Issued by Hong Kong Special Administrative Region Government Information Services
Garden Road, 5th-8th Floors, Murray Building, Hong Kong. Tel: 2842 8777
Wednesday, February 18, 1998
CONTENTS
========
1. CE on Budget Speech
2. Grant from Disaster Relief Fund
3. Update on avian flu
4. Anti-piracy raid by Customs
1. CE on Budget Speech
*******************
The Chief Executive, Mr Tung Chee Hwa, made the
following statement on the Budget Speech delivered by the
Financial Secretary today (Wednesday):
"While upholding the principles of a prudent fiscal
policy, the SAR Government has proposed in the Budget a
package of tax reductions. These measures are aimed at
giving relief, to varying extents, to members of the
public and businesses, as well as renewing Hong Kong's
strengths. I believe they will receive support from all
sectors.
"In the coming year, we will continue to make huge
investments in infrastructural development, education and
other areas to put in place the programmes announced in my
Policy Address last year. These programmes will sharpen
Hong Kong's competitiveness and sustain our economic
growth.
"I believe the first Budget of the HKSAR will give
relief to the public and lay a solid foundation for the
development of our economy."
End
2. Grant from Disaster Relief Fund
*******************************
The Disaster Relief Fund Advisory Committee has
approved a grant of $2.5 million to Medecins Sans
Frontieres Hong Kong for emergency relief to the people in
North Korea.
The Committee is concerned about the continuing
hardship brought about by floods and droughts in North
Korea over the past few years and hopes that the grant
could help to provide some immediate relief.
Since its establishment in 1994, the Committee has
altogether approved $13 million for relief programmes in
North Korea. These include, a grant of $3.2 million to
World Vision Hong Kong, a grant of $3 million to Oxfam
Hong Kong, a grant of $1.1 million to Cedar Fund Limited,
in September 1997; a grant of $1.5 million to Hong Kong
Red Cross in 1996 and a grant of $1.7 million to Medecins
Sans Frontieres Hong Kong in 1995.
To ensure that the money will be used for the purpose
designated, the Government has asked Medecins Sans
Frontieres Hong Kong to submit an evaluation report and an
audited account on the use of the grant after the project
has been completed.
The Committee is chaired by the Chief Secretary for
Administration. The members are Dr the Hon Raymond
Ch'ien, the Hon Yang Ti-liang, the Hon Mrs Elsie Tu, the
Hon Ngan Kam-chuen, Mr Norman Leung, Ms Sansan Ching, the
Secretary for Health and Welfare and the Secretary for the
Treasury.
End
3. Update on avian flu
*******************
The Department of Health (DH) announced today
(Wednesday) that there were no new cases of influenza A
(H5N1) today.
The total number of cases stands at 18 confirmed
cases.
The conditions of these cases remain the same as of
February 10.
End
4. Anti-piracy raid by Customs
***************************
Customs officers seized more than 23,000 pirated
compact discs worth about $800,000 and arrested five men
in an anti-piracy raid yesterday (Tuesday).
During the operation code-named "Terminator 34", the
officers raided more than 10 shops at a shopping arcade at
83 Argyle Street, Mong Kok, at about 4 pm. As a result,
260 CD-ROMs, 6,965 music CDs, 15,615 video CDs and 448
obscene video CDs, all of suspected infringing nature,
were seized.
The five suspects, aged between 23 and 50, were
released on bail ranging from $5,000 to $20,000, pending
further enquiries.
End
PROVISIONAL LEGISLATIVE COUNCIL MEETING SUPPLEMENT
CONTENTS
========
1. Most Courteous Immigration Control Officer Election
2. Work of Central Health Education Unit explained
3. Additional aided child care centre places to be provided
4. More random checks on CSSA recipients
5. Requests for termination of HOS purchase agreements
6. Hoisting of national flag at PRC sports grounds
7. Security facilities in public housing estates
8. One Way Permit
9. School Building Programme implemented as scheduled
10. Assistance provided to low income rural families
11. Cross-boundary traffic
12. Services planning for elderly people in rural areas
13. Supply of new coins will continue
14. Regular update on welfare policies and programme targets
1. Most Courteous Immigration Control Officer Election
***************************************************
Following is a question by the Hon Choy Kan-pui and a
written reply by the Secretary for Security, Mr Peter Lai,
in the Provisional Legislative Council today (Wednesday):
Question:
It is learnt that the Immigration Department
organised an event known as "The Most Courteous
Immigration Control Officer Election" several months ago.
In this connection, will the Government inform this
Council:
(a) of the details of the event, including:
(i) the election period;
(ii) the coverage: whether all immigration
control points were involved;
(iii) reasons for holding the election: whether
the election is related to complaints lodged by incoming
and departing travellers against immigration control
officers;
(iv) the total number of election forms given
out;
(v) the total number of valid election forms
returned; the immigration control points which received
the highest and the lowest number of election forms and
the numbers thereof;
(vi) the respective numbers of local and
overseas travellers who cast their votes; and
(b) whether the Administration has conducted a
review on the effectiveness of the event; if so, what the
results are?
Reply:
Madam President,
(a) (i) The "Most Courteous Immigration Control
Officer Election" campaign is an annual event which was
introduced in 1996 and last held between November 24 and
30, 1997.
(ii) The campaign took place at all the eight
immigration control points, except the Harbour Control
Section which mainly deals with the clearance of vessels.
(iii) The objectives of the campaign are to
enhance customer relations, promote Immigration Service
members' awareness of the importance of courteous service
to the public and help promote tourism. It was not
prompted by complaints lodged by travellers against
immigration control officers.
(iv) As the election forms were placed on the
counters for travellers to obtain freely, there is no
accurate figure on the number of forms distributed.
(v) A total of 3,854 valid election forms were
collected. The Lo Wu control point received the highest
number which was 1,349. The number for the Hung Hom
Station Office was 121 which was the smallest.
(vi) Voters were not required to indicate on
the election forms whether they were Hong Kong residents
or foreign visitors. There is therefore no breakdown of
the statistics regarding voters' immigration status.
(b) The Immigration Department has conducted a
review on the campaign. It is satisfied that the campaign
was a success and that it achieved the objectives by
reiterating to the staff and the public that the
Department is committed to serve the community
courteously. It is noted that following the introduction
of the campaign, the number of complaints against
immigration control officers had dropped from 153 in 1995
to 108 in 1996, and 96 in 1997. The number of
appreciation letters relating to control points received
by the Department had risen from 27 in 1995 to 35 in 1996,
and 41 in 1997. The campaign is supported by staff
members and will be continued.
End
2. Work of Central Health Education Unit explained
***********************************************
Following is a question by the Hon Hui Yin-fat and a
written reply by the Secretary for Health and Welfare,
Mrs Katherine Fok, in the Provisional Legislative Council
today (Wednesday):
Question:
The Report of the Working Party on Primary Health
Care (the Report) published by the Government in 1990 put
forward recommendations on the steps to take by the
Central Health Education Unit (CHEU) in promoting health
education (such as the training of staff) and the
membership and objectives of the Health Education Co-
ordinating Committee. In this connection, will the
Government inform this Council whether:
(a) the CHEU has been re-organised as a specialist
service and its establishment;
(b) an audio-visual production team has been
established in the CHEU; if so, of the establishment of
the team;
(c) the CHEU has organised training programmes on
health education for those undertaking work related to
health education (such as school teachers, social workers
and volunteers) over the past five years; if so, of the
respective themes, objectives and numbers of participants
of these programmes; and
(d) the existing Health Education Co-ordinating
Committee has already strengthened its membership in
accordance with the recommendation contained in the
Report; and what the current working objectives of the
Committee are?
Reply:
Madam President,
(a) The Central Health Education Unit (CHEU) is now
headed by a Senior Medical and Health Officer who
regularly discusses with an Assistant Director to draw up
the health education/promotion programme. Under the Unit,
there are altogether 53 staff working in four regional
health education centres, they include doctors, nurses,
various grades of clerical and supporting staff. The Unit
provides the following services: -
(i) to provide professional advice on health
education to Government departments and other
organisations which are interested in carrying out health
education activities;
(ii) to coordinate and develop different health
promotion activities through intersectoral collaboration
and community participation; and
(iii) to serve as a resource centre on health
education materials, such as to produce teaching materials
and handouts for health education purpose.
(b) The idea of setting up a dedicated audio-visual
production team in the CHEU was not considered feasible in
terms of cost effectiveness. At present, the CHEU is
responsible for some small to medium-scale audio-visual
productions. Sophisticated audio-visual productions are
being contracted out to professional production companies.
(c) Since 1983, the CHEU has organised a series of
train-the-trainer programmes which initially included
students and subsequently extended to primary and
secondary school teachers. The Health Ambassador
Programme was implemented in mid-1994, for the purpose of
establishing a network of people from various community
groups who are interested in health promotion so that they
can be involved in community health education and
promotion after being trained as Health Ambassadors. The
programme involved two target groups, namely students and
women, at the initial stage. It was extended to include
school teachers and the elderly in 1996.
Over 3,000 people have participated in the Health
Ambassador Programme, including 2,058 Student Health
Ambassador, 688 Woman Health Ambassadors, 230 School
Health Ambassadors and 223 Senior Health Ambassadors.
(d) The CHEU was under the guidance of the Health
Education Coordinating Committee (HECC) when it was first
established. In 1992, a standing committee, the Health
Education Subcommittee (HES) was formed by the Health and
Medical Development Advisory Committee (HMDAC) to replace
the HECC. This Sub-committee served similar functions as
those of HECC in providing guidance on health education
policy matters and facilitating co-ordination in health
education activities. The HMDAC then conducted a review
of the structure and work of HES, and decided to dissolve
it in late 1994. Since then, the CHEU of the Department
of Health continues to co-ordinate health education
activities in various sectors. The Department of Health
also makes reference to the advice of health care
professions and takes into account the demand of the
public in the formulation of the health education
directions and activities.
End
3. Additional aided child care centre places to be provided
********************************************************
Following is a question by the Hon Chan Choi-hi and a
written reply by the Secretary for Health and Welfare,
Mrs Katherine Fok, in the Provisional Legislative Council
today (Wednesday):
Question:
Will the Government inform this Council:
(a) of the types of child care services (including
day nursery and occasional care) and the respective
numbers of places provided by the Social Welfare
Department at present;
(b) whether special arrangements have been made to
provide newly-arrived families with such services; if so,
of the details of such arrangements;
(c) whether it will allocate additional resources to
the Social Welfare Department of the expansion of child
care services; and
(d) of the measures in place to monitor and the
plans to improve the quality of child care services?
Reply:
Madam President,
(a) The child care services provided by the Social
Welfare Department (SWD) include day nurseries, which
offer education and care to children aged between two and
six, and day care centres, which look after the
developmental needs of children below the age of two. As
at January 1998, there were 225 aided day nurseries
providing approximately 26,000 places and 22 aided day
care centres providing about 1,500 places. In addition,
the private sector provides a further 14,500 places. Some
of the child care centres also offer occasional child care
services. These provide short-term day care for children
whose carers are unable to take care of them temporarily.
These are available in full-day, half-day or two-hour
sessions. As at January 1998, 220 aided child care
centres provide about 700 occasional child care places.
(b) New arrival families, as with other Hong Kong
residents, have equal access to the full range of welfare
services, including child care services, provided by the
Government and non-governmental organisations. We take
into account increases in demand for welfare services, in
line with population growth, in the overall planning and
development of welfare services. As regards the planning
of child care service, in addition to applying the
population-based planning ratio, we also take account of
the characteristics and service needs of individual
districts.
(c) We continue to increase the number of places to
meet the demand for child care services in the community.
