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Following is the speech (translated from Chinese) by the Financial Secretary, Mr John C Tsang, at the Second Reading debate on the Appropriation Bill 2016 in the Legislative Council today (April 20):
Mr President,
After delivering the 2016-17 Budget at the end of February, I have attended a number of media interviews and forums and listened to the views of the public and various sectors of the community on the Budget. I would also like to extend my heartfelt thanks to the Members who gave valuable views on individual policy areas at last week's meeting.
Our three Secretaries have just responded in detail to the views on specific policy areas. I shall now give a brief account of the latest global and local economic situation, then my views on how we can sustain our competitiveness to give impetus to Hong Kong's economic and social development in the long term.
Global Economic Situation
Facing immense challenges, global economic growth is expected to remain slow and patchy in 2016. In its forecast released early this month, the International Monetary Fund (IMF) lowered the global economic growth rate for this year to 3.2 per cent, on par with last year's 3.1 per cent.
While having a rather sound nature of recovery, the US economy is only expected to maintain modest growth as the exports and industrial production are dictated by a strong US dollar and sluggish global demand. At its meeting in March, the US Federal Reserve Board decided to keep the US interest rate unchanged and signalled a slower pace of interest rate rises for this year. Nevertheless, there are still uncertainties as to the pace of the interest hikes which depends on economic data. What is certain is that the marked divergent policies among major central banks have complicated the international monetary environment, making it difficult to keep track of exchange rates and capital flows, thus risking the stability of global financial markets.
With the Eurozone persistently beset by high unemployment rates and elevated debt levels, the European Central Bank set forth further quantitative easing measures in March to counter deflation risks. We shall keep watch on whether issues such as the refugee influx and Britain・s possible exit from the European Union would further affect the already tepid recovery process.
As for Japan, its negative interest rate policy has yet to take effect and its economy even went into a quarter on quarter contraction in the fourth quarter last year. In the face of structural problems such as an ageing population and high government debts, Japan's economic outlook is expected to remain dim in the short term. With the plunge in crude oil and commodity prices, the economies of some emerging markets, including Brazil and Russia, will also suffer further setbacks.
Despite the downward pressure that comes along with the weak external environment, the Mainland economy is growing at a rate higher than those of other developed economies. It will continue to be the major driver of the global economy. The Mainland economy recorded year-on-year growth of 6.7 per cent for the first quarter. I believe the Central Government will provide adequate policy manoeuvres and headroom to achieve the growth target of 6.5 to 7 per cent for the whole year.
Local Economic Situation
As an externally oriented, small and open economy, Hong Kong is susceptible to changes in the external environment. Being dragged by the weak demand in overseas markets, the volume of total exports of goods in the first two months of this year has dropped by 4 per cent year on year. Along with a 14 per cent year-on-year decline in the numbers of our inbound tourists over the same period, total retail sales have tumbled by 12 per cent.
The labour market is largely stable at present, with the wages and payroll sustaining growth in real terms. However, we all note that the latest unemployment rate announced yesterday slightly rose by 0.1 percentage points to 3.4 per cent, with retail, accommodation and food services sectors experiencing more noticeable rises.
The unemployment rate in Hong Kong had been staying at 3.3 per cent or lower for over two years, and the rebound of 0.1 percentage points in this quarter is an important signal from the market. I shall closely monitor the pressure on the employment market that might be caused by the fall in labour demand in the related industries and, in particular, by the weakened retail sales. Inflation is expected to remain moderate. The underlying inflation rate for this year will ease from 3 per cent last year to 2 per cent.
As for the property market, it faces pressure for adjustment as a result of the normalisation of the US interest rate policy, slackened economic growth and additional supply of residential flats. Trading in the market has turned quiet since last July. Property prices fell for five consecutive months since last October, with a cumulative drop of about 11 per cent as at February 2016. Market data shows that the downtrend continued in March.
Property prices are still out of tune with the economic situation and affordability. The overall property prices as at February this year soared 58 per cent over the peak in 1997, and the ratio of mortgage payment to household income stood at 62 per cent in the fourth quarter last year, higher than the long-term average of 46 per cent. We shall continue to closely monitor the property market and ensure its healthy and stable development.
