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Budget Speech by the Financial Secretary (11)
Medium Range Forecast

177. The global economy has seen rather low and unbalanced growth in recent years.  External political and economic environment will be complex and volatile in the next few years.  For the medium term, the average growth rate is forecast to be three per cent per annum in real terms from 2018 to 2021, broadly comparable to the trend growth of 2.9 per cent over the past decade; and the underlying inflation rate is expected to average 2.5 per cent per annum.  The medium-term economic forecast is based on the assumption that there are no severe external shocks during the period, and has taken into account the impact on economic growth posed by an ageing population.  That said, as the external environment is laden with uncertainties, we must remain vigilant.

178. The Medium Range Forecast projects, mainly from a macro perspective, the Government's expenditure requirements from 2018-19 to 2021-22.  It is noteworthy that annual expenditure on infrastructure projects will soon exceed $100 billion, significantly higher than the annual average of about $40 billion as recorded by the previous-term Government.  In fact, this projection has not reflected the substantial commitment which the Government will have to make for a number of land development, highways and railway projects once they are ready for rollout.  Besides, over the medium term from 2018-19 to 2021-22, growth of recurrent government expenditure is estimated to range between 5.3 per cent and 9.8 per cent per annum, consistently higher than the average annual nominal economic growth of 4.5 per cent over the same period.  Sustainability is an issue which deserves our attention.

179. Regarding revenue, the land revenue estimate for 2017-18 makes reference to the Land Sale Programme and the land supply target of the year.  The medium range forecast on land revenue is based on the average proportion of land revenue to GDP over the past ten years, which is 3.3 per cent of GDP.  Compared with recent years, when land revenue was referenced to its average proportion to GDP in the past 30 years which is 2.8 per cent of GDP, we have taken a more aggressive assumption.  I also assume that the growth rate of revenue from profits tax and other taxes will be similar to the economic growth rate in the next few years.

180. Based on the above assumptions, I forecast an annual surplus in the Operating Account for the coming five financial years but an annual deficit would surface in the Capital Account as from 2018-19.  There will be a small deficit in the Consolidated Account in 2020-21 and 2021-22.  Fiscal reserves are estimated at $942.9 billion by end-March 2022, representing 30 per cent of GDP or equivalent to 18 months of government expenditure.

181. The above estimates have not taken into account tax rebate and relief measures proposed by the Government as in previous years.

182. Taking all these into account, the fiscal position will be broadly-balanced in the next five years.  However, pressure on government expenditure is considerably high in the face of an ageing population, a shrinking workforce, economic volatility and the Government's long-term commitments.  We ought to be prudent and vigilant about the long-term sustainability of public finances.

Concluding Remarks

183. Mr President, some people say that making money is a kind of skill, sustaining business is a branch of knowledge, and spending money is a matter of art.  As a government, it is our responsibility to take a forward-looking perspective and promote social and economic development; it is our duty to exercise fiscal prudence and save for the unpredictable future; and it is our moral obligation to relieve people's hardship and support the needy.

184. Many people may only focus on the expenditure and revenue parts of the Budget.  But to me, the Budget is not just a collection of cold and hard figures.  It also indicates the priorities set by the Government in resource allocation, reflecting the values we hold.

185. How to mobilise resources effectively to achieve the aims of building a fair, just, caring and inclusive society that embraces pluralistic values, and turning Hong Kong into a low-carbon, more liveable, smart, resilient and sustainable city is really a formidable challenge for us.  As I have just said, it is a vision that takes not only one or two Budgets, or even one or two terms of government, to accomplish.  It is indeed a journey that we should take on together, and a goal that needs to be achieved through the concerted efforts of our community.

186. What are our expectations of the Government nowadays?  What is our ideal way of life?  How can we attain a sense of well-being?  Many Hong Kong people, in particular the younger generation, would answer: Happiness in life is not about earning a living, but about having the freedom to pursue higher ends.  They want to have room and opportunities to realise their dreams while doing jobs that suit their interests.  They want to have a decent place to live in so that they can start their own family.  They want to preserve and conserve the nature and our cultural heritage, as well as enrich their lives by exploring arts and culture.  This reflects the pluralistic values of our society, the upholding of which deserves our joint efforts.

187. As in previous years, I will set aside financial resources to fully support the launch of various policy initiatives announced in the Policy Address.  Amid global political and economic uncertainties, we must invest for the future in a bid to enhance our overall competitiveness, apart from deploying resources to improve people's livelihood.  Through consolidating our pillar industries, as well as nurturing industries over which we have advantages and emerging industries, we could explore new areas of economic growth and create quality and diversified employment opportunities.  Only by so doing can Hong Kong, the Pearl of the Orient, continue to gleam and glitter.

188. Born and grown up in Hong Kong, I love this city as much as all of you do.  Over the past decades, Hong Kong encountered numerous difficulties and challenges that caused confusion and anxiety among our people.  Yet, time and again, we were able to weather the storm and see the sunshine on the other side.

189. I strongly believe that Hong Kong people have the courage, wisdom and ability to overcome all difficulties.  Together, we can rise to challenges ahead and scale new heights, while sustaining the legend of Hong Kong.

190. Thank you, Mr President.
Ends/Wednesday, February 22, 2017
Issued at HKT 12:58
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