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The Financial Secretary, Mr Henry Tang, revealed in the 2006-07 Budget today (February 22) that the Government would restore fiscal balance in both the Operating and Consolidated Accounts for the first time in eight years - and three years ahead of schedule.
Mr Tang said strong economic performance from 2005 - with GDP growing by 7.3% - coupled with Government's efforts to rein in expenditure would result in a $5.8 billion operating surplus and a $4.1 billion consolidated surplus for the 2005-06 financial year. This compares favourably with last year's Budget forecast of a $10.5 billion consolidated deficit in 2005-06, and balance in both the Consolidated and Operating Accounts by 2008-09.
He said two other fiscal targets would also be achieved ahead of schedule, with operating expenditure continuing to drop for the second consecutive year in 2005-06 and being contained below $200 billion, and public expenditure dropping to and remaining below 20 per cent of GDP starting from 2004-05.
The Financial Secretary forecast a consolidated surplus of $5.6 billion for 2006-07, rising to $32.6 billion in 2010-11. But he pledged to continue to manage public finances prudently and keep expenditure within revenue limits.
Mr Tang revealed the positive economic performance that underscored the strength of the recovery - the creation of 240 000 new jobs over the past two years, record high employment of 3.43 million, unemployment at a four-year low of 5.2 per cent and a decrease of 36 000 in the number of long-term unemployed.
He forecast GDP growth of 4 - 5 per cent in 2006 and average consumer price inflation of 2.3 per cent for the year as a whole.
"The strong economic recovery in the past two years has indeed improved the overall mood in Hong Kong," said Mr Tang, delivering his third Budget, which consisted of four themes: Recovery, Enhancement, Commitment and Sharing.
"Last year, our nominal GDP surpassed its 1997 peak to reach a new high of $1,382.2 billion. Hong Kong has now fully emerged from the Asian financial crisis and has regained its strength and vitality.
"Our domestic economy has been moving forward with increased momentum, and we are better placed to ward off external shocks," said Mr Tang.
He said the Government should be vigilant to the challenges ahead which would impact on public finances, including the potential risks of an avian influenza epidemic and volatility in the global financial markets, the need for a constant upgrade of our human resources, the mismatch of labour from economic restructuring, an ageing population, environmental problems and other macroeconomic problems such as unemployment and inflation.
To help sustain the recovery, Mr Tang said the Government would continue its unique economic co-operation with the Mainland through effective implementation of the Closer Economic Partnership Arrangement with the Mainland and the Pan-Pearl River Delta Regional Co-operation Framework Agreement.
The Government would also focus on reinforcing Hong Kong's competitive advantages in its business environment, financial services, tourism and logistics; and on nurturing and attracting the best talent.
To improve the business environment, in-depth reviews would be conducted on land lease and planning procedures affecting the construction industry; and licensing regimes for food premises, theme parks and family amusement centres, to cut red tape and streamline procedures.
On financial services, discussions would be held with the Central Government regarding proposals to further expand the scope of Renminbi business offered by banks in Hong Kong.
To facilitate the development of Hong Kong's financial markets, the Financial Secretary proposed to reduce the levy on trading in securities, futures and options contracts by 20 per cent. The Government would also introduce legislative changes to strengthen the regulation of listed corporations so as to increase investors' confidence in the securities market.
On tourism, the Government would build on last year's record arrivals through promoting 'Discover Hong Kong Year' in 2006, redeveloping existing and opening new facilities.
To promote Hong Kong as a logistics hub and gold trading centre, the Government is considering provision of a concession in trade declaration charges for gold to support the proposed development of a gold depository at the Hong Kong International Airport.
To nurture and attract more talent, Mr Tang intended to earmark $350 million for 1 800 additional hostel places to meet the accommodation needs of local and exchange students, and increase tertiary institutions' attractiveness as centres for exchange activities.
In addition, he announced that a 'Quality Migrant Scheme' would be introduced in the first half of 2006 to attract overseas and Mainland talent 'who had made a mark in their chosen professions'. Up to 1 000 successful applicants a year would be allowed to enter Hong Kong without first needing to have secured a job.