In 1998/99, we will provide around 3,000 additional aided
child care centre places.
(d) All child care centres in Hong Kong are subject
to statutory control under the Child Care Services
Ordinance. This requires registration, control and
inspection by the Child Care Centres Advisory Inspectorate
(CCCAI) of SWD. Inspectors visit child care centres
regularly to ensure that their operation and service
standards are in compliance with the statutory
requirements, and proper care is given to the children in
these centres.
To enhance communication among child care centres and
to promote higher service standards, SWD has established
district co-ordinating committees on child care services.
Membership of these committees comprises representatives
from the Social Welfare Department and supervisors of the
child care centres.
We also accord priority to improving the training of
child care workers. The minimum academic qualification
for trainee child care workers was raised in September
1995. And to enable individual child care centres to meet
the statutory requirement that not more than one-third of
their staff are trainee child care workers, we have
developed in-service basic child care work training
programmes. To date, over 90% of child care staff have
completed the required training. Management training
programmes for centre supervisors are also arranged, on a
regular basis, by SWD.
End
4. More random checks on CSSA recipients
*************************************
Following is a question by the Hon Chan Yuen-han and
a written reply by the Secretary for Health and Welfare,
Mrs Katherine Fok, in the Provisional Legislative Council
today (Wednesday):
Question:
Will the Government inform this Council:
(a) of the number of Comprehensive Social Security
Assistance recipient families visited by Social Welfare
Department (SWD) staff in each month during the period
from 1995 to 1997 and among these families, the respective
proportions of those which were unemployed or low-income
households;
(b) whether SWD staff detected any signs of mental
disturbance or suicidal tendency in the members of these
families during home visits; if so, what the numbers of
such family members were; whether the causes of such
situation were known; and how SWD followed up such cases;
and
(c) of the SWD's target number of home visits for
these families each year; and whether there is any plan to
increase the number of such home visits?
Reply:
Madam President,
(a) SWD started to keep statistics on the number of
home visits to CSSA recipients from November 1996.
According to the records from January 1997 to December
1997, the average number of home visits paid is 8,500 per
month. However, there is no breakdown of the number of
home visits paid to different categories of CSSA
recipients.
(b) The main purpose of home visits is to verify the
information provided by the applicants and to ascertain
whether there are any changes in the recipients'
circumstances upon case review. According to our records,
there was no report from staff that they came across CSSA
recipients who showed signs of mental disturbance or
suicidal tendency during home visits. If Social Security
Field Unit (SSFU) staff found that during home visits,
CSSA recipients are in need of welfare services other than
financial assistance, they will, with the consent of the
recipients concerned, make referrals to the Family
Services Centre of SWD or other welfare agency for follow-
up.
(c) SWD aims to pay a home visit to every CSSA
applicant and every recipient upon case review. Owing to
the rapid increase in CSSA caseload, some work easement
measures which are intended to alleviate the work pressure
on the frontline staff, including suspension of home
visits to most of the CSSA elderly cases, have been
introduced since August 1, 1997. When SWD has created
more than 100 additional posts in SSFUs in 1998/99, it
plans to conduct more random checks through home visits on
selected CSSA cases such as the unemployed, single-parent
and low earning CSSA families.
End
5. Requests for termination of HOS purchase agreements
***************************************************
Following is a question by the Hon Tam Yiu-chung and
a written reply by the Secretary for Housing, Mr Dominic
Wong, in the Provisional Legislative Council today
(Wednesday):
Question:
Does the Government know:
(a) the number of public housing tenants who have,
after signing agreements for the purchase of Home
Ownership Scheme (HOS) flats, made requests to the Housing
Authority (HA) for termination of the purchase agreements,
refund of the deposits and retention of the status of
public housing tenants, over the past three months; and
(b) whether, in view of the current economic
downturn in the territory, the HA will consider these
requests on a discretionary basis?
Reply:
Madam President,
Over the past three months, the Housing Authority
received 390 applications from public housing tenants to
rescind purchase of flats under the Home Ownership Scheme
(HOS) and the Private Sector Participation Scheme (PSPS).
According to the conditions set out in the standard
HOS and PSPS Agreement for Sale and Purchase, the Housing
Authority may retain five per cent of the purchase price
if a buyer rescinds his purchase. However, the Housing
Authority has discretion to waive forfeiture of deposits
on compassionate grounds (such as death of the main income
earner).
Public rental tenants who have signed agreements to
purchase HOS or PSPS flats are allowed to retain their
rental tenancies should they choose to rescind their
purchases before assignment.
End
6. Hoisting of national flag at PRC sports grounds
***********************************************
Following is a question by the Hon Yeung Yiu-chung
and a written reply by the Chief Secretary for
Administration, Mrs Anson Chan, in the Provisional
Legislative Council today (Wednesday).
Question:
It is learnt that in renting a sports ground under
the Provisional Regional Council (PRC) for the purpose of
organising activities, a secondary school was told that
prior approval from the Director of Administration had to
be sought if it wished to hoist the national flag at the
venue. In this connection, will the Government inform
this Council:
(a) why schools are required to seek prior approval
for hoisting the national flag at the rented PRC sports
grounds; whether it will request the PRC to consider
reviewing and revising such a requirement; and
(b) whether it knows the total number of
applications for hoisting the national flag in the sports
grounds of the PRC and the Provisional Urban Council since
July 1, 1997, the number of applications approved and the
details of such cases?
Reply:
Madam President,
(a) According to the Administrative Guidelines for
the Display of the National and Regional Flags and the
National and Regional Emblems issued by the Administration
Wing of the Chief Secretary for Administration's Office on
July 3,1997, other than those locations and occasions
where it is required to display the national flag as
specified in the Guidelines, prior approval of the
Director of Administration should be sought for flying or
displaying the national flag at any Government buildings
and offices. Such a requirement is to ensure that the
national flag is displayed only at appropriate locations
and on dignified occasions.
Consideration is being given to introducing
administrative measures to streamline the procedures of
processing applications for displaying the national flag
at certain locations and on certain occasions (e.g.
schools organising athletic meets at Government venues).
(b) Since July 1, 1997, the Administration Wing has
received one application through the Provisional Regional
Council (PRC) from a secondary school for flying the
national flag at the opening and closing ceremonies of the
school's athletic meet at a sports ground under the PRC.
Approval was granted by the Director of Administration on
the day the application was received. So far, the
Administration Wing has not received any applications from
the Provisional Urban Council.
End
7. Security facilities in public housing estates
*********************************************
Following is a question by the Hon Tang Siu-tong and
a written reply by the Secretary for Housing, Mr Dominic
Wong, in the Provisional Legislative Council today
(Wednesday):
Question:
Will the Government inform this Council whether:
(a) escape doors equipped with alarm systems have
been installed for emergency exits in all the housing
blocks of the public housing estates in Hong Kong; if not,
(i) which housing blocks have still not been
equipped with such facilities;
(ii) does the Administration have any plans to
install such facilities for those housing blocks; if so,
what the details are; and
(b) there are any escape doors leading to the roofs
in any housing blocks being locked up habitually; if so,
how the authorities deal with this situation?
Reply:
Madam President,
There are security facilities in all the blocks in
public housing estates managed by the Housing Authority,
except for rental blocks due to be redeveloped in the next
few years.
About 300 blocks are provided with "System A"
security facilities which include, inter alia, security
doors fitted with alarms at the emergency exits.
The remaining 700 rental blocks are provided with
"System B" security facilities, which do not include
security doors fitted with alarms at the emergency exits.
The Housing Authority is considering to upgrade the
security facilities of these blocks from System B to
System A.
Access to roofs of public housing blocks is normally
not restricted. In those cases where there is no access
to the roof top, other means of emergency escape are
provided.
End
8. One Way Permit
**************
Following is a question by the Hon Hui Yin-fat and a
written reply by the Secretary for Security, Mr Peter Lai,
in the Provisional Legislative Council today (Wednesday):
Question:
The Director of Immigration indicated that the
Administration would, in conjunction with the Mainland
authorities, review at an appropriate time the existing
daily quota of 150 One-Way Permits (OWPs) set in 1995. It
is learnt that, within the overall daily quota of 150,
there has already been an increase since January 1, 1998
in the sub-quota for children of Hong Kong permanent
residents who have the right of abode in Hong Kong under
Article 24(2)(3) of the Basic Law. In this connection,
will the Government inform this Council:
(a) of the present daily sub-quota and the waiting
time for coming to Hong Kong in respect of the following
categories of OWP applicants respectively:
(i) the aforesaid children of Hong Kong permanent
residents, at or below the age of 20;
(ii) the aforesaid children of Hong Kong permanent
residents, above the age of 20;
(iii) reunion of spouses;
(iv) dependant children coming to join relatives in
Hong Kong;
(v) persons coming to Hong Kong to take care of
their dependant parents;
(vi) dependant elderly people coming to join
relatives in Hong Kong; and
(vii) inheritance of property;
(b) of the implications on other categories of OWP
applicants brought about by the increase in the daily sub-
quota for the aforesaid children of Hong Kong permanent
residents;
(c) of the date of implementing its plan to review
the present daily OWP quota in conjunction with the
Mainland authorities;
(d) whether it has plans to discuss with the
Mainland authorities the question of assigning a separate
OWP quota for the aforesaid children of Hong Kong
permanent residents; if not, why not; and
(e) whether it will consider negotiating with the
Mainland authorities for shifting the authority for
approving OWPs from the Mainland authorities to the
Immigration Department of Hong Kong; if not, why not?
Reply:
Madam President,
(a) (i) - (vii)
We understand that the current distribution of the
150 daily quota of the One-way Permit (OWP) system is as
follows:
(1) a specified daily sub-quota of 60 for children
of all ages who are eligible for the right of abode (ROA)
in Hong Kong under Article 24(2)(3) of the Basic Law (BL);
(2) another specified daily sub-quota of 30 for
long-separated spouses (who had been separated from their
spouses in Hong Kong for over 10 years); and
(3) an unspecified daily sub-quota of 60 for others,
80% of which (i.e. 48 per day) are granted on the grounds
of reunion of spouses (these spouses can bring along with
them a child under the age of 14). The remaining 20% of
the 60 unspecified sub-quota (i.e. 12 per day) are
allocated to other categories as described in the Points
System introduced in May 1997. They include dependent
children coming to Hong Kong to join their relatives;
persons coming to Hong Kong to take care of their
dependent parents; dependent elderly people coming to Hong
Kong to join their relatives; and those who enter Hong
Kong for inheritance of property. There is no further
breakdown on the sub-quota allocated to each of these
other categories.
As regards the waiting time for admission into Hong
Kong in respect of various types of OWP applicants, the
Administration is working on ways to collect accurate
information on the subject.
(b) The increase of the specified sub-quota for
eligible children from 45 to 60 per day within the overall
150 OWP daily quota ceiling as from 1 January 1998 means a
corresponding reduction in the unspecified sub-quota
available to other categories.
(c) A review will be carried out in the second half
of 1998 to take stock of the progress of admission of
eligible children and of other categories.
(d) There is no plan to ask the Mainland authorities
to make available a separate type of OWPs to eligible
children. This decision has been made taking into account
our capacity to provide quality education, social services
and infrastructure facilities to the community.
(e) OWPs are issued to Mainland residents under the
relevant law of the Mainland to exit the Mainland. It is
not appropriate to shift the authority for OWP approvals
from the Mainland authorities to the Immigration
Department of the Hong Kong Special Administrative Region
(HKSAR). The current involvement of the HKSAR Government
in the OWP system in general includes discussion and
agreeing with the Mainland authorities on the quota and
sub-quota, and playing a role in assessing the eligibility
of those who claim to have the right of abode under
Article 24(2)(3) of the Basic Law. This arrangement is
consistent with Article 22 of the Basic Law, and has
brought about a number of improvements to the OWP system,
such as the introduction of the Points System in May 1997.
