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FS stresses need for long-term fiscal planning
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     The Financial Secretary, Mr John C Tsang, outlined the Government's long-term financial planning strategy in his Budget today (February 26).

     Mr Tsang proposed several measures to avert the risk of the Government incurring a structural deficit in the medium-to-long term in three main areas, namely containing expenditure growth, preserving the revenue base and saving for the future.

     "The Working Group on Long-Term Fiscal Planning's report points out that, with an ageing population and a shrinking workforce, economic and revenue growth would decelerate; a structural deficit would be inevitable if expenditure growth outpaces revenue growth in a persistent manner," Mr Tsang said.

     "This reminds us of the importance of 'living within our means' and 'fiscal prudence'.

     "Government will keep the overall fiscal health in view and take timely targeted measures to ensure the sustainability of public finances."

     The Financial Secretary said the Government must develop the economy, and align the growth rates of the economy, government revenue and government expenditure.

     "Over the past three decades, the annual real GDP growth averaged 4.6 per cent," Mr Tsang said.

     "The economic growth momentum is expected to slow down as our population ages, reducing our labour force."

     On the current track, the Working Group projects an annual trend growth rate of 4.5 per cent for government revenue in the next 20 to 30 years, according to the Financial Secretary.

     "Towards the end of the projection period, government revenue is projected at 19.8 per cent of nominal GDP," he said.

     The Working Group made several projections for the future state of Hong Kong's financial health based on prevailing economic growth trends and demographic changes.

     Taking different expenditure growth scenarios into account, the Working Group projects that a structural deficit would surface between seven and 15 years' time.

     "The projection results and analysis of the Working Group spark off a clear warning and call for serious attention," Mr Tsang said.

     "We should neither take the problem lightly nor over worry."

     "I believe that as long as we take timely, resolute and effective actions, we can prevent the projected results from surfacing."

     To contain expenditure, the Financial Secretary said, when preparing the annual budgets, the Government should use nominal GDP growth forecasts over the medium term as planning ceilings for increasing government expenditure.

     "We should uphold fiscal discipline, and put in place a more vigorous internal control and monitoring mechanism for assessing and prioritising competing funding priorities with appropriate offsetting from different programmes," Mr Tsang said.

     "Government departments and the public sector should conduct expenditure reviews and introduce efficiency measures with a view to doing more with less."

     To preserve the revenue base, Mr Tsang said there was little scope to increase taxes.

     "Having regard to the competitiveness of Hong Kong and the impact on the community, there is little room for major tax hikes," he said.

     "In principle, I shall not rule out any means to increase tax revenue.

     "However, I also understand that it will be controversial to propose any new taxes, which need thorough consideration and public discussion.

     "At the present stage, Government's priorities are to overcome the constraints posed by the ageing population on our economic growth, keep moving our economy up the value-added chain, and increase and preserve our revenue."

     To prevent revenue loss, Mr Tsang said the Inland Revenue Department (IRD) would step up tax enforcement and make better use of IT to combat tax evasion and avoidance, thereby recovering tax payable.

     "The IRD has recovered over $14 billion in taxes over the past three years," the Financial Secretary said.

     Following a review of more than 1,300 government fees and charges last year, more than 200 increases have been proposed.

     "These (increases) will reduce the loss of public revenue by around $60 million per year," Mr Tsang said.

     He said the Government would review other fees and charges this year, including water charges, fees for use of leisure venues and services, and charges relating to environmental hygiene services.

     Of Hong Kong's fiscal reserves amounting to over $700 billion, about $220 billion is the balance of the Land Fund and $130 billion is held in funds with designated uses, according to the Financial Secretary.

     "Only the remaining $400 billion or so, held in the General Revenue Account, may be flexibly deployed to meet the day-to-day operation of Government," he said.

     Mr Tsang said Hong Kong could consider setting up a savings scheme to prepare for the future, taking reference from the experience of other economies.

     "We should take early action to address the challenges ahead when our public finances are still healthy," Mr Tsang said.

     The Working Group will release detailed results of its "health check" on the state of Hong Kong's public finances next week.

Ends/Wednesday, February 26, 2014
Issued at HKT 12:53

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