Speech by the Financial Secretary, Mr Donald Tsang,
at a luncheon organised by the American, Indian and French Chambers of Commerce

Monday, March 9, 1998


Ladies and gentlemen,

Thank you very much for your very kind words. A very good friend of mine who is my counterpart in Pakistan recently visited us in Hong Kong. He told me that he had discovered something which we had not been able to learn in school, including in Harvard. That is to be a financial secretary or a minister of finance, you have to choose between popularity and patriotism. And for that there is always a thin line you have to walk : that is if you're over popular, you must be betraying the longer interests of the place. And for that reason, he said, a minister of finance is normally the most hated person in the respective government, if not with the people. So that is the sort of life we live.

Thank you very much for your invitation today and for those kind words of introduction. I am very grateful for the favourable response that you have generally given to this year's Budget. I've been told that the event has been likened to a magician pulling a rabbit out of an empty hat. Some have even gone so far as to suggest that I indulged in a little sleight of hand to distract people's eyes from the cards before presenting the trick.

But cast your minds back for a moment. As I said at the beginning of the Budget Speech, the conditions in which it was framed were the most complex for many years. That wasn't just because of the region's financial difficulties. Within Hong Kong enormous expectations were building up, expectations that were verging on the excessive. In part that was a consequence of the sense that constraints could be lifted after the successful management of the return of administration last year. In part it reflected the natural tendency in time of trouble to look to the Government to do something to help.

I had to damp down excessive expectations. Rock solid though our fiscal position is; irrespective of the flexibility that I have this year for imaginative revenue measures, I could not forget that most of what I could do would not have immediate effect. Most of the measures will work only in the background to improve Hong Kong's position over time. As I said, the Budget, by itself, would not lift Hong Kong overnight out of economic worries.

As well as damping excessive expectations, I also had to deal with another mood, excessive gloom. Reading and listening to many of the opinions that were circulating late last year and earlier this year, one could be forgiven for getting the impression that Hong Kong, its currency, its economy, were like the Titanic; well built but doomed to go under. I steeled myself against such opinions with the thought that I should be like the iceberg, keeping my cool, keeping my head above water.

Encouraging everyone in Hong Kong to adopt that same attitude was as important a part of this year's Budget Speech as all the substantive measures. It is going to be a hard slog this year, but if we keep our nerve, if we work hard individually, and work hard together as a community, we will pull through. There may be still some ships of speculators bumbling around that will pop their rivets on us. The seas around us will be heavy, not calm. But there is a lot more to Hong Kong than appears on the surface. Hong Kong has enduring strengths that give us stability, that give us a springboard to renewed achievement.

You know those strengths well : our free market economy, operating in a free society, governed by the rule of law. Sometimes people say that is all old hat, and what we need is new vision. Perhaps they are inspired by the Biblical warning that "where there is no vision, the people perish" (Proverbs 29 v 18). It can be easy to talk of visions - particularly over a good meal and a glass of wine - but how often, when the banquet ceases, the vision flies (Wm. Shenstone. Elegy). We must be wary of visions that are made of baseless fabric (Wm. Shakespeare, Tempest. Act 4 Sc 1), or are the products of raw pork (Byron. Letter about Keats). We do need vision, but we need vision that illuminates reality. And art is not the only medium that gives us such visions of reality (Yeats. Ego Dominus Tuus.) : the dismal science of economics does so too.

Some people advocate free markets for ideological reasons. Level headed economists recommend them after careful empirical study. They conclude that the free market is the mechanism that works best, that holds out the best prospects of bringing the greatest good to the greatest number. I support free markets - and the fabric of a free society and rule of law that are indispensable to their operation - I support them not just as a prescription, but because I find the idea of upholding them; of working to pass them on intact to my successors; of letting free people find and build on their own ideas and opportunities, I find that inspiring. That's my vision : that's what I'm sticking with. It's a vision that works.

Those ideas and insights built Hong Kong. Holding fast to them, the citizens of Hong Kong have time and time again risen above crashing changes in economic fortune. This year we face more tough times. Many in the community have suffered losses. All of us face uncertainty. But of this I have no doubt, that if we keep our faith in the power of free markets, Hong Kong will renew itself and move forward once again. Indeed, many of the budgetary measures that I have proposed are designed to give yet more freedom and flexibility to the citizens and companies of Hong Kong, to help them to adjust and to respond creatively to change.

