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Budget Speech by the Financial Secretary (16)

2008-09 Estimates and Medium Range Forecast

184. I will now give an account of the 2008-09 estimates and the medium range forecast.

2008-09 Estimates

185. Based on the revenue, expenditure and other proposals set out in the Budget, I forecast a deficit of $6.3 billion in the Operating Account and a deficit of $7.5 billion in the Consolidated Account for 2008-09.  Public expenditure as a proportion of GDP will increase from 15.9 per cent in 2007-08 to 19.2 per cent in 2008-09.  By March 31, 2009, our fiscal reserves will fall slightly to $477.4 billion.

186. The measures for promoting long-term development, supporting the disadvantaged, leaving wealth with the people and providing for the future proposed in this Budget will reduce government revenue by $33.5 billion and increase operating expenditure by $41.5 billion in 2008-09.  The latter figure does not cover the $50 billion reserved for supporting health care financing arrangements.

187. As the measures proposed in this Budget are mostly one-off or time-limited, they will not have significant implications for future public finances.  They will not lead to structural fiscal deficits and are therefore in line with the principle of sustainability.

188. The civil service establishment has been reduced from around 198 000 in early 2000 to around 160 000 in 2006-07 through two rounds of Voluntary Retirement Schemes and deletion of posts.  Since the lifting of the moratorium on civil service recruitment on April 1, 2007, the establishment has increased slightly to about 162 830 in 2007-08.  In order to implement various policy initiatives and provide better public services, we estimate that about 1 680 posts will be created in 2008-09, bringing the civil service establishment to about 164 500 by the end of March 2009.

189. From a macro-economic perspective, it is expected that the surplus of $63.7 billion recorded in government operating account for 2007-08 will turn into a deficit of $6.3 billion in 2008-09, creating a fiscal stimulus of about $70 billion.  This will give some impetus to the overall economy although the effect will not be significant in 2008.

190. Of this $70 billion, about 40 per cent is the one-off provision for establishing a Research Endowment Fund and the one-off injection into MPF accounts.  The impact of these measures will be felt in the medium to long term and will not have any short term economic impact.

191. The other measures will benefit our citizens at different times of the year.  The effects of some may only appear at the beginning of 2009.  Moreover, many people will put aside as savings part of the money they will now keep through the concessions.  Therefore, these measures will not generate a lot of domestic demand in a short period of time.  The stimulating effect on inflation should be limited.

192. The external economic and financial environment will be full of challenges in 2008.  Hong Kong faces the risk of a slowdown in economic growth.  The implementation of the measures proposed in this Budget should produce a moderately buoyant effect on our economy.  Furthermore, some of the concessionary measures will benefit our citizens directly and ease the impact of inflation.

Medium Range Forecast

193. On the medium range forecast, after a deficit in the Operating Account for 2008-09, we expect a return to a surplus from 2009-10 onwards.  The operating surplus will increase to $67.3 billion in 2012-13.  For the Consolidated Account, we forecast a deficit in 2008-09, followed by surpluses in the following years.  The surplus will increase to $75 billion in 2012-13.  We forecast that the fiscal reserves will range between $480 billion and $720 billion over the next five years.  We also estimate that operating expenditure will increase moderately, at a rate commensurate with economic growth over the next few years.

          2008-09 2009-10 2010-11 2011-12 2012-13
        ($      ($      ($      ($      ($
        billion) billion) billion) billion) billion)

Operating  249.4    293.0    309.2    329.0    353.8

Operating  255.7    237.3    251.5    267.8    286.5

surplus/    (6.3)    55.7    57.7    61.2    67.3

Capital      58.5    60.4    59.9    63.4    67.5

spending    57.0    63.4    62.7    57.8    59.8
from the Capital
Investment Fund)

Repayment of
government  2.7 3.5      -        -      -
bonds and

financing (1.2)    (6.5)    (2.8)    5.6      7.7

surplus/    (7.5)    49.2    54.9    66.8    75.0
- as a     
percentage  0.4%    2.7%      2.8%    3.2%    3.3%
of GDP     

reserves    477.4    526.6    581.5    648.3  723.3
- as a
number of
months      18 21      22      24      25
of government
- as a
percentage  27.7%    28.5%    29.4%  30.7%    32.0%
of GDP 

expenditure  332.1  320.7    335.3  347.5    369.0
- as a
percentage    19.2%  17.4%    17.0%  16.4%    16.3%
of GDP

194. In 2008-09, we will take appropriate, targeted measures to help economic and social development.  We will increase expenditure on social services and welfare and return part of our resources to the people on a one-off basis.  We will also inject funds into the MPF accounts of low income earners.  These measures will lead to a decrease in revenue and an increase in expenditure in 2008-09.  I have also earmarked $50 billion to prepare for the future health care financing arrangements.  This reflects the Government's commitment to the people and our principle of investing in the community.

Concluding Remarks

Ready to Face, Dare to Hope

195. Madam President, Hong Kong has transformed from a small fishing port into a world-renowned international financial centre.  The success of this transformation is the result of the perseverance of several generations of people who worked hard and strived for better lives.  It is this eternal hope in their hearts that kept them going from generation to generation.  Whether they are farmers from Guangdong, businessmen from Shanghai, returning overseas Chinese or expatriates settling in Hong Kong, they came here with a determination to build a better life and develop their careers.  They all believed that Hong Kong was a place full of hope and opportunities.  They all believed that Hong Kong was a place where they could unleash their potential and fulfil their aspirations.

196. Life could be tough for those who came to a new environment.  But they all faced the challenges readily, worked hard, lived within their means and carried hope in their hearts.  They were convinced that, by making the most of opportunities to learn and to work, they would eventually succeed in their chosen paths.  The Government's policies reinforced their convictions that by working hard and investing heavily in the education of their children, they and their families could move up the social ladder and have a bright future.  Such convictions gradually become a characteristic of Hong Kong people that can be represented in the slogan "Ready to Face, Dare to Hope".

197. Hong Kong is now much more prosperous than it was a few decades ago and compared to some neighbouring regions.  However, I understand that some poor people in our society still face many pressures and need to work hard to make ends meet.  I also understand that Hong Kong as a whole has to face many challenges brought about by rapid changes in the global environment.  I am sure that our society can face those challenges with the same measure of resolve and determination as in the past.  The Government will endeavour to help relieve the difficulties we may all encounter.

198. This Budget is prepared against this background.  I hope that this Budget will lessen people's burden and help them handle their various challenges.  I also hope that through investing heavily in areas such as education, public health care and infrastructure, and vigorously promoting economic development, this Budget will help promote upward social mobility so that people will continue to carry hope in their hearts for a better future.

199. I pledge that I will adhere to my three principles - commitment to society, sustainability and pragmatism - in management of public finances.  These will ensure a stable foundation of public service on which each citizen of Hong Kong can build.  Each in our own way and each in our own field, but together with each other, we can build our bright future.

200. We must be ready to face the realities and challenges of today.  We must dare to hope for desires and successes in our future.  Hong Kong should have such courage and aspirations, and so should every Hong Kong citizen.  Together with each other, let us be "Ready to Face" the present, and let us "Dare to Hope" for our future.

Ends/Wednesday, February 27, 2008
Issued at HKT 12:43


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