End
9. School Building Programme implemented as scheduled
**************************************************
Following is a question by the Hon Ho Chung-tai and a
written reply by the Secretary for Education and Manpower,
Mr Joseph W P Wong, in the Provisional Legislative Council
today (Wednesday):
Question:
It is reported that, owing to the sluggish property
market and the reduction in Government expenditure, the
Education Department has withheld the implementation of
two policies, namely co-operating with estate developers
to build school premises and revising the mode of funding
for school maintenance projects. In this connection, will
the Government inform this Council of the school building
projects and schools affected as a result; and when the
Education Department will implement these two policies?
Reply:
Madam President:
The proposals of jointly developing new schools with
private developers and of revising the funding arrangement
for maintenance of school premises are at a preliminary
stage of consideration. Details are subject to further
study. In the meantime, the School Building Programme and
maintenance of Government and aided schools are proceeding
in accordance with established procedures and as scheduled
without interruption.
End
10. Assistance provided to low income rural families
************************************************
Following is a question by the Hon Lee Kai-ming and a
written reply by the Secretary for Health and Welfare,
Mrs Katherine Fok, in the Provisional Legislative Council
today (Wednesday):
Question:
It is reported that over 40% of the rural families in
Hong Kong are on average earning less than $10,000 per
month. In this connection, will the Government inform
this Council whether:
(a) it knows the number of such families, and among
these, the number of families which are receiving CSSA;
and
(b) whether it has formulated plans and considered
allocating additional resources to help these rural
families; if so, what the details are; if not, why not?
Reply:
Madam President,
(a) According to the July-September 1997 round of
the General Household Survey, about 32,000 domestic
households living in the New Territories excluding New
Towns had monthly household income less than $10,000. We
do not have the number of such families who are on CSSA as
we do not classify CSSA families as "rural" or otherwise
in our administrative record.
(b) Low income rural families, like other families
in need, may apply for services/assistance provided by
government and subvented non-government organisations.
Those in need of financial assistance may, subject to
eligibility, apply for assistance under the CSSA scheme.
In addition, there is a whole range of social
services that are, subject to eligibility, accessible to
all in Hong Kong. These include subsidized education,
public housing, medical and health care, and welfare
services all of which help to improve the living standard
of the low income households.
Specifically to improve the living environment of the
rural parts of the New Territories, the Home Affairs
Department carries out projects under the Rural Planning
and Improvement Strategy (RPIS) and Local Public Works
(LPW) programme. The total expenditure under these two
programmes in 1997/98 and 1998/99 is estimated at $365
million and $453 million respectively.
The Regional Services Department (RSD) also provides
a wide range of environmental health facilities (e.g.
public toilets, refuse collection points) and leisure
services facilities (e.g. sports grounds, sitting-out
areas and recreation and sports facilities) in the New
Territories to serve our rural population. In 1997/98 and
1998/99, the expenditure on the environmental health
facilities is estimated at $59 million and $71 million
respectively. In addition, RSD will spend $415 million
and $423 million on planned leisure services projects in
1997/98 and 1998/99 respectively.
End
11. Cross-boundary traffic
**********************
Following is a question by the Hon Ngan Kam-chuen
and a written reply by the Secretary for Transport,
Mr Nicholas Ng, in the Provisional Legislative Council
today (Wednesday):
Question:
In view of the busy traffic commuting between Hong
Kong and the Mainland, will the Government inform this
Council:
(a) whether it knows the number of Hong Kong drivers
holding driving licences issued by the Mainland
authorities and the number of Mainland drivers holding
driving licences issued by the Hong Kong authorities;
(b) of the types and the respective numbers of Hong
Kong vehicles which are allowed to enter the Mainland; and
(c) of the types and the respective numbers of
Mainland vehicles which are allowed to enter Hong Kong?
Reply:
Madam President,
(a) Hong Kong drivers who have obtained Mainland
driving licences or indeed any driving licences outside
Hong Kong are not required to report it to the Government.
We therefore do not have statistics on the number of Hong
Kong drivers holding driving licences issued by Mainland
authorities.
Likewise when an applicant applies for a Hong Kong
driving licence, we do not require him to provide
information on his domicile origin. We therefore do not
have record of the number of drivers of Mainland origin
holding Hong Kong driving licences. In any case there is
no legal definition of "Mainland drivers".
Nevertheless, we are able to provide statistics on
the number of Hong Kong driving licences issued to holders
of overseas driving licences in accordance with Regulation
11 of the Road Traffic (Driving Licences) Regulations. In
the past ten years, Transport Department issued 18,848
Hong Kong driving licences to holders of Mainland driving
licences under this Regulation. However as explained in
the previous paragraph, we are not able to distinguish
whether these drivers are Hong Kong residents or are
currently living in the Mainland.
(b) As at the end of 1997, the types and numbers of
Hong Kong vehicles having permission to enter the Mainland
are -
Types Vehicles
----- --------
Goods vehicles 22,160
Private cars 4,200
Buses 590
Hire cars 110
(c) As at the end of 1997, the types and numbers of
Mainland vehicles having permission to enter Hong Kong
are -
Types Vehicles
----- --------
Chinese official vehicles
(except PLA vehicles) 630
Goods vehicles 610
Buses 60
End
12. Services planning for elderly people in rural areas
***************************************************
Following is a question by the Hon Lee Kai-ming and a
written reply by the Secretary for Health and Welfare,
Mrs Katherine Fok, in the Provisional Legislative Council
today (Wednesday):
Question:
It is reported that while the aging of the population
in the rural areas of Hong Kong has become serious,
recreational facilities and other services in the areas
have not been geared to the changing needs of the
population. In this connection, will the Government
inform this Council:
(a) of the size of the population aged 65 or above
in rural areas, and its percentage of the total rural
population in Hong Kong; and
(b) whether it has any specific plans to strengthen
the services and improve the recreational facilities and
other services for the elderly in these areas; if so, what
the details are; if not, why not?
Reply:
Madam President,
(a) According to the July-September 1997 round of
the General Household Survey, there are about 311,000
people living in areas in the New Territories excluding
New Towns. Among them, about 40,000 (13%) are aged 65 or
above.
(b) To meet the elderly people's recreational and
other welfare needs, various government departments
provide a wide range of services to the elderly in various
districts throughout the territory. For instance, the
Provisional Regional Council (ProRC) provides a wide range
of facilities and services to cater for the needs of
residents in the New Territories, including elderly people
living in more remote areas. To enhance the services to
the elderly, the Regional Services Department (RSD) has
the following plans:
(i) On leisure services, more activities will be
organised for the elderly according to the needs of
individual district. Regarding leisure facilities, to
cater for the needs of the elderly, RSD will provide
jacuzzi pools at some of the swimming complexes, to
provide gateball courts, bowling greens and Tai Chi areas
in various ProRC venues under planning, and to provide
birdcage hooks, chess tables and quiet corners in new park
facilities.
(ii) On cultural services, ProRC has plans to
provide housebound service for members of the community
(including the elderly) who find it difficult to gain
access to public libraries. For the half-price tickets
for cultural presentations organized by ProRC, a 20% quota
is set for each ticket price category in each performance,
shared between the elderly and full-time students.
The Social Welfare Department (SWD) also provides
recreational and other social welfare services to the
elderly. For examples, there are social centres for the
elderly in various districts which organise healthy social
activities for the elderly residents in the vicinity. In
addition, there is home help service to provides meals,
personal care and domestic help to the elderly in need.
SWD in conjunction with the local organisations also
organises volunteer service network to visit elderly
persons and provide services to them.
Since rural population is more scattered than the
urban population, flexible approach is being adopted in
planning services and facilities for the local elderly
people. For examples:
(i) Some agencies are flexible in utilizing the
existing resources with a view to serving a greater number
of clients which comprise the elderly as well as other
target groups. The elderly-cum-youth centre run by the
Hong Kong PHAB Association in Peng Chau, which makes full
use of resources through the provision of services for the
elderly and the youth at staggered hours is an example.
(ii) The subvented outdoor and recreational bus
service for the elderly is being flexibly deployed to
regularly visit rural areas and provide activities to the
elderly people living in these areas.
(iii) To provide home help services to those elderly
and other persons who are living in remote areas, some
agencies adopt a more flexible approach in delivering the
service through home based centres.
(iv) Since villagers in rural areas enjoy harmonious
relationships among themselves and the tradition of mutual
aid and support is well preserved, most of the elderly
people who require a support network are taken care of
through visits, care and attention from their neighbours,
volunteer workers and fellow villagers. Cases requiring
special attention are referred to social workers for
suitable services. In this connection, the Social Welfare
Department will take part in promoting the virtuous rural
ethic of care and mutual support so that elderly people in
rural areas can receive support and care while they are
living in the community.
End
13. Supply of new coins will continue
*********************************
Following is a question by the Hon Dr David Li and a
written reply by the Secretary for Financial Services,
Mr Rafael Hui, in the Provisional Legislative Council
today (Wednesday):
Question:
In connection with the continuing problem of shortage
of coins in circulation in Hong Kong, will the Government
inform this Council:
(a) why the problem still exists, as demonstrated by
queues of people in front of banks every morning for coin-
changing, despite the pledge in September 1997 by the
authority to address it;
(b) whether it recognises that because of the
shortage of coins, passengers on public transport have,
for several months now, had no choice but to pay more than
the exact fares in many cases; and how it proposes to
assist passengers on public transport to avoid paying more
than the exact fares due to the shortage of coins;
(c) what other measures are in place to address the
problem, especially in consideration of the current
economic downturn; and
(d) bearing in mind the reply by the Secretary for
Transport in response to a question raised in this Council
on December 10, 1997 that about 100 million pieces of new
coins would be issued per month during the first half of
1998, whether this has been put into practice and if so,
the number of new coins that have been issued so far?
Reply:
President,
(a) We believe that the underlying reason for the
shortage was the withdrawal of almost all Queen's Head
coins and the 1997 commemorative issue of coins from
active circulation by collectors and members of the
general public. In 1997, we issued 800 million pieces of
new coins to replace the estimated 800 million Queen's
Head coins withdrawn. In recent months, some end-users
are hoarding new coins in excess of their normal needs for
fear of coin shortage. Such hoarding effect has
exacerbated the shortage of new coins in active
circulation.
(b) As stated in the Secretary for Transport's reply
to this Council on December 10, 1997, shortage of coins
has not affected passengers using the Mass Transit
Railway, Kowloon-Canton Railway and Light Rail Transit,
and those using the Octopus cards on certain routes of
franchised bus and ferry services. As regards franchised
bus service, we acknowledge that the shortage of coins may
render passengers paying a fee which is not parity of the
fare. Government will therefore continue to encourage
franchised bus companies to extend the use of Octopus card
beyond the existing 40 routes. By mid-February 1998, more
than 3.8 million Octopus cards have been sold.
(c) We believe there are three main solutions to the
problem of coin shortage. Firstly, we will continue to
supply new coins. Secondly, we will increase the velocity
of turnover of coins in circulation. In addition to
distributing new coins through the regular channel of
banks, we are working with the banks for arrangements to
provide new coins to retailers directly. Thirdly, we will
seek to extend the use of the Octopus cards as mentioned
in (b).
(d) In the first six weeks of 1998, 206 million
pieces of new coins were issued. Between January and
September 1998, we expect to issue a total of 1.4 billion
pieces of new coins, which is an average of about 150
million pieces per month.