That isn't all that I have tried to do. To the extent that it was possible to do so, I have set out revenue concessions that will provide some comfort in these difficult days and will work to help the unfortunate. We intend to press on with all the expenditure plans set out by the Chief Executive last year, including the increases in CSSA payments to the elderly. Perhaps most adventurous, I set out a framework for the management of our reserves which gives to Hong Kong huge advantages both in present circumstances and at any time in future when we may face similar problems. The advantages are two-fold. First, we keep strong reserves that calm the fears of international financial analysts and investors. Second, we can use the interest from those reserves to maintain public investment while keeping taxes low. That means that when our economy is faced with painful adjustment, as it is today, it doesn't have to bear the added strains of higher taxes or lower public expenditure.

I'm well aware that others may like to propose different formulas for setting reserve levels. I'm not proposing to die in the ditch over what I have set out, if good reason to change can be presented. But I do think that the guidelines that have been laid down have a reasonable, measurable basis. They let everyone know very clearly what we intend to do. And in Hong Kong's situation, where we have no resources beyond the inspiration of our people and the strength of our reserves, they make good sense.

I trust that the Budget speech made clear that the Government's response to the economic difficulty we face is far more than sitting tight on the reserves. I didn't have anything new to say on policy or expenditure - that had all been set out by the Chief Executive in his first Policy Address - but I did more than simply give assurance that we would provide all the funding needed for the policy programme. I set out just how wide ranging our programmes are and how, together with the new revenue measures, all our actions are inter-related, how we try to frame them to help our economy and society adjust and respond constructively to new conditions. I don't want to reiterate all that, but I would like to take this opportunity to re-stress two matters that are of the most fundamental importance to our future prospects; education, and the environment.

Both are areas in which there are no quick fixes. Both are areas that need action by everybody, not just by Government. Improving the quality of education - and by that I don't mean setting up more intellectual force feeding farms for our brightest brains, what we need is quality throughout the system, giving encouragement, building character and opening up opportunity for every child - quality education in that sense is important both for our economy and for our society. Ever more, it is by the work of our minds that we earn our bread, and even for the manual worker, skills and understanding are ever more important for prospects in work and for the full enjoyment of being a citizen. I do not think it right to let the potential of any of our children be lost for want of good education. I hope every parent, every company, will think about this, think about how they can work with teachers and schools to make the most of the new funding and new flexibility that is being given.

I hope, too, that every citizen and every company will think more about our environment. As knowledge becomes an ever larger part of the content of work, and as the means to communicate knowledge become ever cheaper, more flexible and widespread, so the quality of location in every aspect becomes more important. To keep and to attract the entrepreneurs of the knowledge based economy, good homes in a healthy, sustainable physical and social environment is increasingly important. Furthermore, waste, as its very name implies, represents inefficiency and loss of value. Reducing it is part and parcel of our efforts to add value to all that we do. And much pollution does not just offend the eye, it harms the health of our citizens, it taxes our community. Reducing that tax of pollution is more difficult, but no less necessary, than keeping our fiscal taxes encouragingly light.

I don't want anyone to think that I am trying to minimize or evade Government's real responsibilities in education or environmental improvement, but just as I thought that it was dangerous to have excessive expectations about the Budget, so I see dangers in encouraging or expecting Government to do too much in other areas. More Government doesn't just mean more taxes and less enterprising capacity in the economy. Even worse, it diminishes expectations that you can do things for yourselves, and that is a very grave danger both to our economy and for our community.

In today's harsh economic climate, Hong Kong needs every ounce of its enterprising capacity, every spark of inspiration in its citizens, every depth of resolve to ride out any new difficulty we may encounter. Very simply, that's what this year's Budget speech tried to encourage. While keeping a cold front against all external dangers, within Hong Kong I have sought to increase the sunshine of light taxes and maintain the support of strong investment, so that you, the citizens and businesses of Hong Kong, have the conditions in which you have the power to be your best. It is on that power that our economy and our community depends.

Thank you.