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FS' speech


The following is the full text of the speech (English only) by the Financial Secretary, Mr Antony Leung, at the Foreign Correspondents' Club (FCC) Luncheon today (January 27):

Thank you Dan,

I will tell you my content in the Budget on March 5. But really thank you very much for the chance to speak with you today. This is the first time that I speak at the FCC, although I have met many of you before. I was a member when I was in the private sector. But then I have not been a member since I joined the Government. Then the Club offered me the honorary membership. I have this for some time but I have never had the courage to come in for either a meal or lunch, always afraid that you will somehow corner me. I was just told that in this Club, there is a rule that if I am coming by myself, not on speaking functions like this, you are not going to report or even notice that I am here. So maybe I will try. I am really grateful for the opportunity to put my case and also to field some questions that you may have.

Let me first tell you what I was planning to do. When I agreed to attend this luncheon, my original intention was really to come in and have a chat over a few drinks without a prepared script. This way, I believe that we may have a more relaxed and natural discussion. But on reflection, and obviously Raymond keeps reminding me, that with the Budget speech just a few weeks away, this is a high-risk period. Whatever I say will spark off very interesting and sometimes not too helpful speculation and it will lead to all sorts of interpretations. Since I have enough trouble to deal with, so I will stick to this stack of paper. And obviously trying to avoid any difficult questions that you may have later on.

As you know, the Government is facing a number of daunting tasks in the next few months. They include reviving the economy, tackling the budget deficit, and implementing Article 23 of the Basic Law. At the risk of stating the obvious, the Government is absolutely clear that we have to get it right in all these undertakings. And I believe we are on the right track. However, to make that happen we must earn public trust in our administration, and in our ability to deliver. I know this is easier said than done, particularly when we are at a low point in public confidence generally.

One fundamental element in building trust with the community is to be honest with the people. We have to tell people the truth. For example, we have to explain clearly the reality of our economic challenges brought by globalisation, the advent of knowledge economy and the rapid rise in the competitiveness of our neighbours. We have to tell them what we are going to do about the challenges we are facing, and where our limits are. And, most importantly, we have to deliver on our promises. This is the approach we have adopted, even if it means being blunt on occasion. The Policy Agenda lays out, in broad terms, our plans for the next 18 months, and the guiding principles we will adopt in bringing these plans to fruition. So now we have a roadmap, and hopefully the members of our community can see that we are determined to reach our destination and will join us on that journey.

Now, I know there are some in the room who took me to task last year when I outlined my thoughts on the role of the Government as a 'proactive market enabler'. I am a firm believer in 'big market, small government'. But the Government does have a specific role to play in enabling the market to play the fullest role possible in the economy.

Action speaks louder than words. The Government's housing policy, outlined in November by the Secretary for Housing, Planning and Lands, is an example of a proactive move to help the market function more efficiently. We redefined Government's role to principally focus on land supply and provision of shelter for the needy, and withdrew ourselves from property development for sale to minimise intervention in the market. Cutting Government expenditure, trimming the size of the civil service, eliminating red tape and over-regulation, and sourcing services are other 'proactive' decisions that will allow the market to play a greater role in the economy.

We already have an excellent business environment, but we will make it even better. We are encouraging small and medium enterprises from around the world to use Hong Kong as their hub for manufacturing or sourcing operations in the Pearl River Delta. We are looking at ways to tap the skills and knowledge and capital of investment immigrants. And, we have actively pursued ways to smooth the flows of people, goods and capital across the boundary.

But I must emphasise that in pursuing these goals, especially those in relation to economic integration with the Mainland of China, we must also proactively protect our unique advantages under 'One Country, Two Systems'. We must continue to position ourselves as an international financial and business centre serving not only the huge Mainland market, but the rest of Asia and beyond. This means protecting our way of life, and ensuring that the rule of law and respect for human rights remain at the core of our guiding principles.

This brings me to Article 23 of the Basic Law. As you all know, the public consultation attracted thousands of submissions, which are all being carefully assessed by the Government, and will be published for public inspection.

There are very few who disputed the need to protect national security. I believe that even many of those who may have reservations on the proposals put forward by the Government do agree that we have an obligation to legislate. The question then becomes how to implement Article 23 in a way to protect national security and fulfil our constitutional obligation on the one hand, and, on the other hand, ensure that we are also protecting fundamental rights and freedoms of the people, which are founding pillars of our free society and vibrant economy.

As a former banker who worked in multinational institutions for almost 30 years, I know very well how important the free flow of information is to the smooth and proper functioning of the market, not to mention the fair, open and inclusive development of society. We will ensure that the implementation of Article 23 will not undermine the existing rights and freedoms enshrined in our Basic Law and enjoyed by people in Hong Kong. We know that this is of vital importance to members of the media such as yourselves who rightly and jealously guard the free flow of information and the freedom of expression. We are fortunate to have such robust and uncompromising media in Hong Kong - your presence here sets us apart from the rest of Asia. And we in Government must ensure that you remain as free to operate here as you always have been.

The Security Bureau will very soon announce the outcome of the consultations. You will be able to judge whether this has been a genuine consultation exercise. We are confident that you will see it has been a genuine exercise, with many of the suggestions of the public accepted. Even after the draft legislation is published, the Government will continue to listen to views from various quarters of the community and will make the necessary amendments if needed.