End
14. Regular update on welfare policies and programme targets
********************************************************
Following is a question by the Hon Chan Choi-hi and a
written reply by the Secretary for Health and Welfare,
Mrs Katherine Fok, in the Provisional Legislative Council
today (Wednesday):
Question:
In 1991, the Government published the "White Paper on
Social Welfare into the 1990s and Beyond". In this
connection, will the Government inform this Council:
(a) whether there is any plan to draw up a new White
Paper on social welfare;
(b) if the answer to (a) is in the affirmative, of
the details of the White Paper, including:
(i) when it will be published;
(ii) the items to be included for review;
(iii) whether the formulation of the policy on family
services will be covered; if not, why not; and
(c) if the answer to (a) is in the negative, of the
reasons for not planning to draw up such a White Paper?
Reply:
President,
The White Paper "Social Welfare into the 1990s and
Beyond", published in March 1991, sets out in clear terms
the objectives and future direction of growth in the
social welfare sector. This has provided, and continues
to provide, a solid basis for us to develop our welfare
services.
We regularly update our welfare policies and
programme targets to meet the changing needs of the
community through the Five Year Plan Review. This is a
biennial exercise in which, representatives of the welfare
sector actively participate. The Review provides a
regular opportunity for the Government and the sector to
review and examine service needs, taking into account the
views of the appropriate advisory committees including the
Social Welfare Advisory Committee, the Elderly Commission
and the Rehabilitation Advisory Committee. In the past
years, these Committees have examined a wide range of
issues covering elderly, family and youth welfare
services, rehabilitation services, social welfare manpower
planning and the social security system. The Five Year
Plan is regarded by the sector as an on-going and
forwarding-looking plan for the provision of social
welfare services.
Thus, the present mechanism to review the demand for
and supply of, the welfare services has worked well. As
such, we consider the broad directions and policies, set
out in the 1991 White Paper, to continue to be valid and
we therefore do not see an immediate need to prepare a new
White Paper at this stage.
End
1998/99 BUDGET SUPPLEMENT
CONTENTS
========
1. Budget Speech by Financial Secretary
2. Transcript of FS's press conference
3. Budget aims to ride out Asian turbulence
4. GDP growth of 3.5% forecast
5. Steps to deal with unemployment
6. Linked exchange rate mechanism to stay
7. 1997/98 surplus forecast to be $77 billion
8. Good fiscal reserves vital for confidence
9. Revenue concessions key tool in encouraging growth
10. Salaries tax proposals reduce taxpayers' burden
11. Fairer tax structure makes most people pay less
12. Tax concession for mortgage interest payments
13. Revenue measures to improve care for the elderly
14. Low tax regime strengthened as estate duty reduced
15. Range of profits tax improvements
16. Corporate profits tax reduced to 16 per cent
17. Capital duty and stamp duty on stock transactions reduced
18. Revenue measures for tourism
19. Rates lowered to 4.5 per cent for one year
20. Freezing government fees and charges for one year
21. FS summarises his Budget Speech
22. 1998 Budget: Quotable Quotes
1. Budget Speech by Financial Secretary
************************************
Following is the text of the speech on the 1998/99
Budget by the Financial Secretary, Mr Donald Tsang, in the
Provisional Legislative Council today (Wednesday):
Riding Out the Storm
Renewing Hong Kong Strengths
Introduction
Madam President,
I move that the Appropriation Bill 1998 be read a
second time.
2. This is the third Budget that I have presented for
Hong Kong but the first wholly for the new Hong Kong
Special Administrative Region of the People's Republic of
China. The conditions under which I have framed this
Budget are the most complex faced by a Financial Secretary
for many years. The historic change in Hong Kong's status
in 1997 has put the integrity of Hong Kong's public
finances to the proof. The first three quarters of 1997
saw a booming economy in Hong Kong, which brought
unprecedented revenues. The Land Fund boosted our
reserves significantly. Then came the profound shocks of
economic turbulence that swept Asia in the fourth quarter
of last year. The effects still linger. In the aftermath
lie grave uncertainties for 1998 that demand cool thinking
and careful action.
3. I have to find the balance under which we can take
forward the new policy programme that the Chief Executive
has laid down, meet the ambitious investment programme,
advance the social objectives and strengthen Hong Kong's
competitiveness, while giving assurance that our public
finances will remain stable. Our approach to the economy
must be based on sound premises, so that none have grounds
to lose faith in Hong Kong. Giving assurance of
continuity, matched with incentive for new growth, ranks
the highest in my mind.
4. The particular time pressure this year adds
complexity to the Budget exercise. The Legislative
Council election on 24th May has advanced the presentation
of the Budget several weeks earlier than normal, because I
wish to give Honourable Members enough time to consider
and debate the proposals before this Council rises in
early April. I would like to say how grateful I am to
Members, despite the tight deadlines, for your
constructive and wide ranging comments during the
consultations that I carried out last year. It will
become apparent this afternoon that I have drawn heavily
on many of your ideas.
5. The main thought that has shaped this Budget is that
in this time of economic uncertainty, when many people and
businesses have experienced reduction of asset values or
face gloomier prospects, the measures that I set out must
aim to provide comfort, bolster confidence and strengthen
competitiveness. Their object is to help us to ride out
the present storm and to work to renew Hong Kong's
distinctive strengths.
6. We might meet that objective in two ways. First, by
reducing burdens on individuals and giving them new
incentives. Second, through measures that strengthen our
economy, that help to propagate competitive, enterprising
business activity. These two approaches reinforce each
other. Individuals who feel less burden or worry are more
likely to spend, helping to sustain business activity.
Business that is adapting and growing, new start-ups or
companies finding new markets, all sustain employment.
They also create wealth for investment in education,
services and infrastructure that will bring future
benefit. All this in time will help to give back
confidence to individuals to invest, to spend and to
develop new skills.
7. It is the aggregate of all the millions of individual
economic decisions made each day by the citizens and the
businesses of this city that drives our economy. We must
give room for the power of diversity, the natural growth
of the free market, and the efficiency of individual
choice to work. Government, while exercising imagination,
will not impose an unnatural economic strategy. We will
direct our actions to removing constraints; to providing a
common stock of education, social services and
infrastructure; and to instituting sound, efficient
regulation. That creates conditions in which the greatest
diversity of individual endeavour has opportunity to
develop to our common advantage. A healthy, sustainable
economy depends on this.
8. Today, the economic outlook for Hong Kong is not as
bright as we all had hoped last year. While our finances
are robust, the financial climate around us in Asia has
changed and bears have been roaming through the markets.
Things will get better, but it will take time, and there
may be more knocks along the way. Given our exposure to
external events we can't avoid collateral damage. But
remember this: we are in Asia, but Asia with a difference.
We own a truly free market, a modern, resilient economy,
able to evolve rapidly with changing conditions.
9. We are that because your Government has kept itself
small, has left each individual the freedom to make his or
her own economic choices. Our fiscal prudence has
sometimes been criticized but I hope that the virtues of
that prudence will become more apparent today.
10. Let me now look in more detail at how our economy
performed last year and our prospects for 1998. After
that I will give reports on the crucial issues of the
maintenance of the linked exchange rate system and banking
and market regulation, before moving on to budgetary
details.
THE ECONOMY IN 1997
11. 1997 was an eventful year for the Hong Kong economy.
Re-unification with China took place without any
disruption of economic activity. Indeed, strengthening
confidence in the run up to July 1 provided a significant
boost to activity in the first half of the year. The
stock and property markets went through a period of
exceptional growth. In retrospect, the markets were
becoming overheated, and correction was becoming likely
even without the external shock in the fourth quarter.
12. By the middle of last year, our economic growth rate
had increased for six consecutive quarters. Bolstered by
continued growth in real incomes and by the wealth effect
created by the surge in the stock and property markets,
consumer spending grew at the highest rate for several
years.
13. Investment spending strengthened further. Of
particular significance was the well sustained momentum of
investment in machinery and equipment in the private
sector, which was instrumental in lifting our productivity
and efficiency. Private sector building activity also
picked up markedly, reflecting demand in the property
market and consistent with our objective of raising
supply.
14. Despite strong performance in the first three
quarters, GDP for the year grew by 5.2 per cent (All
figures are in real terms (i.e. adjusted to remove the
effects of inflation) unless otherwise stated.) only,
slightly above the 5 per cent growth in 1996. This
reflects the effects in the final quarter of the regional
financial turmoil. Still, growth remained in line with
the projected medium-term trend rate of 5 per cent.
Private consumption expenditure grew by 7.3 per cent, and
gross domestic fixed capital formation by 12.8 per cent.
Unlike the preceding two years, the private sector once
again provided the major impetus for growth. That was as
it should be, given the predominance of private enterprise
in our economy.
15. On the trade side, total exports of goods grew by
6.1 per cent in 1997. Though improved from 1996, this was
below the growth rate attained in previous years. The
growth in re-exports moderated to 6.8 per cent but
domestic exports reversed their earlier decline to grow by
2 per cent. Modest import demand in many of our major
markets, along with the strength of the US dollar,
continued to restrain our export growth.
16. Inbound tourism suffered badly. That was the reason
for the setback in our overall exports of services to
virtually zero growth in 1997. An expected surge in
visitors for the re-unification ceremonies did not come
about. Visitors were deterred by a perceived shortage of
hotel accommodation and, very likely, by the level of room
tariff charged at that time. The number of visitors from
Japan fell sharply, though this followed a large increase
in the preceding year. There were fewer visitors, too,
from other parts of East Asia. The regional financial
turmoil contributed to this.
17. One positive trend has been the continued moderation
in inflation. The Composite Consumer Price Index rose by
5.8 per cent and the Consumer Price Index (A) by
5.7 per cent in 1997, the lowest for ten years. The
labour market had been tightening for the most part of
1997, with the unemployment rate coming down to
2.2 per cent in the third quarter, before easing back to
2.5 per cent by the turn of the year. Yet this tightening
did not generate great pressure on labour costs, as
productivity continued to rise in the economy. Equally,
the earlier exuberance in the property market did not add
too much pressure to property rentals. Meanwhile, the
prices of our imports generally declined, thanks to the
linked exchange rate and the strength of the US dollar.
Effect of the regional financial turmoil on the economy
18. The financial upheavals in many ASEAN countries
during July and August, and in North-East Asia during
November and December, sent successive shock waves across
the region, extending into the major global financial
centres. Delay in taking credible action to deal with the
roots of the problem in certain countries deepened and
prolonged the pain beyond anything one could have
expected. Hong Kong could not avoid the contagion effect.
The turmoil induced a major speculative attack on the Hong
Kong dollar, tight liquidity at the banks, higher local
interest rates and a severe setback in the local stock
market. Although our currency link and the financial
sector as a whole stood firm throughout the turmoil,
business suffered and the economy took a significant
downturn towards the year end. The setback in the stock
market has been a painful experience for many of us. It
has also accelerated consolidation in the property market.
The adverse wealth effect thus created placed a brake on
consumer spending. As the property market slowed,
investment in new development projects also eased.
19. The likely effect of the financial turmoil on our
external trade has aroused concern. The financial fall-out
has dealt a heavy blow to growth in many economies in the
region. The substantial depreciation in the currencies of
the primarily affected economies may weaken the price
competitiveness of our exports against theirs in the world
market. But, our export product mix differs from that of
other regional exporters. The higher costs of their
imported raw materials will offset much of the price
advantage their products may have gained. And, with
nearly 85 per cent of our GDP derived from services, our
external competitiveness hinges not merely on price, but
ever more on product differentiation, service diversity,
quality and sophistication - the adding of high value to
all that we do.
