Press Release



Steady Economic Growth in Donald Tsang's Last Budget


Maintaining steady economic growth, providing more resources for the less advantaged in the community and striving for fiscal balance are among the key issues in Financial Secretary, Donald Tsang's, sixth and final budget announced today (March 7).

The budget also proposes modest increases in several non-livelihood related taxes and charges.

In a budget he described as 'deliberately conservative', Mr Tsang outlined a strategy to reinforce Hong Kong's economic partnership with mainland China, and to turn Hong Kong's strengths into a competitive advantage to become the World City of Asia and an international financial centre, 'providing an unrivalled breadth and depth of financial and high value-added services'.

On the economic front, the economy continued to flourish during 2000. In real terms, GDP grew by 10.5%, the highest since 1987; exports of goods rose by 17.1%; and local consumer spending grew by 5.4%.

GDP growth is forecast to moderate to 4%, in real terms, in 2001 while the Consumer Price Index is expected to show zero growth during the year.

The Financial Secretary announced a higher than forecast deficit for the 2000-01 financial year of $11.4 billion against the estimate of $6.2 billion. This was largely due to lower than forecast revenues from land sales, the proceeds from the MTR partial privatisation and return on fiscal reserves, partly offset by lower than expected expenditure.

For 2001-02, Mr Tsang forecast an overall deficit of $3 billion, which includes an operating deficit of $16.6 billion. The successive operating deficits, expected to continue until 2004-05, were a matter for concern in view of the possible knock-on effects on economic development.

To help balance the books, the Financial Secretary announced a number of specific revenue raising measures :

* Increase tobacco duty by 5% to generate additional revenue in the coming year of $130 million;

* Increase from 30% to 40% the duty on alcoholic beverages, except wine and strong spirits, to raise $90 million in 2001-02;

* Increase driving licence fees and vehicle licence fees for private cars, motor cycles and motor tricycles by 10%, to raise $160 million in 2001-02. (Licence fees for commercial vehicles remain unchanged);

* Increase on-street parking meter charges from $2 to $3 for every 15 minutes to raise $110 million; and

* Increase the air passenger departure tax from $50 to $80 and to extend this to helicopter passengers, to raise $170 million in 2001-02.

The proposals to increase tobacco duty, the duty on certain alcoholic beverages, and driving licence and vehicle licence fees came into effect this afternoon. However, the air departure tax and the on-street parking meter fees will come into effect after the relevant legislation is approved.

In maintaining fiscal prudence, Mr Tsang said that without knowing whether the series of operating deficits was cyclical or structural, the government had to exercise strict control over expenditure and take appropriate measures to raise revenue.

However, with modest improvement in the fiscal position over the medium term, expenditure will grow by 4% in real terms from 2002-03 onwards. This is 1.5 percentage points higher than originally envisaged and in line with the trend GDP growth rate.

The Financial Secretary announced two tax concessions to help Hong Kong's development -

* To help encourage lifelong learning, the maximum amount of deduction under salaries tax for self-education expenses will be raised from $30,000 to $40,000,; and

* To help maintain Hong Kong's position as an international financial centre, the stamp duty on stock transactions will be reduced from 0.225% to 0.2%,.

Mr Tsang said that given the adjustments underway in the economy any further stimulus could undermine the stability of public finances. However, he added that because of an average 1% reduction in rateable values, 70% of ratepayers would pay, on average, 7% less in 2001-02 than in the previous year.

In addressing the needs of the community, the Financial Secretary proposed to allocate additional resources to assist the disabled, young people at risk and people with low educational qualifications.

For the disabled, the package of measures will include providing 1,000 additional residential places and 1,380 day service and supported employment places over the next five years, 360 more places for pre-school services, $30 million more a year for community support services, $50 million for non-government organisations to create jobs for the disabled, and $50 million to assist disabled athletes.

"I cannot fail to admire and respect the resilience of the disabled and the parents who find themselves in such situations. Those of us who do not have to face such problems should count our blessings. As a community we have an obligation to do more to help," Mr Tsang said.