On the whole, I forecast that our economy will grow by only 1 to 2 per cent in real terms in 2016, which is lower than last year's 2.4 per cent. In preparing this year's Budget, I anticipated a difficult year ahead for both the local economy and the labour market. I have therefore allocated in the Budget $38.8 billion for tax and short-term relief measures to help enterprises, especially those of small and medium size, to get through difficult times, and to safeguard the jobs of workers. Measures such as reducing tax, increasing tax allowances and waiving rates can ease the burden of citizens and help stimulate local consumption. The package of measures, together with other spending initiatives, will have a fiscal stimulus effect of boosting Gross Domestic Product for this year by 1.1 per cent. This is indeed a great and timely boost to our economy amid a year fraught with challenges.
Recently, there were international credit rating agencies downgrading Hong Kong・s rating outlook to negative out of concern over China・s economic outlook and Hong Kong・s close linkage with the Mainland. I would like to reiterate that Hong Kong has sound economic fundamentals, a robust financial regulatory regime, a resilient banking system and a healthy fiscal position. We certainly have the capability, the experience and the determination to rise to the challenges brought about by economic cycles. The IMF Staff Report released in January has fully affirmed our economic and financial strengths.
In fact, the structural rebalancing in the Mainland's economy from labour-intensive production to high value-added production, coupled with the transformation of its mode of economic development from investment to consumption, will create more business opportunities for service-oriented economies like Hong Kong.
Sustaining Competitive Edge
Apart from addressing the issue of cyclical economic adjustment and the needs of individual industries in the short term, I have also proposed in the Budget measures to foster the sustainable economic development of Hong Kong in keeping with the new economic order.
The latest breakthroughs in technologies have brought about paradigm shifts in traditional business modalities. Hong Kong abounds with world-class research and development (R&D) personnel in various fields, underpinned by advanced technology and equipment. We are well equipped to promote the application and production of innovative technologies and develop high value-added industries.
I have in my Budget proposed an array of measures which include an allocation of $8.2 billion to construct purpose-built buildings in Tseung Kwan O Industrial Estate for furthering the development of advanced manufacturing industries, as well as the introduction and enhancement of various funding schemes to encourage universities and industries to pursue commercialisation of R&D results.
Hong Kong is an international financial centre. We shall endeavour to create a favourable environment to attract financial institutions and professionals to develop Fintech in Hong Kong and help enhance the efficiency and quality of our financial services. We shall also strive for further diversification of local industries. To this end, we shall continue to facilitate the robust growth of start-ups in various areas such as financing, incubation and office space, and support the development of the fashion industry and the film sector as well as arts and sports.
With the global economic gravity shifting towards the East, emerging markets have been playing an increasingly influential role. We must seize this opportunity to find new markets by making good use of Hong Kong's advantages in trading and logistics, business and professional services, financial services, tourism and creative industries.
The Hong Kong Monetary Authority has been working on the establishment of the Infrastructure Financing Facilitation Office, which will provide a platform for pooling the efforts of investors, banks and the financial sector, to facilitate the provision of comprehensive financial services for infrastructure projects in emerging markets.
We shall continue to widen our commercial and trading networks and promote the development of high value-added logistics and e-commerce through various trade and taxation agreements. The Government launched a public consultation exercise on the implementation of "single window" last week. We look forward to the early implementation of the initiative.
Improving People・s Livelihood and Promoting Development
With our ageing population and the continuous growth in demand for social services, the Government will actively respond to the needs of the community and allocate resources for the enhancement of public services. Total government expenditure will reach $490 billion in 2016-17, an increase of 14 per cent over 2015-16 or more than doubled when compared with a decade ago. The rate of increase is much higher than the rate of our economic growth.
The estimated recurrent expenditure on education, health and social welfare accounts for 60 per cent of government recurrent expenditure. Compared with 10 years ago, the expenditure of the three areas has increased by 80 per cent and among which social welfare spending has more than doubled. This shows the Government's commitment to improving people's livelihood and adhering to the principle of allocating public resources where justified and needed.
There are concerns in the community about the large amount of expenditure on infrastructure works. Infrastructure developments, which are one-off in nature, are important long-term investments that can help strengthen Hong Kong's competitiveness and spur our economic growth. Apart from strategic infrastructure to improve transportation and develop new areas, many infrastructure works are closely related to people's livelihood, including those related to culture, education, environmental protection, healthcare, sports and district work. We shall establish a multi-disciplinary office to conduct a comprehensive review of the guidelines on public works and to scrutinise closely the cost estimates of major new projects to ensure the proper use of public funds.