Economic Reform in the Mainland of China
20. Particularly in a period of turbulence elsewhere in
the region, we were fortunate to have the Mainland of
China as our economic hinterland. The economy there
continued to grow robustly, at around 9 per cent in 1997,
with near zero inflation and with little spill-over effect
from the regional financial situation. These conditions
have served as the platform for yet more extensive
economic reform.
21. For Hong Kong's part, it is our keen desire as well
as our strong interest for these reforms to succeed. We
welcome the process of liberalisation in trade, investment
and the tertiary sector proceeding further and deeper.
This will underline the case for China's accession to the
World Trade Organisation, which we firmly support. We
believe that Hong Kong's economy and systems have a lot to
offer to the Mainland's reform and modernisation drive.
In turn, reform there will provide our companies and
workforce with wider opportunities and will give our
economy at large more prospects for advancement.
ECONOMIC OUTLOOK FOR 1998
22. Much uncertainty still prevails on the regional
financial scene. Restoration of a stable financial
environment is a pre-condition for returning to good
economic growth for the region. Until this happens Hong
Kong's opportunities will be constrained, and we will
continue to suffer from the spilling over of uncertainty.
23. On the other hand, economic growth in the Mainland of
China should continue to be steady. Overall, the economy
there is expected to move forward in reasonable shape,
with GDP rising by 8 per cent this year and with the on-
going process of reform and structural change adding
potential for further growth.
24. I expect growth in Hong Kong's own economy to be
moderate for much of 1998. For the year as a whole, I
forecast GDP to grow by 3.5 per cent. Although much
depends on the duration of the region's financial
instability and on the speed of our own adjustment
process, I consider this growth forecast realistic.
25. For the two major components of domestic demand in
1998, I forecast private consumption expenditure to grow
by 3 per cent, and gross domestic fixed capital formation
by 2.5 per cent.
26. In the external sector, given the strength of the US
dollar relative to other Asian currencies, exports of
goods in 1998 may have a slightly slower growth than in
1997. The demand situation in our major markets is mixed.
Economic growth in most of East Asia, except the Mainland
of China, has been set back considerably, and the Japanese
economy is expected to stay sluggish. The United States
and the United Kingdom should continue to enjoy solid
growth, if perhaps at a lower rate than they have seen
over the past few years. Continental Europe may pick up
gradually, but the conditions required for European
Monetary Union could inhibit a fast revival. Trade with
the Mainland should remain a bright spot. Taking these
factors together, I forecast total exports of goods in
1998 to grow by 4.8 per cent, comprising increases of
1 per cent in domestic exports and 5.5 per cent in re-
exports.
27. Although our tourism industry has been making
intensive efforts to regain business for Hong Kong, it may
take some time to recover from the recent blows.
Nevertheless, the edge we possess in a wide range of
service areas should help sustain growth in our trade-
related services, as well as in our export of financial
and other professional and business support services.
Taken together, I forecast exports of services in 1998 to
grow by 3.5 per cent.
28. As the economy slackens, unemployment is likely to
rise in the months ahead. The Secretary for Education and
Manpower has already taken the initiative to co-ordinate
all the agencies involved in giving services to those who
lose employment, to ensure that quick and efficient help
is given, especially in retraining and finding new jobs.
Training and retraining programmes have been amply funded.
We are pressing ahead with major public sector
construction programmes which provide much direct
employment. To ensure that those seeking jobs can take
advantage from the opportunities in this area, we will
shortly be approaching the Finance Committee of this
Council for a grant of $80 million to the Construction
Industry Training Authority to expand its programmes. We
will do all that we can to ensure that adjustments to the
downturn can take place quickly, and that the economy is
able to generate new jobs again promptly as conditions
start to improve.
29. On inflation, I forecast the increase in the
Composite Consumer Price Index to settle further to an
average of around 5 per cent in 1998. Inflation from
external sources is expected to remain subdued, given the
continued strength of the US dollar; currency depreciation
in the East Asian economies; low inflation in our major
suppliers; and, soft world commodity prices. Domestically
generated inflationary pressures are likely to recede as
overall economic growth moderates, placing less strain on
local resources. The easing in property prices and
rentals will improve home affordability and reduce the
cost of doing business in Hong Kong.
30. Today I will be setting out budgetary measures that
should help the economy as a whole to manage in these
difficult times, to adjust and to achieve the growth I
expect. But those measures will be fully consistent with
our traditionally prudent fiscal principles.
CURRENCY STABILITY AND MONETARY MANAGEMENT
31. Crucial to Hong Kong's prospects in the years ahead
is the stability of the currency. There is understandable
public concern at the price we are paying for defending
the Hong Kong dollar. The sharp interest rate hike on
October 23 last year, though very short lived, was
unprecedented and hit business hard at the time. Higher
local interest rates since then have triggered corrections
in the stock and property markets and exerted pressure on
businesses and home buyers. The downward adjustment in
asset values is painful, but we need to keep a sober
perspective. Exuberant sentiment last year had been
pushing up the price of stocks and property to levels
which were hardly sustainable.
32. A free floating exchange rate would not be a panacea.
Regional economies with floating exchange rates have seen
sharper falls in their asset values. From the start of
1997 to early February this year, the value of stocks in
Thailand, Malaysia, Indonesia and South Korea have fallen
by 62%, 65%, 76% and 54% respectively in US$ terms; and
that in Singapore by 47%, compared to the drop in value in
the Hang Seng Index of 22%. The on-going experience in
regional economies shows that financial markets are having
difficulty in finding sustainable levels. The uncertainty
and disturbance that would be caused by a change in our
exchange rate regime could destroy public confidence in
the monetary system. That would fatally damage Hong Kong
as the leading international financial centre in the
Region. The loss of the stability that we have provided
in the region could also trigger a fresh wave of
devaluation that would wash back on us.
33. Some commentators have suggested that Hong Kong would
benefit from a competitive devaluation. Frankly speaking,
devaluation is not a way out. Everything that we
manufacture we make with imported products. Almost
everything we consume we import. Devalue today and
tomorrow all those imports will cost us more. That would
mean a surge in inflation and an immediate economic
disruption. I do not see what gain there would be for
Hong Kong to add the pains of high inflation to the hard
times we already face.
34. The linked exchange rate mechanism has protected the
value of the Hong Kong dollar. We should remember that as
our economy moves ever further into high value added
services and manufacture, the depreciation of other
currencies in the region affects us less. Our flexible
economic system and increasingly well educated, well
trained management and workforce can maintain
competitiveness through tighter cost controls,
productivity improvement and expansion into new markets.
And there is an upside to the painful adjustment process
that is now going on. As property prices, rentals and
other costs come down, the competitiveness of our economy
is steadily strengthening.
35. Most people understand the need for currency
stability. The question is, could we achieve it in a less
painful way? As Members know, I have been consulting
widely on this issue and last October I asked the Hong
Kong Monetary Authority to conduct a review of the
currency defences. As well as to the International
Monetary Fund and overseas experts, I want to give my
personal thanks to all those local academics, analysts,
businessmen and market participants who gave us much
helpful advice and raised many pertinent questions for
consideration.
36. A clear consensus that emerged from the consultations
and review is that the linked exchange rate mechanism has
served us well for the last 14 years. It has been the
anchor for monetary policy and stable economic growth. It
should continue.
37. The system has been working as designed. This was
the verdict of the International Monetary Fund last year,
and I quote: "It is important to recognize that allowing
interest rates to rise in response to exchange market
pressures is an essential element of the currency board
mechanism that lies at the heart of Hong Kong's monetary
arrangements. Recent events demonstrate the system is
working exactly as intended..." end quote. The reforms
that the Monetary Authority has introduced over the past
decade have proved themselves in practice. Indeed, the
international banking community has warmly hailed the Hong
Kong dollar exchange rate system as a pillar of stability
and a moderating force during the financial turmoil.
38. Some suggestions have been made, designed to maintain
both exchange rate and interest rate stability under
exchange market pressures. We are studying these
proposals carefully. Our analysis so far suggests that,
to a varying degree, they carry downside risks of
undermining the credibility of the linked exchange rate
mechanism and incurring contingent liabilities on our
foreign reserves. The virtues of the present linked rate
mechanism are its simplicity and transparency. We must be
careful not to complicate the operations of the currency
board. That would detract from its robustness and add to
uncertainty.
39. There has been some controversy over the exercise of
discretion in monetary management by the Monetary
Authority, arising from its role as the lender of last
resort for the banking system. Discretion is necessary,
and I am satisfied that it has been exercised in a manner
consistent with the discipline of the currency board
system. I am pleased that the Authority has issued
clarification on how banks can access the Liquidity
Adjustment Facility, which has had the effect of calming
market sentiment. To the extent to which this would not
undermine the effectiveness of its actions, the Authority
intends to provide further clarification of the
circumstances in which its discretion would be exercised,
for the benefit of market participants.
40. The review since October has highlighted useful
lessons for Hong Kong from the regional turmoil. It has
reinforced our conviction that we must maintain sound
macroeconomic fundamentals in terms of a consistent
monetary policy, prudent fiscal discipline and a non-
interventionist economic philosophy. At the micro level,
we must reinforce our efforts to ensure that banks in Hong
Kong manage their risks prudently; that they pay special
attention to the quality of their assets, so as not to be
overly exposed to those that are vulnerable to interest
rate volatility; and that they have regard to the
conditions imposed by the currency board system.
41. The Hong Kong Monetary Authority has done well in
banking supervision. Generally our banks are well
managed. They have some of the highest capital adequacy
ratios in the world. They are efficient and competitive.
But we are not complacent. The Monetary Authority has
announced a consultancy study into the banking system this
year. This will address whether measures are needed to
improve the resilience of the system to internal and
external shocks.
42. Many have asked me how long the present relatively
high interest rates will last. That all depends on how
long the regional economic situation remains unsettled.
The higher interest rates reflect the perceived risks in
Asia and the slowdown in capital flows to the region.
Other regional currencies with floating exchange rates are
also facing higher interest rates. I cannot predict when
better conditions will return. The situation varies
greatly from country to country, and it is clear that the
problems are not only financial. Structural, political,
institutional and social problems have to be addressed in
many different combinations. I am heartened by the steps
being taken in South Korea, by the signs in Japan and by
the support provided by the International Monetary Fund
and APEC. I will continue to hope and to work for the
best. But we will also continue to guard Hong Kong
against the threat of further squalls.
Stock and Financial market regulation: cleaning up our act
43. The review that I began last October was not limited
to the linked exchange rate mechanism. I sought views on
the whole range of issues affecting our securities and
futures markets. While I am generally satisfied that the
regulatory framework that we have built up since 1987
provides us with a reliable and efficient trading and
settlement system, even at times of extreme volatility,
there are certainly areas where we can make further
improvements.
44. Events in January have given added urgency to
reforms. With hindsight, there are areas where we have
allowed more manoeuvring room in the system than is
appropriate for the protection of investors and
shareholders. These events have led me to ask for certain
issues to be re-examined. That is the reason why I am not
yet in a position to publish a full report on the review.
I expect to be able to do this within March. Today I want
to let this Council and the community know the issues we
are addressing.
45. Hong Kong is an international financial centre and an
integral part of the world's financial market. We cannot
immunize our markets from the volatilities that the rest
of the region and the world experience. But there are
suggestions that the combined effects of a number of
trading activities might have exacerbated market
volatility in October last year. These activities include
derivative trading, particularly in index futures and
derivative warrants, and borrowing and short selling of
stocks. We are examining these suggestions very
carefully. In particular, we are looking at allegations
of market manipulation. We will take appropriate counter-
measures where these are justified.
