Budget Speech by the Financial Secretary (9)
174. Women's contribution to family and social and economic development is enormous. The provision of more opportunities to help women achieve a sense of self-fulfilment and bring their potential to the fullest is essential to the development of our society. I will set aside $100 million to strengthen support for women's development and the related tasks, which include helping women take up different roles in the job market, providing them with training on child and elderly care, promoting work and family life balance as well as mental health, and organising sharing and learning activities.
Enhance Support for Pre-school Children with Special Needs
175. The Government has been committed to providing appropriate support for pre-school children with special needs. Currently, about 80 kindergartens and kindergarten-cum-child care centres provide on-site training through a pilot project for children awaiting assessment of their physical and intellectual abilities or assessed to have borderline developmental problems, as well as support for their parents and teachers (i.e. "Tier 1 Support Services"). Since the launch of the pilot project nearly three years ago, over 70 per cent of the children who have received Tier 1 Support Services have smoothly bridged over to mainstream primary schools for education. This shows that early intervention in their prime learning period not only contributes significantly to their rehabilitation and growth, but also benefits their families. In view of this, I will step up efforts to support these pre-school children by allocating additional resources to regularise Tier 1 Support Services and extend them to cover nearly 900 pre-primary institutions. Such services will also be integrated with on-site pre-school rehabilitation services, which support pre-school children with mild disabilities, to offer comprehensive and timely assistance to pre-school children with different levels of special needs through inter-disciplinary service teams under a school-based and integrated approach. The above measures will incur an annual recurrent expenditure of about $174 million.
Support Ageing in Place
176. The Government provides the elderly with various types of care and support services at the community level to help them age in place. In addition to the provision of services such as personal care, nursing care and rehabilitation exercises at day care centres and homes of the elderly, we will regularise the Pilot Scheme on Community Care Service Voucher for the Elderly in the third quarter of this year and increase the number of beneficiaries from the current 8 000 to 12 000 in 2025-26, involving an annual recurrent expenditure of about $900 million. The Government will also set up 16 new neighbourhood elderly centres in the next five years and expand the service scope of a total of over 200 district elderly community centres and neighbourhood elderly centres in the fourth quarter of this year to cover retirement planning and promotion of gerontechnology.
177. The Government is also concerned about the post-treatment care and rehabilitation needs of elderly persons. The Hospital Authority's Integrated Discharge Support Programme for Elderly Patients offers six to eight weeks of support services for discharged elderly patients with a higher risk, which include rehabilitation exercises, meal services, environmental risk assessments and recommendations on home modifications, in order to facilitate their recovery at home and reduce their re-admission risk. The Government will expand the programme starting from the third quarter of this year by increasing the number of beneficiaries from about 33 000 to 45 000 per annum, and the number of beneficiaries who can be referred to receive home support services will increase from about 9 000 to 11 000. This measure will involve an annual recurrent expenditure of about $74 million.
Enhance Support for Carers
178. Carers devote much time and energy to support elderly persons and persons with disabilities, so that they can continue to live in a familiar community. They deserve credit for building a caring and inclusive society. In recognition of their sacrifices and contributions, the Government will step up its efforts to cater for carers' various needs. On financial support, the Government will regularise two financial assistance schemes for carers from low-income families and raise the amount of monthly allowance starting from October this year, involving an annual expenditure of about $430 million. The Government will also set up a dedicated carer support hotline in the third quarter of this year, with professional social workers rendering emergency support, emotional counselling, and outreaching services.
Encourage Further Employment of Elderly Employees
179. With an ageing population and a declining birth rate, Hong Kong's workforce is expected to shrink. At present, there are about 1.5 million elderly persons aged 65 or above. Many of them are still capable of working beyond traditional retirement age and are willing to stay in employment. I propose to increase the tax deduction for the Mandatory Provident Fund (MPF) voluntary contributions made by employers for their employees aged 65 or above, from the current 100 per cent to 200 per cent in respect of such expenditure. This will encourage employers to continue to hire mature employees, while helping the silver-haired increase their retirement savings.
Encourage Provision of More Quality Private Residential Care Homes for the Elderly and Persons with Disabilities
180. As proposed in the 2022 Policy Address, more incentives should be provided to developers for the construction and operation of residential care homes for the elderly (RCHEs) in private development projects. Upon review, we have decided to, in addition to continue to exempt the gross floor area (GFA) of these private RCHEs from payment of premium, raise the GFA of RCHEs that can be exempted in each development project. Furthermore, we propose to exempt such GFA from the calculation of the maximum GFA of the relevant projects. It is hoped that these enhanced measures will increase the supply of quality private RCHEs. We will launch the enhanced measures in the second quarter of this year and will conduct a review after a three-year trial period. In addition, the DEVB and the LWB will formulate a similar scheme for residential care homes for persons with disabilities (RCHDs) so as to encourage the market to provide more quality private RCHDs.
