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FS' "Letter to Hong Kong" on Budget (English only)

     Following is the "Letter to Hong Kong" on the 2013-14 Budget by the Financial Secretary, Mr John C Tsang, broadcast on Radio Television Hong Kong this morning (March 10):

Fellow citizens,

     Since I delivered the annual Budget on the 27th of February, there have been some lively discussions in the community. This is the first Budget of the current-term Government, and it is only natural that there is considerable interest this year.

     Among other things, the Budget sets aside $60 billion to support initiatives announced by the Chief Executive in his first Policy Address in mid-January.

     These initiatives include new and improved measures to support the elderly and the disadvantaged.

     Just to name a few examples: I have provided $380 million to launch the Pilot Scheme on a Community Care Service Voucher for the Elderly, $164 million to increase the subvention for residential care places, and $73 million for additional subsidised residential care places for the elderly. I have also allocated recurrent funding of $203 million to regularise home care service for persons with severe disabilities.

     All in all, total recurrent expenditure on social welfare will increase by some $13 billion this year compared to last year. This amount represents more than a 30 per cent increase.

     On top of this increase, I have also allocated $15 billion for the Community Care Fund, which will help support the work of the Commission on Poverty in plugging gaps in our existing welfare system to help people who would otherwise fall outside of our safety net.

     Given the relatively healthy state of our public finances, I was able to return some of the city's wealth to the people in the form of tax rebates, additional welfare payments, rates waivers and electricity subsidies.

     Some people have pointed out that these one-off relief measures, described by the media as "sweeteners", have become a regular feature of my Budgets over the past six years. That may be so but the last few years have not been exactly normal years by any means. Since 2008, we have been buffeted by the worst global financial crisis in living memory. And these one-off measures have proved effective in giving families, students, homeowners and small businesses a little extra needed assistance.

     This, together with expansion of public spending in other areas, has helped provide the necessary stimulus for our economy as well, and preserve jobs during difficult economic times.

     That said, such relief measures are not, and should not be seen as, permanent features of the Budget.

     In setting the Budget this year, as in previous years, I have been guided by three main principles. First, the Budget must provide adequate resources, recurrent and non-recurrent, to implement Government's ongoing and future policies.

     Second, it must benefit the people through the implementation of effective livelihood policies, creation of quality career opportunities, and improvements in the environment.

     Third, the Budget must be a prudent response to the long-term needs and financial health of our city.

     Many of us can still recall the economic impact of the Asian Financial Crisis followed closely by the SARS outbreak only a decade ago. During the period from 1998 to 2004, five years of deficits saw our financial reserves drop from the equivalent of 28 months of government expenditure to only 13 months of expenditure. We must be mindful of the possibility that our apparently high level of reserves at present can be depleted quickly in just a few difficult years.

     Looking ahead, in the not too distant future, Hong Kong will begin to feel the pinch from the impact of an ageing population. On current projections, our labour force will start to shrink after 2018, when members of the baby-boomer generation start to reach retirement age.

     In about 20 years' time, every elderly person in Hong Kong will, on average, be supported by only two people of working age - that is down from the ratio of  10 to 1 in the 1980s to the current ratio of 5 to 1 to just 2 to 1 in the 2030s. That is a big drop.

     So, we must start planning now to cope with the challenges of a rapidly ageing population and maintain Hong Kong's bright prospects for future generations.

     Of course, Hong Kong is not the only place facing the challenges of an ageing population. We can study the ways that other economies around the world are tackling similar issues. We should come up with our own solutions for our unique circumstances.

     There is no one "silver bullet" that will solve all the problems at hand. There is simply no magic solution. An ageing population will impact on all areas of government and the economy, and require a co-ordinated approach to meet these challenges.

     In my Budget, I announced that I shall set up a working group, led by Treasury Branch, to look specifically at the technical aspects of building up financial planning tools to deal with the issues of our ageing population and other long-term financial commitments.

     The working group will complement other studies being undertaken by different commissions and bureaux of government. Together, we shall find a holistic solution to deal with the issues at hand and produce a balanced cocktail of measures to meet the challenges.

     Experience from other economies shows that, as the population ages, savings, investment and consumption will all be affected.

     An increasing elderly population will inevitably require more public spending on elderly services, health care and social security. We shall continue to increase financial commitments to these areas, while optimising the cost-effectiveness of these services at the same time.

     With a shrinking workforce, we shall have to increase productivity to maintain even a modest level of economic growth. We need to ensure that we have sufficient income resources to support these commitments.

     To this end, we must enhance the competitive advantages of our pillar industries and nurture new industries for Hong Kong's future progress. These will help provide more jobs and greater varieties of occupations for our current and future workforce.

     Thank you, and have a great day.

John Tsang

Ends/Sunday, March 10, 2013
Issued at HKT 08:30


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