Hong Kong's economy has bottomed out
The Financial Secretary, Henry Tang, says he is cautiously optimistic that the economy has bottomed out. He notes that Hong Kong's export trade performance remained strong during the outbreak of Severe Acute Respiratory Syndrome (SARS) and that exports of goods and services continue to grow after SARS. The strong rebound in visitor arrivals, retail sales and local consumption sentiments is encouraging. And there are signs of easing off in unemployment and deflation.
Delivering a statement at the Legislative Council meeting this afternoon (October 22), the Financial Secretary told Members that the Administration had revised upward the forecast of GDP growth for 2003 from 2% to around 3%. The trend growth rate of GDP has also been raised by half a percentage point to 3.5% for the medium term on the back of further reform and opening up in the Mainland market.
New Fiscal targets
The Financial Secretary has set a new target to achieve fiscal balance by 2008-09. He said "the Administration is determined to control government operating expenditure and to bring it down to $200 billion by 2008-09". He also aims to attain $200 billion recurrent revenue by the same year.
The Government committed in the 2003 Budget to balance the budget by 2006-07. However, as the economy was hard hit by the outbreak of SARS after the passage of the 2003 budget, Mr Tang already said on his day of appointment that the deadline was no longer realistic. The Financial Secretary added that his discussions with various groups and sectors during the past months indicated that "the community also favours giving the economy some more room to breathe in the next year or two".
Containing public expenditure
Mr Tang expects that the fiscal deficit for 2003-04 will rise to $78 billion, plus or minus $5 billion, compared with a deficit of $68 billion forecast in the 2003 Budget. He said the revision has taken into account "not only the negative impact of SARS", but also "the more positive signs emerging over the past couple of months".
The Government remains committed to bringing public expenditure to 20% of GDP or below and Mr Tang agrees with the community's view that the Government should first look at ways to reduce expenditure before it looks for ways to increase revenue.
Mr Tang told Members of the Council that starting from 2004-05, government's operating expenditure would be cut by an average increment of less than 2.5% a year, building up to 11% over five years.
Mr Tang emphasised that the cuts were moderate and were not uniform across all policy bureaux as he adopted a pragmatic and measured approach, balancing the requirements of different policy areas. Principal Officials have the full discretion to set spending priorities within their envelopes, and to conduct functional reviews across their programme areas.
Notwithstanding the pledge to contain public expenditure, the Government will continue to invest in infrastructural projects. "Hong Kong has an enviable reputation for world-class infrastructure and we will need to upgrade this continually if we are to live up to our positioning as Asia's world city", said Mr Tang.
The Financial Secretary indicated that the Government would explore alternative sources of funds, such as disposal of government assets and issuance of bonds, to fund capital projects that would bring long term economic benefits to Hong Kong.
Of the $14 billion revenue-raising package proposed in the 2003 Budget, the Government has already secured nearly $13 billion. But for the outstanding $1 billion originally budgeted from the Boundary Facilities Improvement Tax, the Financial Secretary announced today that the Administration would not proceed further with the proposed new tax at the current juncture because "the public is not yet ready to accept this tax".
Mr Tang also assured Members that while a broad-based consumption tax is a reasonable and equitable way to smooth out the bumps in Government's revenue stream, he would not contemplate the introduction of such a tax during a deflationary environment.
Guiding principles and priority
"My principal and immediate task is to revitalize our economy" said Mr Tang, who believes an improved business environment will encourage more investment and in turn help create more and better job opportunities for workers in all sectors.
Explaining the principles that guide his decision-making, the Financial Secretary said "the free market has been the bedrock of Hong Kong's success". He considers that the role of the Government should be to facilitate the market and its development. "'Big market, small government' is certainly the right way to go", said Mr Tang.
The Financial Secretary believes that Hong Kong should compete on our strengths. "We should capitalise on the quality of our market and services and position ourselves as a centre of excellence, not just for Asia but for the whole world", he said.
"Hong Kong's success is also buttressed by a sound institutional framework - the rule of law upheld by an independent judiciary, a level playing field for business, the free flow of information, and a clean, efficient Administration", said the Financial Secretary.
Mr Tang places high emphasis on transparency in the process of policy formulation. He said "we must also provide business with policy consistency and predictability so that informed, long-term business decision can be made without fear of arbitrary change next week, or next month, or next year."
The Government will soon commence a round of formal consultations for the 2004-05 Budget, Mr Tang said he would consult the community widely to ascertain people's aspirations and priorities to devise effective measures to tackle the economic challenges.
Ends/Wednesday, October 22, 2003