 taxpayers and reducing tax revenue by $860 million a year, the adjustments include –
(a) increasing the allowance for maintaining a dependent parent or grandparent aged 60 or above from $40,000 to $46,000. The same increase applies to the additional allowance for taxpayers residing with these parents or grandparents continuously throughout the year;
(b) increasing the allowance for maintaining a dependent parent or grandparent aged between 55 and 59 from $20,000 to $23,000. The same increase applies to the additional allowance for taxpayers residing with these parents or grandparents continuously throughout the year; and
(c) raising the deduction ceiling for elderly residential care expenses from $80,000 to $92,000 for taxpayers whose parents or grandparents are admitted to residential care homes.
37. This set of tax and short-term relief measures will cost $38.8 billion in total. Together with other spending initiatives in the Budget, they will have a fiscal stimulus effect of boosting GDP for 2016 by 1.1 per cent.
38. I have to emphasise that relief measures are different from recurrent expenditure. Relief measures aim to help citizens cope with the current financial pressure and serve as a counter-cyclical measure to preserve economic stability and safeguard employment. These are subject to adjustments in light of the economic and financial position of the year. Recurrent expenditure is deployed for new policies, new services or enhancement of existing services.
(To be continued.)
Ends/Wednesday, February 24, 2016
Issued at HKT 11:24
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