Encourage Installation of Separate Water Meters for Subdivided Units
181. To encourage landlords' participation in the Scheme for Installation of Separate Water Meters for Subdivided Units launched by the Water Supplies Department, payment of the water fee deposit and the charge for providing a meter for each separate water meter installed under the scheme will be waived. Every such water meter account will have a separate water bill for paying water charge, and the first 12 cubic metres of water consumed for each four-month period will be free of charge.
Revised Estimates for 2022-23
182. Last year, Hong Kong's economy was plagued by the epidemic. Meanwhile, the sharp tightening of monetary policies by central banks across the globe has significantly weakened the external economic momentum with adverse impact on the local economy. Government revenue has fallen short of expectation, and the revenue from profits tax in this financial year will be lower than the initial estimate. The sluggish stock and property markets have led to lower-than-expected revenue from stamp duty. The weak property market also has a bearing on revenue from land premium. With the massive expenditure incurred by the 2022 Employment Support Scheme launched after the announcement of the last Budget and the anti-epidemic measures taken last year, the financial position of this financial year was worse than expected. Although we have reduced the expenditure on anti-epidemic measures in a timely manner having regard to the subsiding epidemic situation during the year, it is estimated that a deficit of about $140 billion will be recorded, higher than the original estimate of about $56 billion. Our fiscal reserves will fall to about $820 billion.
183. The 2022-23 revised estimate on government revenue is $603.8 billion, lower than the original estimate by 15.7 per cent or $112.1 billion. This is mainly because revenues from land premium and stamp duty are lower than their previous estimates.
184. Revenue from land premium is $71.1 billion, substantially lower than the original estimate by $48.9 billion, mainly due to the lower-than-expected transaction prices of some land lots and the cancellation of some land sales. Revenue from stamp duty of $67 billion is lower than the original estimate by $46 billion, and is also far lower than the previous year. This is mainly because of the sluggish property and stock markets and the decreased volume of transactions. Revenue from profits tax is $162 billion, which is lower than the original estimate by $5.7 billion, mainly due to an increase in the amount of holding over of provisional tax given the difficult economic environment last year. Revenue from salaries tax is $75.7 billion, which is $2.8 billion higher than the original estimate. This is mainly because of an increase in pay level.
185. Due to the huge expenditure involved in the implementation of massive counter-cyclical measures and anti-epidemic work, the revised estimate of total government expenditure for 2022-23 at $809.6 billion increased significantly by 16.8 per cent compared to the previous year. Its ratio to nominal GDP is projected to rise to 28.6 per cent, 0.3 per cent or $2.3 billion higher than the original estimate.
186. All in all, I forecast a consolidated deficit of $139.8 billion for 2022-23. Fiscal reserves are expected to be $817.3 billion by 31 March 2023.
187. The civil service establishment maintained a zero growth in this financial year. Departments have enhanced effectiveness and efficiency through reprioritisation, internal redeployment and streamlining of work processes, so that various new policies and initiatives of the Government can be taken forward with the civil service establishment maintaining at the present level.
Estimates for 2023-24
188. Despite enduring the epidemic for over three years, our society remains fairly stable and our public finances are robust. However, we have seen two years of heavy fiscal deficits, while the external environment is still rife with challenges. We will continue to adhere to the principles of exercising fiscal prudence, keeping expenditure within the limits of revenue, committing resources as and when justified and needed, strictly containing the growth of government expenditure and exploring various ways to increase revenue. In addition, we will consider utilising appropriate financial instruments (such as issuance of bonds) to better manage cash flow, and launch several major infrastructure and works projects as scheduled to benefit the public as early as possible.
189. The major policy initiatives announced in the 2022 Policy Address involve operating expenditure of about $27.8 billion and capital expenditure of $29.1 billion. I will ensure that adequate resources are provided to fully support the launch of these initiatives.
190. In 2023-24, the recurrent expenditure will slightly increase by 3.3 per cent to $560.2 billion. Of this, substantial resources have still been allocated to livelihood-related policy areas including healthcare, social welfare and education, involving a total amount of $329.4 billion, representing 59 per cent of the recurrent expenditure. Non-recurrent expenditure will substantially decrease by 53 per cent to $69.3 billion.
191. Total government expenditure for 2023-24 will decrease by 6 per cent to $761.0 billion, with its ratio to nominal GDP projected to drop to 25 per cent.
192. We will continue to strictly control the growth of the civil service establishment. The Government's target of zero growth in the civil service establishment will remain unchanged in 2023-24. It is expected that as at end-March 2024, the civil service establishment will remain at about 197 000 posts.