46. There are also questions of whether intermediaries
and their related companies have been managing their risk
exposure in a prudent manner, and whether any individual
default cases could have systemic implications. We are
looking at the adequacy of the Financial Resources Rules
on registered entities and the regulators' capability in
surveillance, monitoring and enforcement of compliance.
We are examining whether the margins and marks are
adequate to ensure a secure settlement system. We are
also considering how we should expand the existing
regulatory regime to govern companies dealing with margin
financing. We are mindful of the need to strike a balance
between prudent risk management at the institutional and
market levels and the flexibility that businesses require
to remain viable and for markets to develop and flourish.
47. We are also addressing the issues of disclosure and
investors' education. Timely disclosure of adequate and
accurate information by companies is essential in the
making of a fair, efficient and transparent market. This
will enable investors to make informed decisions and take
their own investment risks. At the same time, it is also
necessary to extend our efforts to educate investors, so
as to enhance their understanding of their risks and of
their rights.
48. Some of these matters are complex. We are working
closely with the Securities and Futures Commission, the
exchanges and clearing houses, as well as the financial
industry to implement improvements. I am determined to do
this promptly and thoroughly. The commitment to reform
the securities and futures market in 1987 has been the
foundation stone for the success of our financial services
industry since then. Over the last four months our
markets have again been tested severely. The fact that
they have functioned well gives us no grounds for
complacency. We will make good our commitment to achieve
the very highest standards of market management and
probity, so as to safeguard the reputation and resilience
of Hong Kong as a leading international financial market.
THE PUBLIC FINANCES
49. I now turn to the state of our public finances and I
begin with the anticipated out-turn for the current
financial year.
1997-98 Out-turn
50. A year ago, I said that this would be a unique year.
In the event, it has proved to be so in ways which I could
not then have foreseen. I have already referred to the
unprecedented turmoil experienced in regional currency and
stock markets, to our defence of the linked exchange rate,
and to the impact this has had on Hong Kong's asset
markets.
51. But there has been another factor which marked
1997-98 as a unique year. That was the exceptional and
record level of government receipts from land premiums and
stamp duty in the first half of the financial year.
52. As a result (and before taking account of the Land
Fund), I am now forecasting a surplus for 1997-98 of
$77 billion, $45.3 billion higher than the surplus of
$31.7 billion I originally estimated in my 1997 Budget.
Our total fiscal reserves at the end of March 1998
(including the Land Fund) are expected to be
$445.6 billion.
Revenue
53. I now expect revenue for the year to be $39.9 billion
more than originally estimated.
Recurrent receipts are forecast to be $23.7 billion
higher than originally estimated. Of this, $16.2 billion
comes from higher than expected receipts from stamp duty,
reflecting the exceptional level of turnover in both the
stock and property markets in the first half of the
financial year. Stamp duty collections for the first six
months of 1997-98 were more than two and a half times the
level in the corresponding period in 1996-97. Firmer
interest rates, together with the increased surpluses in
1996-97 and 1997-98, have brought in higher interest
earnings on our fiscal reserves. We have also seen
slightly better receipts from Salaries and Profits Taxes.
Capital receipts are now expected to be $16.2 billion
above the original estimate. This is explained almost
entirely by higher than anticipated receipts from land
premiums which are now forecast to be $16.8 billion
greater than estimated. This is partly because during the
year we made available more land for sale than was
anticipated at the time of preparing the 1997-98
Estimates. The other reason is the surge in property
values in the first half of 1997.
Expenditure
54. On the expenditure side, the revised estimate for
1997-98 is $197.7 billion, an underspending of
$5.4 billion. Mainly as a result of some slippage in
capital projects and a lower than expected redemption rate
of New Territories land exchange entitlements, spending
from the various special funds will be $7.8 billion lower
than originally estimated. This is offset by higher than
budgeted spending of $2.4 billion on the General Revenue
Account where, as Members of this Council are aware, we
have taken advantage of our strong financial position to
set up the Quality Education Fund for which no provision
was made in the original estimates.
The Use of Reserves
55. Before looking at our finances for 1998-99, I would
like to turn to the matter of our fiscal reserves, which I
promised to address when replying to the budget debate
last year.
56. Two events since then have brought this matter into
the centre of my concerns. First is the addition of the
Land Fund to the fiscal reserves. This marked an
unparalleled increase in our reserves and a unique boost
to public finances that can offer Hong Kong an enduring
advantage. Second has been the crisis affecting Asian
financial markets. This has made good reserves more than
ever a matter of necessity.
Purposes and Levels of Reserves
57. I see three purposes for which it is necessary for
the Administration to hold substantial public funds in
reserve. I define these as reserves needed to meet the
operating, the contingency and the monetary requirements
of public finance. Let me elaborate.
58. The operating requirement is for the Administration
to have money on hand to meet its day to day cash flow
needs and to cover the several months in the financial
year when expenditure exceeds revenue. This is the
smallest of the reserve requirements. An amount
equivalent to three months of Government expenditure is
adequate for operational purposes.
59. The contingency requirement is to offset the effects
of any downswing in the economic cycle, or to cope with
the consequences of unforeseen events in the world or the
region that would have serious implications for public
finance. At such times, an adequate level of contingency
reserves enables us to hold fast to our investment and
spending plans without the need for increased taxation,
helping the economy adjust quickly to new conditions.
There can be no absolute definition of what an adequate
level of contingency reserves is. I think it makes sense
to set a range, in proportion to total annual expenditure.
During years of strong economic growth, we could aim for
the high end of the range. During down turns, we can let
this portion of the reserves fall back towards the lower
end of the range while we maintain public investment and
expenditure programmes. Taking into account the three
months' Government expenditure I propose to set aside as
our operational reserve, I consider that an amount equal
to nine months' expenditure should be sufficient to meet
our contingency requirement. Given the unpredictability
of contingencies, a margin of plus or minus three months'
expenditure should be allowed.
60. On the monetary side, a reserve to underpin exchange
rate stability is desirable. Both the Hong Kong Monetary
Authority and the International Monetary Fund have
emphasized the importance of placing our fiscal reserves
with the Exchange Fund to strengthen public confidence in
our policy framework. I accept this need. Recent events
have underlined it. It is not easy to define the
appropriate level of fiscal reserves for monetary
purposes, except that experience has shown that the higher
the fiscal reserves, the greater the public confidence.
We have decided to adopt the Hong Kong Dollar money supply
under the M1 definition as the benchmark. Again, a range
would apply of plus or minus 25 per cent of M1.
61. It is important to stress that I have proposed these
guidelines in the light of present conditions, fresh from
the experience of an historic regional financial crisis.
My colleagues and I will review the guidelines once we
have built up some experience in following them.
Adequacy and Integrity of Reserves
62. Our estimated Government expenditure in 1997-98 is
$198 billion. M1 money supply averaged $202 billion in
1997. This indicates that, to meet the guidelines, the
fiscal reserves at the present time should stand at
between $300 and $500 billion.
63. Thanks to the Land Fund, which came into our accounts
during the year, our accumulated fiscal reserves of
$446 billion at March 31, 1998 do fall within the range
needed to cover all our requirements. But, the addition
of the Land Fund is a one-off contribution. This brings
us to the heart of the matter. How can we ensure that we
maintain the fiscal reserves at a satisfactory level in
future?
64. We have, in recent years, placed those reserves with
the Exchange Fund. We have received a fixed rate of
return, free of market risk. But that return has not kept
pace with inflation. With effect from April 1, we will
link the return to that achieved by the entire Exchange
Fund. While there will now be no guaranteed revenue, and
still no certainty that the interest will match inflation,
the return for the active Exchange Fund portfolio over the
past four years has been consistently above the fixed rate
of return we received previously. In addition, I will
consider declaring a special dividend from the Exchange
Fund if necessary to maintain the real value of that
portion of the fiscal reserves which is kept for monetary
purposes.
65. I shall also ask both the Land Fund Advisory
Committee and the Exchange Fund Advisory Committee to
examine how to maximise investment returns while
minimizing risk, and how to adjust the asset allocation of
the two funds so that their investment policies can be
aligned by April 1, 1999, as envisaged when the Government
took over the Land Fund. This will bring about
administrative efficiency and economies of scale. In the
interim, the Monetary Authority continues to pass to the
Government the actual return of the Land Fund, net of
costs.
Funds
66. The present difficulties have led me to re-examine
how much more I can do with our reserves and fund
arrangements to give support to individuals and to the
economy. I have also been examining the suggestion made
in the Economic Sub-Group of the Preparatory Committee
that we should set up more funds for investment purposes.
On that point, Members are aware that we have the Capital
Works Reserve Fund and the Capital Investment Fund,
established under section 29 of the Public Finance
Ordinance. The estimates published last Friday make clear
that in the coming year we intend to commence work on
$62.9 billion worth of major capital projects to be funded
from the Capital Works Reserve Fund. We will also be
making substantial investments from the Capital Investment
Fund. $15.2 billion will be provided in 1998-99, chiefly
as equity for the West Rail Project. We have the Loan
Fund, which extends financial assistance to worthwhile
projects or individuals in need. Members will be aware of
the massive new loans that the Chief Executive announced
last October. Expenditure from the Loan Fund will amount
to another $16.4 billion in the coming financial year.
There is also the Lotteries Fund, providing a steady
source of financial support to development of welfare
facilities. It will provide over $1.1 billion in 1998-99.
All the funds I have mentioned are operating well and are
not short of liquidity. There is no need to establish
more general funds of this nature. We can, however,
inject resources into specific funds when needed. The
$5 billion Quality Education Fund recently approved by
this Council is one example. The $80 million grant to the
Construction Industry Training Authority I proposed
earlier would be another. In the remainder of this
financial year I also intend to approach the Finance
Committee for approval to make one-off grants to the
Environment and Conservation Fund, the Occupational Safety
and Health Council and the Consumer Council. We will
continue to consider other areas where one-off injections
may be beneficial.
67. I am acutely aware that the size of fiscal reserves
which I propose to maintain may be the subject of debate.
But I am convinced that present circumstances fully
justify them. Good reserves are vital to international
confidence in our finances and in the maintenance of the
linked exchange rate. They are fundamental to our
economic prospects.
68. For me, as for all Financial Secretaries of this
small city, it is wise to recall the words of a foreign
Finance Minister, years ago, confronted with a need for
maintaining expenditure in difficult days. "I have no
nest eggs", he said: "I am looking for someone else's nest
to rob next year." I hold responsibility for safeguarding
Hong Kong's nest egg, our reserves. We have today the
unprecedented opportunity to set those reserves upon a
largely self sustaining basis: a basis that will underpin
our financial stability and economic prospects no matter
whether the future brings more storm clouds or sunshine.
I could justify to no-one: not to this Council; not to the
community; not to my successors, were I to compromise the
safety that Hong Kong's hard earned reserves have
established for us all. I will not set in train actions
today, however well intentioned, that will drain away
those reserves and risk my successors having to become
robbers of the community's wealth.
69. I want to emphasize though, that even as our reserves
have been strengthening, we have been increasing support
to the community. Over the last ten years, recurrent
Government expenditure has grown by 65 per cent. I
emphasize that that is growth in real terms, almost
precisely in line with GDP growth. Over that period,
recurrent expenditure on social welfare has grown by
202 per cent. Again, that is growth in real terms. Next
year it will grow by 13.6 per cent. Consistent,
substantial improvements in social services are being
made.
70. I am deeply aware of the needs that many people in
the community have, and of the fears that have been
aroused by the difficulties we are now going through. No
one in a position of public responsibility can be
insensitive to them. I trust that what I have said
already, and the measures I am about to set out, will show
my commitment to respond to those needs and concerns. But
I must stress that my actions are not based on impulse.
They are made possible because of the prudent management
of our finances and careful control of the public sector's
role within the economy. We have saved, not run up debts.
