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Budget Speech by the Financial Secretary (3)

2008-09 Outturn

16. I estimate that operating expenditure for 2008-09 will be $260 billion.  As it covers the costs of various one-off measures to provide relief and to leave wealth with the people, operating expenditure for 2008-09 will be higher than that for 2007-08 by 27 per cent.

17. As regards operating revenue, although I have taken into account in my last Budget a number of tax concessions, the lagging effect of the rapid economic growth in 2007-08 led to higher-than-expected revenues from profits tax and salaries tax this year.  Besides, the impact of the financial crisis on tax revenue has yet to be fully reflected in 2008-09.  Therefore, I estimate that operating revenue for 2008-09 will be $278 billion, $28.6 billion higher than the original estimate.

18. For capital revenue, land premium is estimated at $16.9 billion, which is $26.2 billion lower than the original estimate of $43.1 billion, a decrease of 73 per cent over 2007-08.

19. For capital works expenditure, excluding the $21.6 billion endowment to the West Kowloon Cultural District Authority, the revised estimate for expenditure on government works projects for 2008-09 is $23 billion, $1.2 billion higher than the original estimate of $21.8 billion and an increase of 12 per cent over the $20.5 billion spent in 2007-08.  I expect an even larger increase in capital works expenditure in 2009-10.

20. Overall, I forecast a surplus of $18 billion in the Operating Account and a deficit of $4.9 billion in the Consolidated Account for 2008-09.  This deficit, equivalent to 0.3 per cent of our GDP, is close to the deficit of $7.5 billion in the original estimate. This can be regarded as achieving fiscal balance.  Fiscal reserves are forecast to stand at $488 billion by end March 2009.

Principles of Management of Public Finances

21. In last year's Budget, I stated my principles of management of public finances.  These are: managing public finances prudently by keeping expenditure within the limits of revenues, maintaining a low and simple tax regime, and following the direction of "Market Leads, Government Facilitates".  I also explained three basic principles that I have strictly adhered to, that is, pragmatism, commitment to society, and sustainability.  These underlying principles serve the overall interests of Hong Kong.

22. I believe that public finances should be managed in such a way to respond to people's needs and aspirations.  In face of economic recession, while keeping to our fiscal policies, I will make good use of the Government's resources to assist our citizens in overcoming their difficulties, with a view to breaking the vicious economic cycle and minimising the negative effects of the economic downturn.

23. Last year I put forward a package of measures to leave wealth with the people.  During economic downturn, public finance can play a more effective role.  Adopting more proactive fiscal policies is not to stifle the vitality of the market, but to give fuller play to the Government's role as a facilitator.  I will pragmatically review the various economic segments and decisively inject impetus into the economy, in order to bolster market confidence and provide a better environment for enterprises to play to their strengths.  I will also be sensitive to the needs of different sectors of the community and provide the necessary assistance.

Short-term Strategies

Countering Financial Crisis

24. The global financial situation has deteriorated rapidly since last September.  We have taken the following multi-pronged, strategic measures.

* First, last September we introduced a series of measures to ensure the stability of financial institutions and the market to bolster public confidence in our financial systems.  These measures included the provision of liquidity assistance to the banking system, provision of full deposit guarantee according to the principles of the Deposit Protection Scheme and the establishment of a Contingent Bank Capital Facility;

* Second, in November and December last year, we introduced new measures in two phases to address the funding needs of small and medium enterprises (SMEs).  In the first phase, we allowed greater flexibility in the use of the loans under the SME Loan Guarantee Scheme and extended the guarantee period for the Working Capital Loan.  In the second phase, we set up a Special Loan Guarantee Scheme whereby the Government's guarantee ratio was increased to 70 per cent and the guarantee commitment to $100 billion to help SMEs to solve their cashflow problems.  Since the launch of these measures, the Government had approved more than 3,000 applications, involving loans of over $6 billion;

* Third, after the meetings of the Task Force on Economic Challenges, the Chief Executive announced a series of measures to preserve employment, including the provision of more than 60,000 employment opportunities this year through expediting works projects, the recruitment of civil servants and creating temporary and other posts.  The Government also sought co-operation between the public and private sectors, including universities, statutory bodies and local and international Chambers of Commerce to create employment and internship opportunities; and

* Fourth, after introducing a Renminbi 4-trillion stimulus package last November, in December the Central Government introduced 14 measures to support our financial stability and economic development.  We are maintaining close liaison with the Central Government and relevant Mainland authorities to ensure maximum benefit of these opportunities for our businesses and employment.

25. Mr President, in my last Budget I proposed a number of fiscal measures to ease inflationary pressure and to prepare for the expected economic slow-down starting at the end of 2008.  In mid-July last year, the Chief Executive announced 10 additional measures to improve people's livelihood.  This $57 billion relief package - equivalent to 3.4 per cent of 2008 GDP - helped ease the burden of the grassroots and the middle class and achieved our goal to relieving the hardship being faced by the people.  Some of these measures, such as the lowering of the standard rate, the electricity charge subsidy and food assistance, will continue to benefit the citizens in 2009-10.  

(To be continued)

Ends/Wednesday, February 25, 2009
Issued at HKT 11:20


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