Now let me turn to the subject of Hong Kong's economy. As the FCC itself points out in the leaflet for this luncheon, our economy is registering growth. But, at the same time, our community is struggling to regain the 'feel-good factor'. One reason - I think a big part - why many Hong Kong people are in the doldrums is deflation in general, and the 'negative wealth affect' in particular, owing to the declining asset prices. According to a survey by the Hong Kong Monetary Authority, we do have about 70,000 households in negative equity. There are many others who are also weighed down by the fall in property prices, although they are not really in negative equity.

We've now had more than four years of deflation, which has made our economy much more competitive, as well as made it cheaper to live. But the double-edge of the deflation sword has also affected sentiment and, with high unemployment and downward pressure on wages, it is only natural that people will feel less confident than they might otherwise feel, given our reasonably good economic numbers.

As part of the confidence building process we do need to remind people that the economy is actually recovering, especially our export sectors are doing quite well, and that, in time, the benefits will begin to filter through to the community. And here, I would just like to highlight a few of the positive indicators. Last year, we had record year for: container throughput - up 4.6 percent to a predicted 18.6 million TEUs; air cargo - up about 20 percent to about 2.5 million tonnes; air passenger traffic - up 4 percent to 33 million passengers; aircraft movements - up 5 percent to 207,000; tourist arrivals - up 21 percent to 16.6 million.

Total exports for 2002 were up around 9 percent, and registered impressive double-digit growth in the last four months of the year. GDP grew by 3.3 percent in the third quarter, which puts us on track for meeting our forecast of 2 percent growth in the year. Our transport infrastructure is second to none. And we have some of the best telecommunications infrastructure in the world.

I was very heartened to see a report by the Australian Chamber of Commerce last Friday that said Hong Kong had never been more competitive or in a better position to welcome business than right now. The Chamber pointed out that we create 50,000 jobs a year in Hong Kong; that costs had come down considerably; that China's entry to the WTO had assured our competitive advantage. And, perhaps most importantly, they recognised that the pillars of our success remained intact - the free flow of information, people and capital; the rule of law; and sound and accountable government. On top of that, we remain one of the world's safest large cities.

I am not trying to gloss over the fact that we do have some fairly weighty issues to deal with. But in tackling these issues we need to look at the broader picture. This will help reassure ourselves that the economic future of Hong Kong does hold enormous promise, and that this confidence in the future is based on a range of positive data and a well thought-out plan of attack. It is not just wishful thinking.

But to ensure that we have a stable and sustainable economy, we have to resolutely tackle the Budget deficit problem. We are now running a deficit of over 5 percent of our GDP. This is very high by international standards. The successive years of deficits in the operating account is particularly worrying. We have been running operating deficit of more than three percent of our GDP before investment income since 1998. If we cannot demonstrate our ability to address the problem within a reasonable period of time, our credit rating and even our currency would be under pressure, as foreign experiences have repeatedly demonstrated. With the linked exchange rate system, which we have no plan to change, pressure on the currency will translate into interest rate hikes. Interest rate hikes will result in higher cost for borrowers, be they corporations or individuals, meaning mortgagors, and our people, particularly the middle class, knows this.

We have been open and frank with the community about the severity and the consequences if we do not tackle the deficit problem. We are not crying wolf - we are crying out for public understanding. And we believe that the message is beginning to sink in. The public are beginning to recognise that we do need to take urgent and decisive action to rein in the deficit, through reviving the economy, cutting expenditure and increasing revenue.

During my Budget consultations we have received much useful input, from many quarters, on how to raise revenues and cut spending. In terms of revenue-raising measures, there does seem to be a consensus emerging that reasonable increases would be acceptable. But I have to stress any measures that might be taken in these areas - and I must emphasise that we have yet to make up our minds - would be on the basis of maintaining a low and simple tax regime, and we will take into account the impact on the economy and the affordability of the taxpayers. I also continue to hear calls for a sales tax or a VAT to help broaden the tax base. The retail sector is still struggling and income of some of our wage earners is declining, the introduction of such a regressive tax, at this stage, would do more harm than good. So I can tell you that, for this Budget - no sales tax.

On the expenditure side, we have set clear targets to reduce projected Government spending by 20 billion dollars by 2006-07. This will involve sacrifice from a wide cross-section of the community, not the least our civil servants who are doing a valiant job to cut spending, as well as finding ways to do more with less. Specific measures such as the Voluntary Retirement Scheme will obviously reduce our recurrent staff costs. The Secretary for Civil Service is also consulting the unions on pay adjustments. Our colleagues are also pursuing what I call the 3Rs and 1M - reprioritise our work; reorganise government structures; re-engineer procedures and let the Market play a greater role. We are also reviewing the social welfare system, and we are determined to reduce wastes in the Government. History has shown that fiscal crisis is the best time to carry out public sector reforms. Let's seize the opportunity to make the Government more efficient and effective. This will result in better services to the people, reduction of work for the civil servants, and a much 'larger' market for the private sector.

I fully understand that everyone who may be affected by possible budget measures would feel aggrieved that the Government is targeting them. We have no intention of targeting any particular group of people. We have been emphasising the importance of shared responsibility. It is clearly unwise to set one group of people against another. On the contrary, we hope that the budget deficit problem would provide the whole community with an opportunity to act together to tackle an issue that affects us all.

Ladies and Gentlemen, I have spoken enough, and it is time for me to answer any question you may have. Thank you very much.

End/Monday, January 27, 2003


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