We have not committed ourselves to spend more than we can
afford. We have made sensible investments. These simple
principles will remain inviolate in their application to
our public finances.
The Prospects for 1998-99 and Beyond
71. Let me now turn to the prospects for 1998-99 and
beyond. In a time of financial turmoil, those like myself
who are responsible for public finance find themselves
faced with two contradictory demands. The first is from
global financial markets and international financial
institutions to demonstrate that we are living within our
means, maintaining or strengthening revenues, controlling
expenditure and not squandering reserves to shore up
unsound policies and practices. The second is from our
own people, faced with loss or hardship, for relief
through more public expenditure or less taxation.
72. Thanks to the care with which our finances are
managed, I can respond positively to both those demands.
Three significant buttresses to our revenue base help us
to do this.
First, since July 1, 1997 we now retain the full
proceeds of revenue from land transactions (rather than
broadly 50 per cent before July 1, 1997).
Second, we will benefit from the investment earnings
on the substantially increased level of fiscal reserves.
Third, the introduction of Government rent for the
new grant or extension of land leases beyond June 30, 1997
results in an additional and stable source of revenue
yielding over $4 billion a year.
73. These boosts to our revenue are reflected in my
Medium Range Forecast which, as in the past, is published
as an Appendix to the printed version of this speech. It
is a critical feature of our management of the public
finances that we look at the impact of our expenditure and
revenue proposals not only in the context of the coming
financial year but also over the medium term. This is to
assure ourselves and the community at large that our
proposals are affordable, not just this year but in the
years ahead. Such a discipline is more important than
ever in this time of uncertainty.
74. The Forecast is based on conservative assumptions.
It shows that in each of the next four years, the coming
budget year and the following three, we should continue to
achieve budget surpluses, although much less than the
exceptional surplus for 1997-98. In 1998-99, we estimate
there will be a balance of $10.7 billion, followed by a
further $70.8 billion over the remaining three years of
the Medium Range Forecast period. By the end of 2001-2002
our fiscal reserves should have grown to $527 billion.
This remains within the guidelines I have just announced.
The lowering in the proportion of reserves to expenditure
reflects the difficult economic conditions we are now
facing.
75. Set against the size of the Budget, the uncertainties
we face in 1998, and the need to preserve the real value
of the reserves over time, the surplus forecast for
1998-99 is prudent. It is just over 2 per cent of
budgeted revenue and expenditure. A variation of this
order, particularly in today's uncertain circumstances, is
insignificant in budgetary forecasting terms. What I am
presenting is essentially a balanced budget for 1998-99.
Expenditure in 1998-99
76. After allowing for the initiatives set out by the
Chief Executive in October, Government expenditure will
amount to $233 billion in 1998-99. This is consistent
with our guideline of keeping growth in Government
expenditure within the trend rate of growth of the economy
over time. It does not include the investment of
$15.2 billion which I have earlier said we would make from
the Capital Investment Fund.
77. That expenditure provides a range of benefits to the
community. Some go directly to individuals, for example,
through the education and training programmes; the
payments to CSSA recipients; or health care. Some
expenditure, such as on construction or better market
management, has consequential benefits for individuals by
providing employment in building work or by stimulating
business activities that provide wider employment
opportunities. In turn, the education and training that
we provide to our children and workforce increases the
pool of skills and ideas upon which business can draw. At
another level, the welfare payments we make are passed on
in turn to the shops where they are spent, and the taxes
on the profits of those shops then go towards the next
round of government expenditure. Understanding those
relationships as they have built up over time, and
allowing for the complex network of exchanges in which we
all participate is vital for judging how best we can
position ourselves for the future.
78. The expenditure required for the deal that we have
reached with Hong Kong Telecom to end its international
monopoly early is a case in point. It won't just bring
lower IDD bills for customers. It will bring lower costs
for business, opportunities for new companies, higher
capital investments and a strengthening of our competitive
position. All of that will lead on to better employment
prospects for individuals and growth for the economy.
79. It is not just by expenditure that we encourage
growing economic relationships. Revenue concessions are a
powerful tool. They spread their beneficial effects well
beyond the individuals or the businesses that receive them
directly. Lower taxes leave them with more money to spend
and invest. Tax allowances and deductions can stimulate
spending and investment, productivity gains and innovation
that will sustain employment.
80. I invite you to keep all these relationships in mind
as I now proceed to set out how I intend to use revenue
measures to reinforce our expenditure programme to help
individual citizens; to help advance home ownership; to
help the elderly; to improve the competitive environment
for our business; and, overall, to help Hong Kong bounce
back from the battering of the regional financial crisis.
Tax Incentives for Individuals
81. I have divided up my proposals on Salaries Tax to
emphasize underlying policy objectives, where this is
appropriate, but overall the package that I am about to
present will result in my reducing the burden on salaries
taxpayers by $8 billion in the coming year and by
$56.8 billion up to 2001-02.
82. I propose to raise the basic personal allowance from
$100,000 to $108,000 and the married person's allowance
from $200,000 to $216,000. This is an increase of
8 per cent. It follows a cumulative increase of
144 per cent in the allowances between 1991-92 and
1997-98, which far exceeds the cumulative inflation of
66 per cent during the same period. In addition, I
propose to raise:
the allowance for the first and second child by
11.1 per cent, from $27,000 to $30,000;
the allowance for the third to the ninth child by
7.1 per cent, from $14,000 to $15,000; and
to raise the basic allowance for a dependent parent
or grandparent by 11.1 per cent, from $27,000 to $30,000,
and make a similar increase to the dependent brother and
sister allowance.
I also propose a substantial increase in the maximum
deduction for training expenses by 50 per cent, from
$20,000 to $30,000 a year.
83. Those increases exceed the rate of inflation.
Members have impressed upon me the particular difficulties
of those people struggling to bring up children on their
own. I intend to raise the single parent allowance by
44 per cent, from $75,000 to $108,000, the same level as
the proposed basic personal allowance.
84. Of greatest significance for the overall impact of
taxation are the tax bands and marginal rates. All
sectors in the community responded favourably to the
changes I made to the marginal tax structure last year.
Middle-income salaries taxpayers, the "sandwich class" in
particular, benefit most. I consider that we can go
further this year to once again reduce their tax burden.
I propose to widen the marginal tax bands from the present
$30,000 to $35,000. I also propose to reduce the
marginal tax rates by changing the incremental steps from
6 per cent to 5 per cent so that the top marginal tax rate
will be reduced from 20 per cent to 17 per cent.
85. What will this mean? At the lower end, a single
person will have to earn more than $9,000 a month to pay
any tax at all, while a married couple with two children
will need to earn more than $23,000 a month. At the upper
end, a single person will need to earn more than $120,000
a month to pay salaries tax at the standard rate of
15 per cent, while a married couple with two children
would have to earn more than $239,000 a month. Everyone
in between will pay less.
A single person earning the median income of $18,670
a month will pay $4,780 less tax, a 34 per cent cut.
A couple on median income with no children will have
their tax bill cut by 67 per cent to only $160.
At typical sandwich class earnings of $45,000 a
month, a married couple with two children will have their
tax bill cut by $12,020 or 25.9 per cent.
86. A simple cut in the standard rate of Salaries Tax
would have benefited only those in the top income bracket.
The proposals I have set out make the whole tax structure
fairer. Once a person enters the tax net, the weight of
tax will increase more gently and more evenly than under
the present structure. The number who have to pay
Salaries Tax at the standard rate will be reduced from
71,000 to 10,000. The total number of salaries taxpayers
will not be reduced by these measures but 99 per cent will
pay less. They will have the encouragement of keeping
more of the wealth that they earn. They will have greater
freedom to plan for their own economic security.
Incentives for Home Ownership
87. One of the greatest sources of security is home
ownership. The Chief Executive has made this a matter of
the highest priority and has announced the target of
achieving a home ownership rate of 70 per cent in ten
years.
88. Financially we are giving housing top priority. In
1998-99, total public spending on housing will be
$48.9 billion, an increase of 52.1 per cent over 1997-98.
Over the five years up to 2001-02 we will spend
$11 billion to accelerate housing-related infrastructure
development.
89. Organizationally, we are now fully geared up for the
higher level of land supply and flat production that is
needed to meet our housing targets. We have cut the
planning and construction times for both public and
private sector flats, and have set up a comprehensive,
computerized monitoring system for the flat production
programme in the Housing Bureau. We have also set up
efficient problem-solving mechanisms at district and
central government level.
90. The Tenants Purchase Scheme that we are now
implementing represents a massive transfer of wealth to
the families that will benefit. But there is much more to
it than that. It will help tens of thousands of families
to achieve the desire to own their own home. Over time,
it will help to create a broader, less distorted housing
market. And as the momentum for the scheme builds up, the
Housing Authority and Housing Department can refocus their
work on their key task of serving those in real need of
public rental housing. The Chief Executive has pledged to
reduce applicants' waiting times from six and a half to
three years. We are committed to achieving that.
91. We are also committed to extending the ability of far
more than just one group of people to own their own homes.
We have already introduced a number of measures to provide
help and incentive for home ownership. The $18 billion
Home Starter Loan Scheme will help 30,000 families over
the next five years. Our loans to the Housing Society to
help Sandwich Class Housing Schemes have already helped
about 15,000 families to acquire their own homes and
should benefit another 40,000 families up to 2005. I have
been looking for other means to give help to the widest
possible number of families that want to own their own
homes.
92. I know that there is much concern over the state of
the property market at present, and there is worry at the
effects of measures to increase housing supply. Taking a
long-term view, the present difficulties are exceptional.
Historically, property has always been at a premium in
Hong Kong. A growing population, deeply attached to the
ideal of having one's own home in which to bring up a
family, creates strong demand. This demand will endure,
whatever the state of the property market today.
Mortgage Relief
93. During my budget consultation with Members of this
Council, I took note of the concerted view that we should
provide tax relief for home buyers. I have much sympathy
for families investing a substantial part of their monthly
incomes to purchase homes. We have now established a
long-term plan to provide a much greater, steadier supply
of land for housing. The market will be in much better
position to meet demand in future. I am now satisfied
that I can introduce a tax concession for mortgage
interest payments without grave risk that this will fuel
property price increases or revive speculation. The sober
atmosphere in the property market today gives added
safety.
94. I propose to introduce a new Salaries Tax deduction
of a maximum of $100,000 per year per property for home
mortgage interest payments. To ensure that only genuine
home buyers may benefit, the deduction will only apply in
respect of properties for self-occupation. Applicants may
claim the deduction in any five tax years. To encourage
home ownership and alleviate the burden on home buyers
across the board, the deduction will apply to all owner-
occupiers with a mortgage, not just first-time home
buyers.
Helping the Elderly
95. Expanding the scale and increasing the quality of
services available to the growing number of the elderly is
another of this Administration's core programmes. Total
spending on welfare payments and on direct social and
medical services for the elderly will increase by
16.3 per cent in the coming financial year to
$14.5 billion.
96. To advance our efforts to help improve care for the
elderly today and to make better provision for them in
future, I propose two significant revenue measures.
First, I intend to increase the additional allowance
for a dependent parent or grandparent living with a
taxpayer by 275 per cent, from $8,000 to $30,000.
Together with the basic allowance for such dependants this
will give $60,000 in allowances for taxpayers who have an
elderly dependant living with them.
Second, I recognize that while family care for the
elderly is the most desirable form of support, some
require institutional care because of advanced physical or
mental impairment. I propose to introduce a new Salaries
Tax deduction of up to $60,000 a year for those who are
supporting an elderly dependant in residential care. This
will help relieve a financial burden on these taxpayers
and may also serve to encourage the development of better
quality private sector care services. Those claiming the
deduction would not be eligible for the Salaries Tax
allowances for that dependant.
