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Budget Speech by the Financial Secretary (4)

Caring for People's Livelihood

51. Third, we need to care for people's livelihood.  The downside risks to the economy will inevitably affect people from all sectors of society.  Despite the downturn, we do not intend to reduce government expenditure because this will affect the quality of our service to the public.  On the contrary, we shall continue to allocate resources to recurrent items relating to people's livelihood.  We shall, as in the past, adopt fiscal stimulus measures to help those in need by providing them with appropriate services and facilities.

52. Education, health and social welfare are the three policy areas of wide public concern that currently take up the largest share of government expenditure.  I would like to give a brief description of our initiatives before explaining the expenditure of the current-term Government in these areas.

53. First, let us look at education.  Our total expenditure is over $79 billion in 2012-13, out of which nearly $60 billion is recurrent expenditure.  This represents an increase of seven per cent over the recurrent expenditure in 2011-12.  In the coming year, I propose to launch the following new measures:

(1) Earmarking $1 billion to implement a new programme under the new senior secondary academic structure modelled on Project Yi Jin.  The aim is to provide an alternative pathway for students to acquire a formal qualification other than the Hong Kong Diploma of Secondary Education examinations to be held for the first time this year.  Students are encouraged to choose among different pathways in accordance with interests and aptitudes.  With the parallel development of the publicly-funded sector and the self-financing sector, we estimate that over 75 000 places will be provided at post-secondary level and 35 000 continuing education and vocational education and training places will be offered this year.  There will be adequate places to accommodate 100 000 school graduates in the double cohort year;

(2) Allocating $2.5 billion to launch the sixth Matching Grant Scheme (MGS) in the post-secondary education sector to help institutions tap more funding sources, improve the quality of education and foster a philanthropic culture.  The five rounds of the MGS launched since 2003 have helped institutions secure additional resources of $14.1 billion, comprising $9.2 billion private donations and $4.9 billion government matching grants.  For the first time, the proposed sixth MGS will cover all statutory and approved post-secondary institutions to further consolidate their development; and

(3) Making two separate injections of $1 billion each, bringing the total to $2 billion, into the HKSAR Government Scholarship Fund and Self-financing Post-secondary Education Fund to establish more scholarships or award schemes for outstanding students.  In the 2011/12 academic year, 2 000 tertiary students with excellent academic performance were awarded scholarships.  Injecting $2 billion into the two funds will give recognition to more students with outstanding academic performance or remarkable achievements in other areas such as sports, fine art, science and technology and community services.  This will encourage their all-rounded development and pursuit of excellence.  We estimate that a total of 10 000 students will benefit each year from the scholarships and award schemes to be established subject to the details of the schemes.

54. As for health, we shall increase our recurrent expenditure for the coming year by eight per cent to nearly $45 billion to provide medical services of a higher quality for the public while the total expenditure in 2012-13 is over $59 billion.  On capital investment, North Lantau Hospital and the expansion of Tseung Kwan O Hospital will be completed this year and next year.  We shall continue to pursue the construction of a number of new public hospitals including Tin Shui Wai Hospital and the Centre of Excellence in Paediatrics at Kai Tak, and the expansion of the United Christian Hospital.  We shall also redevelop Queen Mary Hospital (QMH) and Kwong Wah Hospital (KWH) in the coming year.  The redeveloped QMH will provide upgraded accident and emergency services and cardiology services.  For KWH, redevelopment will involve revamping existing medical facilities, and strengthening the hospital's Chinese and Western medicines shared care services, including Chinese medicine in-patient service.

55. The Samaritan Fund assists patients in need by providing full or partial subsidies for self-financed drugs and medical items required in the course of medical treatment.  The subsidies will be provided according to the applicants' financial conditions.  To make better use of the Fund, I propose to provide allowances when calculating the total value of disposable assets in the means test.  I also propose to simplify the tiers of patients' contribution ratio for drug expenses so that more people will benefit from the subsidy, and patients already receiving partial subsidies will have the burden of drug expenses further eased.  Take a four-member family with an annual disposable income of $100,000 and disposable capital of $400,000 as an example.  If the drug expenses required by the sick family member are $100,000 per year, no financial assistance will be provided under the current scheme.  Upon introduction of the new measures, the family member will receive a subsidy of $90,000.  This will help reduce much of the financial burden on the family.