Public Finances
In preparing this year's Budget, I have been mindful of making forward planning for meeting the long-term needs of Hong Kong, to ensure that the expenditure on important policy areas can be met in the event of economic downturn in the future. I have set up the Housing Reserve to implement the Public Housing Construction Programme, established the Future Fund as long-term savings, and set aside provisions for the 10-year hospital development plan.
The Government's medium-range forecast has projected that Hong Kong・s economy will achieve an average growth of 3 per cent per annum in real terms from 2017 to 2020, lower than the trend growth of 3.4 per cent over the past 10 years. An ageing population will have far-reaching implications on public expenditure. The shrinking labour force in Hong Kong from around 2018 will affect our economic development and slow down growth of government revenue. A structural deficit is bound to emerge when expenditure growth keeps outpacing revenue growth.
It is of utmost importance to ensure our public finances remain healthy, allowing us more room and flexibility to gear up for economic adversity ahead. We shall continue to adopt a three-pronged strategy by containing expenditure, preserving the revenue base and making long-term planning to maintain our fiscal health.
We initiated a three-year plan as from last year to contain expenditure by encouraging policy bureaux and departments to achieve more efficient use of resources through re-engineering and re-prioritising. Our aim is to conduct a timely review of expenditure in various areas, thereby containing government expenditure growth, rather than reducing spending.
In 2016-17, the second year of implementing the plan, we shall save $2.7 billion in recurrent expenditure. In the same year, however, there will be an increase of $21.8 billion in government recurrent expenditure over last year's revised estimate, which is more than eight times the amount saved. This shows that our efforts to contain expenditure have by no means stifled the reasonable growth in expenditure. Furthermore, the resources saved have all been re-allocated to policy bureaux for enhancing existing services and launching new ones.
As announced in my Budget at the end of February, the revised estimate for the Government's surplus for 2015-16 is $30 billion. According to the latest figures, the actual government revenue and expenditure are lower than the corresponding revised estimates by about $7 billion and $1 billion respectively, and the Finance Committee (FC) of this Council approved after the announcement of the Budget the $10 billion provision for public-private partnership programmes for the Hospital Authority (HA). As a result, the latest estimated surplus for last year has been revised to about $14 billion. As that allocation to the HA has been charged to the 2015 16 account, the expenditure for 2016-17 will decrease and the surplus will increase accordingly.
Concluding Remarks
Mr President, nearly 2 200 amendments have been proposed by Members this year. The number has been reduced to 407 after the ruling of Mr President. Yet, discussions on individual items will take time, and voting alone will require over 10 hours. The Government will make every effort to support this Council in scrutinising the Budget for its early passage.
I note that some Members have requested the Government to submit some of the funding proposals included in the draft Estimates separately to the FC for consideration.
Over the years, many new funding proposals, including both recurrent and non-recurrent expenditure items, have been included into the draft Estimates for scrutiny by the Legislative Council (LegCo) in the context of the Budget in accordance with sections 5 and 6 of the Public Finance Ordinance. With an aim of improving the efficiency of deliberations, we have submitted some of the less controversial funding proposals for LegCo's scrutiny in the context of the Budget.
For key new funding proposals included in the draft Estimates, policy bureaux will set them out clearly under the respective heads and subheads of expenditure, provide appropriate descriptions in the controlling officer's reports, and consult relevant LegCo panels at a suitable juncture. Members may also request the bureaux to provide detailed information on these funding proposals at the special FC meetings.
The funds on account totalling $90.5 billion previously authorised by this Council are sufficient to meet the overall government expenditure up to the end of May. If we fail to secure the passage of the Budget by the end of May, government departments and the public sector will begin to see resources running out in early June, making it difficult to maintain the delivery of public services. Also, the practical and pressing initiatives for relieving people's hardship would not be implemented in a timely manner.
I earnestly seek Members' support for the early passage of the Appropriation Bill 2016 in the overall interests of the community so that these initiatives can be implemented as soon as possible.
I so submit, Mr President. Thank you.
Ends/Wednesday, April 20, 2016
Issued at HKT 16:18
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