Mr Tang said the Government had given firm undertakings to improve people's livelihood by investing in education, helping the disadvantaged, safeguarding public health, protecting people's lives and property, and investing in infrastructure.
He estimated total government expenditure of $245.6 billion in 2006-07, with over 60 per cent to be spent on education, social welfare, health and security. He also revealed that, as the fiscal position had improved, each Bureau's operating expenditure allocation for the coming year would be generally no lower than for 2005-06. In fact, the operating expenditure allocated for education in 2006-07 has not been reduced, although the Bureau has allocated some of the resources to non-recurrent uses and hence not reflected in the estimate for recurrent expenditure in the coming year.
An average of $29 billion a year over the next five years would be earmarked for infrastructure projects. Some 14 000 new construction jobs would be created in the coming year.
"Increasing investment in infrastructure will not only promote economic development and bring more job opportunities, but also make our living environment more pleasant and enhance our competitiveness," said Mr Tang.
Noting that there were a number of large infrastructure projects under planning, Mr Tang said, "Since our fiscal position has improved, we now have the opportunity and resources available to proceed." He hoped that in a spirit of co-operation, the community could reach an early consensus on these projects so that the works could start more quickly.
To help the disadvantaged, about $100 million recurrent funding has been allocated starting from 2006-07 for new and improved services, including rehabilitation services for disabled and psychiatric patients, family support services, home care services for the elderly, and improved services and extended coverage for children and their families with special needs under the pilot Comprehensive Child Development Service.
Mr Tang also announced additional funding of $230 million over the next five years for employment assistance and support for the unemployed. This includes:
* an additional $150 million over the next five years earmarked to strengthen district-based poverty alleviation work, including support for social enterprises;
* an additional $60 million over the next two years to continue the Intensive Employment Assistance Projects, to help unemployed Comprehensive Social Security Assistance (CSSA) recipients rejoin the workforce; and
* an additional $20 million next year to implement a series of trial schemes to strengthen employment assistance measures, such as a one-off financial incentive to help long-term CSSA recipients settle into their new jobs, and short-term travel support for non-CSSA unemployed people in districts further afield.
To strengthen the financial position of the Hospital Authority (HA) and allow it to better cope with service requirements, the Financial Secretary is to convert $650 million from one-off last year to recurrent funding from now on and also provide HA with additional recurrent funds rising by some $300 million a year over the next three years.
Mr Tang noted that the more advanced and affluent a society became, the higher were the public's expectations of its government, but he cautioned, "we cannot compare ourselves with welfare states as our community does not accept their high tax regimes."
He said he firmly believed that leaving wealth with the people was a key driving force for economic development and that maintaining a low-tax regime was the wish of the majority.
"Being a government of the people, we need to appreciate our community's needs and be responsive to their aspirations with due regard to our fiscal position. Where practicable, we will indeed share wealth with the people.
"As our economy continues to improve, therefore, I am proposing to implement some modest tax concessions in the coming year to reduce the burden on taxpayers, particularly middle-class families, in accordance with the principle of affordability, but without wishing to narrow our tax base," said Mr Tang.
The Financial Secretary proposed reducing the salaries tax payable by nearly a million people - three-quarters of taxpayers - by lowering the marginal rates of the second, third and top tax bands by one percentage point to 7, 13 and 19 per cent respectively. This concession will cost the Government about $1.5 billion a year.
To provide further relief to taxpayers, Mr Tang also proposed to extend the limit for the deduction for home loan interest by a further three years to a total of ten years. The cost for 2006-07 is estimated to be $1.2 billion.
On the Government's longer term effort to broaden the tax base, the Financial Secretary said widespread experience overseas had shown that a Goods and Services Tax (GST) could provide a revenue stream less sensitive to economic fluctuations.
Mr Tang also believed that it was the civic responsibility of Hong Kong people to contribute an affordable amount of tax.
Pledging to follow the principle of maintaining a low and simple tax regime in working out the details of GST, Mr Tang said the Government intended to provide tax refunds to visitors and propose relief and compensatory measures to reduce the erosion of people's purchasing power. He said the Government would launch a public consultation in the middle of this year which would last about nine months.
Ends/Wednesday, February 22, 2006
Issued at HKT 13:00
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