56. It is hard to estimate accurately the future financial needs of the Samaritan Fund.  However, taking into account its escalating expenditure over recent years, and the potential increase in expenditure arising from the implementation of the new measures, I propose to inject $10 billion into the Fund to provide adequate provisions for its operation in the next ten years or so.  The injection will also give the Fund more headroom to increase the types of subsidised drugs in accordance with clinical protocols and scientific evidence, benefiting more people in need.

57. As for social welfare, total expenditure for 2012-13 is over $48 billion, out of which $44 billion is recurrent expenditure.  This represents an increase of nine per cent over recurrent expenditure in 2011-12.  For the coming year, I propose two measures to enhance elderly care.  First, we shall increase the recurrent funding for Dementia Supplement by $137 million.  This will allow eligible residential care homes and day care centres or units for the elderly to have more resources for engaging professional staff (including occupational therapists, nurses and social workers) or procuring related professional services for the provision of proper care to every demented service user.

58. Second, we shall allocate $900 million under the Lotteries Fund to improve the physical setting and facilities of as many as 250 district elderly community centres, neighbourhood elderly centres and social centres for the elderly across the territory.  This will enhance the community support services for elderly people and their carers.

59. To help ease the pressure of the economic downturn on our community and including the measures the Chief Executive proposed in his Policy Address, I shall introduce the following seven one-off measures:

(1) Waiving rates for 2012-13 (Note 1), subject to a ceiling of $2,500 per quarter for each rateable property.  It is estimated that almost 90 per cent of properties, or 2.7 million properties, will be subject to no rates in the year.  This proposal will cost the Government $11.7 billion;

(2) Reducing salaries tax and tax under personal assessment for 2011-12 by 75 per cent, subject to a ceiling of $12,000.  The reduction, benefiting the 1.5 million taxpayers in the territory, will be reflected in the taxpayers' final tax payable for 2011-12.  This proposal will cost the Government $8.9 billion;

(3) Granting each residential electricity account a subsidy of $1,800.  This will cost the Government $4.5 billion.  We expect that 2.5 million households will benefit from the subsidy.  Currently about 20 per cent of households pay an average of not more than $150 a month for electricity charges.  The subsidy will enable these households to cover their electricity charges for at least one year;

(4) Providing an extra allowance to Comprehensive Social Security Assistance (CSSA) recipients, equal to one month of the standard rate CSSA payments; and an extra allowance to Old Age Allowance and Disability Allowance recipients, equal to one month of the allowances.  This proposal will involve an expenditure of $2.1 billion;

(5) Paying two months' rent for public housing tenants (Note 2).  The Government will pay two months' base rent for tenants who are required to pay extra rent to the Hong Kong Housing Authority.  For non-elderly tenants of the Hong Kong Housing Society's Group B estates, the Government will pay two-thirds of their rent for two months.  This measure will involve an expenditure of $1.9 billion;

(6) We extended and improved short-term food assistance services through the additional funding of $100 million made at the end of last year.  Enhancements include providing a wider variety of foods along with fresh foods.  The Government will allocate another $100 million to the services when necessary; and

(7) Giving all student loan borrowers who complete their studies in 2012 the option to start repaying their student loans one year after completion of studies.  This will alleviate the financial burden of fresh graduates and allow them more time to secure a stable job.