For youth at risk, the budget allocates $84 million initially, rising to $180 million a year by 2003-04 to launch a comprehensive programme of support services. The programme will include screening in 200 secondary schools to identify youths at risk and to extend this to primary schools; $70 million for extra integrated social service counselling teams; and $10 million more a year for increasing police liaison with schools.

"Surveys suggest that many young people are disenchanted with life. Together we must save Hong Kong's younger generation at risk," he said.

The role of the District Councils is also to be strengthened. One hundred million dollars a year is being earmarked to allow an early start in implementing the recommendations of a review, currently under way, to strengthen the role of the Councils in their local communities.

Mr Tsang announced that the two-year freeze on civil service recruitment would be lifted following further progress in implementing reforms which included $3.4 billion in savings as a result of the enhanced productivity programme.

Even with the lifting of the freeze on recruitment, Mr Tsang expected that the size of the civil service would fall to 181,000 by the end of 2002-03.

He said consideration would also be given to further corporatising or privatising individual assets to enhance efficiency and service quality, and bring to the market additional high-value investment opportunities. Examining the case for privatising government tunnels would be completed this year, he added.

The Financial Secretary sounded a note of warning on betting duties. If he increased betting duty it might divert money to illegal gambling which would pose a threat to law and order.

He advocated a two-pronged approach - stepping up enforcement action against illegal gambling to maintain law and order, and facing the reality that there is an increased interest and demand in the community for soccer betting which was unlikely to be curbed.

Instead of trying to achieve the impossible, the case for providing a legal avenue for soccer betting should be examined. "With the approach of the World Cup in 2002, we need to address the problem urgently and in a rational and objective manner," he said.

On 'green' taxes, Mr Tsang said Hong Kong could not hope to maintain and improve its position as a leading financial and commercial centre if it did not clean up its act.

The government had made a number of major revenue concessions in recent years to improve the air quality, but there was a limit to the number of 'carrots' that could be offered. He warned that the 'stick' would have to be wielded as well.

On Hong Kong's future development, the Financial Secretary said the 'stage was set' for another economic take-off in Hong Kong following China's accession to the World Trade Organisation.

But this would only happen if Hong Kong built on its traditional strengths and took the initiative to reinforce its economic partnership with the Mainland, particularly in neighbouring Guangdong Province and the Pearl River Delta.

Mr Tsang said 'intensive discussions' had been held with the Central People's Government and other Mainland authorities on ways to help Hong Kong businesses capture the opportunities in the new markets that will emerge following China's WTO accession, particularly in the services industry and professional services.

He said more would be done to improve infrastructural links and to provide greater support for businesses and more exchanges of people and knowledge. "We need to smooth the flow of people and goods in the entire region," he said.

"I would like to see particular emphasis placed on improving cross-boundary services and expanding the railway network in the region. We will also put forward proposals for a regional transportation network."

Mr Tsang said new measures would be introduced to help small and medium enterprises (SMEs) start or expand activities in the Mainland. The government would also consider setting up an Economic and Trade Office in Guangdong.

More resources have also been promised to alleviate congestion at the Lo Wu border crossing and to increase the vehicle capacity of the Lok Ma Chau border crossing by more than 70% over the next three years.

In upgrading Hong Kong's human capital, Mr Tsang announced a revival of the Admission of Mainland Professionals Scheme to meet known shortages in the short to medium term. Initially the scheme would apply only to the IT and financial services disciplines.

He said employers must provide their employees with training suited to business needs . They must be prepared to employ less experienced staff and to provide them with on-the-job training, while individuals had to recognise the challenges and take advantage of the training opportunities available.

Mr Tsang also earmarked $300 million for the establishment of a training fund to subsidise training initiatives for SMEs to help these firms overcome problems in investing in staff training.

The Financial Secretary said Hong Kong should aim to become a leading player in both high value-added services and international financial services. The government will continue to promote tourism and develop Hong Kong's IT capacity. It will improve Hong Kong's financial infrastructure and corporate governance. Initiatives in this area include the preparation of a development plan for further expanding the financial infrastructure.

Mr Tsang said Hong Kong was now more competitive than before the financial crisis. To succeed in the 21st century, Hong Kong must have a clear vision of the future. It must hone its strengths and strive to excel.

End/Wednesday, March 7, 2001