Budget Speech by the Financial Secretary (9)

Art, Culture and Sports

185. The Government will continue to allocate substantial resources to the development of art, culture and sports.  We granted a one-off upfront endowment of $21.6 billion in 2008 to the West Kowloon Cultural District (WKCD) Authority for the implementation of the WKCD project.  We also injected $3 billion into the Arts and Sport Development Fund in 2010 and received approval to set up a $7 billion "Elite Athletes Development Fund" in 2011 in support of the long-term development of sports, art and culture.

186. The Government's expenditure on art and culture in 2012-13 will exceed $3 billion.  In 2012-13, we shall provide a total of $40 million additional funds for nine major performing arts groups, bringing the total amount of funding to over $300 million, an increase of almost 40 per cent compared with 2007-08.  Efforts have also been made to upgrade and promote museum service and organise major exhibitions for audience building.  Expenditure on museum exhibitions and public art in 2012-13 will be about $85 million.

187. Since 2007, four new libraries have come into service.  In 2009, the Government extended and standardised the opening days of major and district libraries in the territory to seven days a week, with weekly opening hours of 71 hours.  The annual recurrent expenditure on library services has increased by $34 million since then.

188. On sports development, we are promoting "sport for all" in the community.  Since 2007-08, a total of more than $600 million has been spent on organising recreational and sports activities in the community.  Through the School Sports Programme, we also encourage students of primary, secondary and special schools to participate regularly in sports activities.  In 2012-13, we shall raise our funding support for national sports associations to almost $250 million for providing training to athletes and organising sports events.  Through the "M" Mark Scheme, we help national sports associations host major international sports events in Hong Kong.

189. On sports infrastructure, we are building our first indoor velodrome in Tseung Kwan O while redeveloping both the Victoria Park and the Kwun Tong Swimming Pools.  Preparatory work is underway for the development of a sports complex at Kai Tak.  This project involves the construction of a main stadium, a secondary stadium and an indoor sports arena.  We are conducting a consultancy study on the project to explore the most suitable construction and financing arrangements.

Environmental Protection

190. We are committed to protecting the environment, making Hong Kong a green and more pleasant place to live.  The current-term Government has allocated over $30 billion for building environment-friendly facilities, funding green projects, improving air quality, combating climate change, and improving waste management.  To improve roadside air quality and promote green transport, we provide grants and tax concessions to encourage early replacement of old diesel commercial vehicles with new ones, and purchase of more environment-friendly vehicles.  In addition, we have allocated $300 million for setting up a Pilot Green Transport Fund to facilitate trial use of green and innovative transport technologies in the transport industry.  Trials approved include the testing of electric vehicles for various uses, such as electric non-franchised buses for resident shuttle services and employee and on-campus transportation, and electric goods vehicles for courier services and goods transportation.  These trial runs will commence within this year.  The Government has also taken an important step to start the use of zero-emission buses, and we shall seek this Council's approval for a provision of $180 million to subsidise trials of hybrid buses and fully electric buses by the franchised bus companies.  The ultimate policy objective is the full-scale use of zero-emission buses across the territory.

191. On the promotion of electric vehicles, currently there are over 240 electric vehicles on local roads, more than double that of last year.  We are installing charging facilities for electric vehicles in government car parks as planned.  Along with the related facilities provided by the business and non-government sectors, it is estimated that there will be about 1 000 charging points in Hong Kong by mid-2012.

192. To combat climate change, save energy and reduce emissions, we have implemented new measures and introduced new legislation.  The Mandatory Energy Efficiency Labelling Scheme, launched in 2009, now covers products whose electricity consumption accounts for 70 per cent of that in the residential sector.  The current-term Government has injected a total of $1.5 billion into the Environment and Conservation Fund.  It subsidises projects which promote energy saving, waste reduction and recycling, greening, conservation and scientific research on environmental protection.  These projects aim at encouraging people's participation in the promotion of a greener lifestyle at different levels.  Between 2008 and the end of 2011, the Fund approved more than 2 000 projects involving subsidies of over $1 billion.

193. On improving waste management, the overall recovery rate of municipal solid waste in Hong Kong rose from 45 per cent in 2006 to 52 per cent in 2010.  Under the legal framework provided by the Product Eco-responsibility Ordinance enacted by the Legislative Council in 2008, we have been progressively implementing a mandatory Producer Responsibility Scheme.  With the Environmental Levy Scheme on Plastic Shopping Bags put in place since 2009, the number of such bags distributed by 3 000 registered retail outlets covered by the Scheme has dropped by as much as 90 per cent.  Preparatory work is underway for the extension of the Environmental Levy Scheme on Plastic Shopping Bags and the introduction of a Producer Responsibility Scheme for waste electrical and electronic equipment.  We are also consulting the public on the proposal for charging municipal solid waste.


194. To fulfil our policy objective of promoting economic growth through infrastructural development, the current-term Government has been increasing its investment in capital works over the past few years.  By making such investment we can lay a firm foundation for future economic development and create employment opportunities during the project construction period.  The total value of projects approved by this Council is expected to increase by three times from $62 billion in 2007-08 to $184 billion this year.  The annual actual expenditure on capital works also sees a significant threefold increase from $20.5 billion in 2007-08 to $62.3 billion in 2012-13 and is expected to increase to over $70 billion per year in the next few years.