193. In the face of pressure on public finances, we have to reduce expenditure and, more importantly, increase government revenue. The key direction for increasing government revenue is "growing the pie" with a view to driving up revenue through economic growth. Enterprises and individuals faced huge pressure during the economic downturn in the past few years. While we are steadily returning to normalcy, it will take some time for us to recuperate and consolidate our foundation. Therefore, we should strive to minimise the scope of impact brought by any upward adjustment of taxes as far as possible.
194. Profits tax and salaries tax are our major sources of revenue. In previous Budgets, it was mentioned that revisions to these tax rates would be put on hold having regard to the epidemic and prevailing economic situation. Our community has now entered the post-pandemic stage, with travelling between Hong Kong and the Mainland and the rest of the world resuming in recent months and the atmosphere in society turning optimistic. However, given that external economic conditions are still slackened, volatile and ever-changing, the momentum of Hong Kong's economic recovery still requires consolidation.
195. Besides, when reviewing whether adjustments or changes should be made to various government taxes, we have to consider whether such adjustments or changes are in line with other government policy objectives and social values, as well as take into account our competition with neighbouring regions. Hence, I propose that profits tax and salaries tax rates should remain unchanged this year. This will help Hong Kong maintain our long-standing advantages with regard to our tax regime, and will complement with the Government's overall policy direction of attracting enterprises and talents. As regards other proposals on the imposition of new taxes, we must first clearly consider the policy objectives of imposing such new taxes and allow thorough discussions in society before weighing the pros and cons of the proposals and making any decision on them.
196. Nevertheless, in the face of fiscal pressure, we must seek ways to increase government revenue in the short term. I propose to impose an annual special football betting duty of $2.4 billion on the Hong Kong Jockey Club (HKJC) under the Betting Duty Ordinance for five years starting from 2023-24, while the current betting duty rates remain unchanged. In formulating this arrangement, we have given due consideration to the intense external competition facing by the local betting business. The HKJC has also undertaken that the proposal would not reduce its commitment to local charities.
197. Moreover, in last year's Budget, I announced the introduction of a progressive rating system for domestic properties in 2024-25. Other than reflecting the "affordable users pay" principle, the new system will increase government revenue by about $760 million annually.
198. Taking into account the above new sources of revenue, total government revenue for 2023-24 is estimated to be $642.4 billion. Of this, earnings and profits tax are estimated to be $263.7 billion, increasing by 6.4 per cent over the revised estimate for 2022-23. Having regard to the Land Sale Programme and the land supply target of 2023-24, revenue from land premium is estimated to be $85 billion, increasing by about 20 per cent over the revised estimate for 2022-23. Revenue from stamp duty is estimated to be $85 billion, increasing by 27 per cent over the revised estimate for 2022-23.
199. Taking into account the proceeds from issuance of government bonds of about $65 billion in 2023-24, I forecast a deficit of $54.4 billion for 2023-24. Fiscal reserves will also decrease to $762.9 billion, equivalent to 12 months of government expenditure.
Other Taxation Issues
New International Tax Standards
200. In October 2021, the Organisation for Economic Co-operation and Development announced the international tax reform proposals to address base erosion and profit shifting (abbreviated as BEPS 2.0). A global minimum effective tax rate of 15 per cent will be introduced on large multinational enterprise (MNE) groups with global turnover of at least 750 million euros. Hong Kong will implement the global minimum effective tax rate in accordance with international consensus so as to safeguard our taxing rights and maintain the competitiveness of our tax regime. The Government has been closely liaising with the trade in this regard while closely monitoring the implementation plan of other jurisdictions. Hong Kong plans to apply the global minimum effective tax rate on these large MNE groups and implement the domestic minimum top-up tax starting from 2025 onwards. It is estimated that this will bring in tax revenue of about $15 billion per year for the Government. We will launch a consultation exercise to allow MNE groups to make early preparation.
Disposal of Equity Interests
201. We will strive to maintain our simple and low tax regime, the core competitiveness of Hong Kong, with a view to attracting more enterprises and talent to do business or pursue careers in Hong Kong. In this regard, the Government will put forward an enhancement proposal in mid-March to provide clearer guidelines on whether onshore gains on disposal of equity interests are subject to tax. The initiative will not only facilitate business expansion and restructuring through disposal of equity interests, but also enhance tax transparency, lower the compliance cost of businesses, increase the competitiveness of Hong Kong's tax regime, and enhance the attractiveness of Hong Kong as an international investment and business hub.
(To be continued.)
Ends/Wednesday, February 22, 2023
Issued at HKT 13:04
Issued at HKT 13:04
Budget Speech by the Financial Secretary (1) (with photos/video) Budget Speech by the Financial Secretary (2) Budget Speech by the Financial Secretary (3) Budget Speech by the Financial Secretary (4) Budget Speech by the Financial Secretary (5) Budget Speech by the Financial Secretary (6) Budget Speech by the Financial Secretary (7) Budget Speech by the Financial Secretary (8) Budget Speech by the Financial Secretary (10)