60. During the consultation period, many middle class expressed to me their wish for the Government to understand their hardship and to ease their tax burden.  Their voices are heard loud and clear.  After taking into account our long-term financial position, I propose seven tax measures starting from the 2012-13 year of assessment:

(1) Raising the basic allowance and the single parent allowance from $108,000 to $120,000; and increasing the married person's allowance from $216,000 to $240,000.  These proposals will benefit 1.38 million taxpayers, costing the Government $2.2 billion a year;

(2) Increasing the allowance for maintaining a dependent parent or grandparent aged 60 or above from $36,000 to $38,000.  At the same time, the additional allowance for a taxpayer residing with his/her parent or grandparent continuously throughout the year will increase from the current $36,000 to $38,000.  The allowance for maintaining a dependent parent or grandparent aged between 55 and 59 will increase from the current $18,000 to $19,000.  The same increase applies to the additional allowance for taxpayers residing with these parents or grandparents continuously throughout the year.  For taxpayers whose parents or grandparents are admitted to residential care homes, the deduction ceiling for elderly residential care expenses will be raised from the current $72,000 to $76,000.  This measure will benefit 460 000 taxpayers, costing the Government $220 million a year;

(3) Raising the child allowance from the current $60,000 to $63,000 for each child; and increasing the additional one-off child allowance in the year of birth from $60,000 to $63,000 for each child.  This measure will benefit 280 000 taxpayers, costing the Government $170 million a year;

(4) Raising the dependent brother/sister allowance from the current $30,000 to $33,000.  This measure will benefit 25 000 taxpayers and cost the Government $10 million a year;

(5) Raising the disabled dependant allowance from the current $60,000 to $66,000.  This measure will benefit 30 000 taxpayers and cost the Government $20 million a year;

(6) Extending the entitlement period for the tax deduction for home loan interest from ten years of assessment to 15 while maintaining the current deduction ceiling of $100,000 a year.  This proposal will cost the Government $540 million a year in the coming five years of assessment; and

(7) Increasing the maximum annual tax deduction for mandatory contributions to Mandatory Provident Fund schemes from $12,000 to $15,000.  This proposal will cost the Government $360 million a year.  This is a consequential amendment in light of the increase of the maximum relevant income level under the Mandatory Provident Fund Schemes Ordinance to $25,000, which will take effect from June 2012.

61. I believe that the above adjustments to tax allowances and deductions are adequate to take care of taxpayers' basic needs and additional financial burden arising from family responsibilities.

Stabilising the Financial System

62. Fourth, we shall seek to maintain the stability of our financial system.  Despite the wild fluctuations in the international financial markets over the past year, Hong Kong's financial markets managed to operate in an orderly manner, and financial institutions remained strong and sound.  Banks' capital adequacy ratios have been maintained well above international requirements, and liquidity ratios at relatively high levels.

63. But with the global economy facing ever-increasing downside risks, any deterioration in the European sovereign debt crisis will dampen market sentiment, which may set off massive repatriation of funds from emerging markets.  Hong Kong can hardly be immune from the impact and may suffer from an outflow of funds from the Hong Kong dollar.

64. The Hong Kong Monetary Authority (HKMA) and other regulators have introduced a number of regulatory measures to enhance the resilience of the financial system.  Such measures include strengthening banks' credit and liquidity risk management, increasing the level of banks' regulatory reserve, and introducing four rounds of prudential regulatory requirements on mortgage loans.  The regulators will continue to ask banks, securities brokers and insurance companies to strengthen their risk management.  The foreign currency reserves the HKMA accumulated from capital inflows two years ago will serve as a buffer against the risk of an abrupt reversal in capital flows, and help maintain the stability of the Hong Kong dollar exchange rate and avoid excessive interest rate volatility.

65. I shall work jointly with our regulators to keep a close watch on the development of the global financial markets.  Where necessary, appropriate measures will be taken to ease any possible strain on Hong Kong's financial system and maintain the stability of our monetary and overall financial system.

Note 1: Comprehensive Social Security Assistance recipients who do not have to bear rates and public housing rents will not obtain any pecuniary advantage from the two measures of waiving rates and paying rents for public housing tenants.

Note 2: Same as Note 1.

(To be continued)

Ends/Wednesday, February 1, 2012
Issued at HKT 11:49


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