195. Expenditure on capital works is our investment in the future.  A large part of the expenditure is devoted to massive projects, such as the Ten Major Infrastructure Projects, cross-boundary facilities, and transport infrastructural projects, with a view to expanding our economic hinterland and strengthening the territory's road and railway network.  These projects include the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link, the Hong Kong-Zhuhai-Macao Bridge, the Liantang/Heung Yuen Wai Boundary Control Point, the Central-Wan Chai Bypass, and railway construction works of the South Island Line (East) and the West Island Line.  We shall also seek funding approval for the construction of the Shatin to Central Link from this Council in the current legislative session.

196. To increase land supply, we shall continue to carry out infrastructure works such as land formation, road construction and laying of water mains in the new development areas of different districts such as Tseung Kwan O, Kai Tak, Tuen Mun and Yuen Long.

197. While implementing large-scale infrastructure projects, we have spared no effort in taking forward projects of various scales to meet people's demand for public facilities for everyday life.  District works projects approved by this Council in the five legislative sessions from 2007-08 are estimated at $220 billion in total.  These projects include schools, hospitals, libraries, sports centres, swimming pools and community halls.  We also hope to provide our citizens a better living environment and quality leisure facilities through implementing projects such as parks, cycle tracks and greening works.  Upon completion of all the on-going and approved waterfront promenade projects at Central, Quarry Bay, Kwun Tong and Kai Tak, the length of the water promenade open for public use will be extended by two kilometres.

198. Besides taking forward individual projects to construct waterfront promenades, the Development Bureau is exploring with the Harbourfront Commission on the establishment of a statutory and dedicated harbourfront authority, which will push ahead with the design, construction, operation and management of harbourfront projects with a creative mindset, flexible framework and entrepreneurial culture.  A proposal is expected to be put forward in the middle of this year.  We aspire to create a vibrant waterfront with all kinds of attractions for the enjoyment of the public and tourists.  If the proposal is widely supported by the community, we shall provide the necessary financial support.

Public Finance Management

199. Our need to achieve fiscal balance and avoid deficits is enshrined in the Basic Law.  I have kept this in mind when preparing this Budget, just as I have in the past four years.  While maintaining a low tax environment, we spare no effort to provide quality services for our people.  We also ensure adequate fiscal reserves to cope with economic contingencies and build a solid financial foundation for the future.


200. Our revenue comes mainly from five sources, namely profits tax, land premium, salaries tax, stamp duty and investment returns on fiscal reserves.  Together they account for three quarters of our total revenue.  Highly susceptible to economic fluctuations, they are affected by the ebb and flow of the economy.  Revenue from these sources has fluctuated wildly over the past decade, bringing many challenges to the management of public finances.

201. During the budget consultation period, some people suggested tax deductions for business or personal spending in particular areas such as rent, children's education, medical services, insurance and the purchase of products with Grade 1 Energy Efficiency Labels.

202. I fully understand that these suggestions are meant to reduce the burden of taxpayers or operating costs of businesses.  However, I would like to point out that our simple and low tax regime has stood Hong Kong in good stead and contributed to our success over many years.  Various types of allowances and deductions which are very generous are already provided under the current tax system.  We must be extremely cautious when considering tax deduction proposals of any kind.

203. As far as profits tax is concerned, all operating expenses and capital expenditure permitted by the law are deductible from taxable profits.  Currently, nearly 90 per cent of companies do not have to pay tax.  Some have suggested that we should introduce "group loss relief" and "loss carry-back" arrangements and tax concessions for specific sectors or enterprises.  When considering these suggestions, we need to take into account various factors, such as whether the proposals will further narrow our tax base and restrict the source of tax revenue to a handful of enterprises, making our tax revenue unstable.

204. In view of this year's economic forecast, and in support of our enterprises, I have put forward proposals, such as offering a one-off reduction of profits tax, waiving the business registration fees, halving the charges for import and export declarations and abolishing capital duty levied on local companies.  These measures will benefit enterprises of different sizes in Hong Kong without compromising our established tax neutrality principle or being in favour of a particular type of enterprises.

205. Turning to salaries tax, the personal allowances currently available to taxpayers, including basic allowance, dependent parent allowance and child allowance, are provided having regard to their basic needs and additional financial burden arising from family responsibilities.  The introduction of deductible items for various expenses of a private nature will make our tax system less flexible because individual taxpayers without the need to pay such specific expenses will not benefit from these deductions.

206. That said, I fully understand the financial burden of the middle class in areas like housing, education, and health care.  In view of this year's economic situation and the needs of taxpayers, I have proposed one-off salaries tax reduction and adjustments to various personal allowances or deductions, including basic allowance, single parent allowance, married person's allowance, dependent parent allowance, child allowance, dependent brother/sister allowance, disabled dependant allowance, and the extension of the entitlement period for the tax deduction for home loan interest.

207. We have been striving to maintain a simple and low tax regime.  According to the survey results of Invest Hong Kong and the Census and Statistics Department, our simple and low tax regime is the key favourable factor for Hong Kong as a location for setting up regional headquarters, regional offices or local offices.  Paying Taxes 2012-The Global Picture published by the World Bank at the end of last year pointed out that Hong Kong was ranked among the top in the world for the ease of paying taxes.  Among the advanced economies, Hong Kong is also one of the places with the lowest total tax rate.  These suggest that the tax system in Hong Kong is a positive factor underpinning the competitiveness of Hong Kong enterprises.

(To be continued)

Ends/Wednesday, February 1, 2012
Issued at HKT 13:14