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Public Finances
147. In its report released last year, the Working Group on Long-Term Fiscal Planning pointed out that with an ageing population and slowing economic growth, government expenditure would keep growing at a faster pace than that of revenue and the economy. If this trend persists, structural deficits will surface within ten years. While Hong Kong would still experience budget surpluses in the coming few years, we need to take early and positive actions to contain expenditure, preserve the revenue base and save up in a timely manner to avoid the appearance of structural deficits.
Containing Expenditure
148. In light of the Working Group's recommendations, I asked all policy bureaux in the middle of last year to achieve more efficient use of resources through re-engineering and re-prioritising. I have also launched the "0 1 1" envelope savings programme to reduce operating expenditure by a total of two per cent over the next three financial years. Resources saved will be re-allocated for new services.
Preserving Revenue Base
149. Hong Kong maintains a simple and low tax regime with a narrow tax base. Among the working population, only 40 per cent pays salaries tax, and 60 per cent of the revenue comes from the top five per cent of the payers of salaries tax. As for profits tax, only ten per cent of the registered corporations pay the tax, and over 80 per cent of the revenue comes from the top five per cent of payers of profits tax. Therefore, it is of utmost importance for Government to stabilise and broaden the revenue base.
150. Two years ago, I asked government departments to comprehensively review over a thousand fees and charges in accordance with the "cost-recovery" and "user pays" principles. The review is supported by LegCo and our efforts have begun to bear fruits. We shall next review livelihood-related fees and charges.
151. Government launched an extensive consultation on the introduction of a Goods and Services Tax in 2006. The community then did not support the new tax. We may explore again the feasibility of broadening the tax base in due course with the aim of stabilising government revenue and creating room for direct tax concessions.
Saving up in a Timely Manner
152. In late 2014, the Working Group suggested establishing a Future Fund, comprising an endowment of $220 billion from the Land Fund, which is part of the fiscal reserves, and a proportion of future budget surpluses. The Future Fund will serve as long-term savings and be placed in long-term investments for higher returns.
153. I agree to establish a Future Fund. I have requested the Secretary for Financial Services and the Treasury to work with the Chief Executive of HKMA to hammer out specific management and investment mechanisms. The savings scheme is expected to be in place within this year.
154. The Working Group also offered recommendations on how Government's assets could be better managed. We shall follow up on their recommendations. I would like to extend my heartfelt thanks to the experts and academics on the Working Group for their contributions over the past two years.
(To be continued.)
Ends/Wednesday, February 25, 2015
Issued at HKT 12:11
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