97. I also intend to use the tax system to help the
development of secure provision for the financial needs of
the retired in future. As this Council knows, it is this
Government's firm commitment to establish Mandatory
Provident Fund schemes to give our working population a
viable and sustainable retirement benefit system. The
maximum statutory contribution will be $12,000 a year.
Since this contribution is compulsory and is employment
related, a tax deduction to cover these contributions is
justified. When the scheme comes into operation, I intend
to introduce a Salaries Tax deduction of up to $12,000 a
year for employees' compulsory contributions. Self-
employed people will be eligible for an equivalent
deduction under the Profits Tax regime. Employees making
contributions to recognized occupational retirement
schemes exempted under the Mandatory Provident Fund
Schemes Ordinance will also obtain the deduction.
Helping People with Disabilities
98. I also propose to use tax measures to do more to help
individuals and families who are giving support to
dependants who have disabilities. I intend to increase
the disabled dependant allowance by 140 per cent, raising
it from $25,000 to $60,000, double the basic allowance for
a dependant.
Lower Estate Duty
99. While still dealing with personal taxation, I also
intend to make changes to Estate Duty. Last year, I
revised the exemption level for Estate Duty and the duty
band thresholds to offset the effect of inflation. This
year, I consider that we can afford to go further. Apart
from adjusting the exemption level and the band
thresholds, we can reduce the duty rates. Let me explain
the changes I propose.
The level of estate value below which no duty is
payable will be raised from $7 million to $7.5 million.
The first duty band will cover estates over
$7.5 million up to $9 million. The duty rate will be
reduced from 6 per cent to 5 per cent.
The second duty band will cover estates over
$9 million up to $10.5 million. The duty rate will be
reduced from 12 per cent to 10 per cent.
The top duty rate, applying to estates valued at over
$10.5 million, will be reduced from 18 per cent to
15 per cent, the same level as that for the standard rate
of Salaries Tax and Profits Tax for unincorporated
businesses.
The reduction in Estate Duty will help to strengthen our
position as a low tax regime. The cost of the proposal is
$90 million in 1998-99 and $780 million up to 2001-02.
Duty Adjustment
100. I now turn to a small number of areas on the revenue
side where I propose modest increases. To maintain the
real value of the duty charged on fuel, tobacco and methyl
alcohol, I propose to raise the duty rates by 6 per cent,
in line with inflation. This will bring in additional
revenue of $460 million in 1998-99 and $2.2 billion up to
2001-02.
101. The former Legislative Council did not accept my
proposal in the last Budget to adjust light diesel oil
duty for inflation. I have strong grounds for
recommending to this Council that the increase be passed
this year. Diesel emissions are a serious source of air
pollution. The differential duty rate already creates an
incentive for users to stay with diesel rather than switch
to cleaner fuels. As Members know, we are developing
measures to address this problem. In the interim, we
should not allow the differential to increase further. We
must work harder to clean up air quality. The adjustment
I now propose will have a negligible impact on inflation.
Continuing the Scrapping Scheme
102. To continue to encourage the speedier conversion to
more environmentally friendly vehicles, I propose to
extend for another four years the scrapping scheme for old
private cars which I introduced two years ago. The number
of cars scrapped under the scheme doubled to nearly 300 a
month in 1997. There have been no abuses. My proposal
will allow all pre-1992 registered cars that may not have
catalytic converters to be replaced when they turn 10
years old.
Incentives for Business
103. I now wish to turn to our business environment, to
what we can do to make it more competitive and to provide
the best conditions in which enterprise can flourish.
Business and Services Promotion
104. Last year I announced my intention to create a new
unit in my own office to take forward both the Helping
Business and Services Promotion Programmes. The unit was
established in May last year with the mission of
maintaining Hong Kong as the best place in the world for
business and the premier services centre in the region.
Already bureaux and departments have clocked up an
impressive series of achievements with the unit's support.
105. For example, on the Helping Business side, the
Industry Department has opened a one-stop Business Licence
Information Centre. The Lands Department has reduced the
processing time for lease modification and land exchange
procedures by 25 per cent, and is introducing measures to
cut the processing time for consent to sales of units in
uncompleted buildings by as much as 3 months. The Works
Bureau has introduced new measures on utilities
connections that can speed up issue of occupation permits
by up to 3 months. The Buildings Department has relaxed
requirements for windows in bathrooms. It may sound odd
for a Financial Secretary to mention bathroom windows in a
Budget speech, but that small change alone will save many
millions of dollars in the years ahead. It will allow
more productive and environmentally friendly building
techniques and will give scope for more efficient, more
attractively designed flats.
106. There is a similar picture on the development of Hong
Kong's service economy. Progress with the 125 initiatives
outlined in the Final Report of the Task Force on
Promotion of Services published with last year's Budget
has been excellent. We are now preparing the Action
Agenda for 1998-99. Studies are in hand on the need for
additional convention facilities, the case for business
parks, and the manpower needs of key service industries.
The Industry Department is bringing forward a pilot credit
guarantee scheme which will help both manufacturing and
services companies.
107. These are just examples of a quiet revolution now
taking place. Red tape is being cut. Services are being
improved. The work will continue with full vigour. We
aim to instil throughout Government the understanding that
our role is to find simple rules and principles that give
guidance in a complex, dynamic world.
108. In all of this work we have been helped immeasurably
by members of the business community and academia who have
given up their time to fulfil duties as members of the
Business Advisory Group and Services Promotion Strategy
Group, both of which I chair. These are good examples of
Hong Kong's partnership approach to problem solving.
109. The work of the Business and Services Promotion Unit
is vital but is only one pillar in our programme of
keeping Hong Kong as the best place to do business. Other
pillars are:
First, the building of transport and communications
infrastructure. The world's largest infrastructure
project, the Airport Core Programme, will be completed in
July. We won't then be putting our feet up. We will be
investing $80 billion over the next five years on more new
roads, railways and port facilities.
Second, there is education. In the coming year,
recurrent expenditure in this area will increase by
6.3 per cent and capital expenditure by 52.4 per cent, to
help ensure that the people of Hong Kong have the skills
and outlook needed to create and to find employment in our
complex, change filled modern world.
Third is information technology and
telecommunications. We are opening up markets and
encouraging the development of new services. We are
developing a framework in which the power of information
and communications technology to add value, to improve
services and to open up new opportunity can be brought to
ever more people in our community.
Fourth is our land and building development policies.
The creation of industrial estates, a science park, and
the redevelopment of old industrial structures and offices
into flexible, "smart buildings", all help to provide the
facilities that modern businesses need.
Fifth, there is funding for applied research,
industrial and services support and for productivity
improvement. One billion dollars will be provided on this
front in 1998-99. I trust, too, that the planned
establishment of a second board for the Stock Exchange
will provide an enduring basis for channelling venture
capital into new business.
110. Overall, our objective is to provide an environment
in which business in all its diversity has good conditions
in which to flourish and good incentive to upgrade, add
value and remain competitive. Business can then continue
to generate employment and wealth for the community. No-
one can predict with certainty how circumstances will
change, and how they will affect particular businesses,
but what we can do is ensure that in Hong Kong, anyone can
respond to promising trends quickly; new ideas can be
developed easily; market signals are clear, and obstacles
and constraints are removed wherever possible.
111. Taking account both of the concerns of our business
community in the current conditions and of the strength of
our fiscal position, I consider it to be both necessary
and affordable to make some significant refinements to our
tax regime to enhance our competitive position.
Profits Tax Improvements
112. I undertook in the last Budget to conduct a
comprehensive review of Profits Tax. The Secretary for
the Treasury carried out a public consultation last year
and received many helpful comments and proposals. He has
done an excellent job and put to me a range of
recommendations to which I would now like to respond.
113. The first point that emerged from the review was how
favourable our Profits Tax regime is compared with our
competitors, how much incentive it gives to enterprise.
To help make this clear, we are publishing a booklet to
highlight our advantages. We will circulate it widely
here, through our overseas offices and on the Internet.
114. Next, it was clear that there is some uncertainty
over the application of the territorial source principle
to determine taxable profits. The Inland Revenue
Department is publishing a simple guide for those who have
no professional tax background. To provide greater
certainty for businesses, from April the Department will
provide, on a full cost recovery basis, an advance ruling
service on the source of profits.
115. The matter of double taxation is a concern for many
of our businesses. We are addressing this in a number of
ways.
I propose to select a few target countries for
negotiation of comprehensive double taxation agreements,
where this would be in our overall interest.
We will continue with our policy of negotiation of
double taxation relief arrangements on airline income with
our aviation partners. In addition, I propose to amend
the Inland Revenue Ordinance to provide reciprocal tax
exemption for shipping income so that Hong Kong ship
operators can benefit from the tax relief offered by those
countries with similar reciprocal legislation. We will
also enter into negotiation of double taxation relief
arrangements for shipping with other places which do not
provide reciprocal tax exemption in their legislation, in
order to alleviate the tax burden on our shipping industry
operating in those places. This will strengthen the
industry's competitiveness.
We have reached an understanding with the relevant
authorities in the Central People's Government on tax
relief for Hong Kong airlines and shipping companies, and
for avoidance of other cases of double taxation between
the Mainland and Hong Kong. This will enhance cross-
border business activities and strengthen the
competitiveness of Hong Kong business operating in the
Mainland.
116. There are a few more improvements that I think it is
right to make.
I propose to amend the Inland Revenue Ordinance to
replace the present restrictive listing of the types of
income derived by beneficiaries from fund management which
qualify for tax exemption with a general definition which
can keep pace with the fast-changing developments in fund
management.
I propose to provide a concessionary tax rate at
50 per cent of the normal Profits Tax rate for the
offshore business of professional reinsurance companies
authorised in Hong Kong. This will allow Hong Kong to
compete on level terms as a regional reinsurance centre.
Reinsurance companies can opt for the concession on an
irrevocable basis.
As an incentive to achieve higher productivity and
find ways to add higher value, I propose to expand the
scope of deductions for capital expenditure on research
and development. They will now also cover expenditure
incurred on market research, feasibility studies and other
research activities related to business and management
sciences.
I propose to extend the hotel refurbishment
concession introduced in the 1996-97 Budget to all other
business sectors. This will provide incentive to
encourage them to maintain and upgrade the standards and
quality of premises regularly. Capital expenditure on
refurbishment and redecoration may be amortised over a
period of five years, based on a 20 per cent straight-line
annual write-off.
As an incentive to invest more in high value
manufacture and modern business systems, I propose to
allow an immediate 100 per cent write-off for new
expenditure on plant and machinery specifically related to
manufacturing, and computer hardware and software, which
are owned by end users. The residual value of such items
already in hand can also be written off immediately.
Last, I propose to double the annual depreciation
allowance for commercial buildings from 2 per cent to
4 per cent, to align it with that for industrial
buildings.
Reduction in Profits Tax
117. There were divergent views on whether or not to
reduce the corporate Profits Tax rate. After careful
consideration, I believe that a moderate change is both
affordable and necessary. Financially, we should not tax
more than we need. Even after the major concessions on
personal taxation that I have already announced, and
leaving room for some further important measures that I
will come to later, our financial strength still permits a
modest reduction in the corporate Profits Tax rate without
imperilling our ability to maintain a healthy revenue
stream. Externally, while our tax rate is very low when
compared with our regional competitors, there is no room
for complacency. Our competitors are introducing a wide
range of tax incentives to attract investors. We have to
respond to these challenges. Accordingly, I propose to
reduce the corporate Profits Tax rate from 16.5 per cent
to 16 per cent. The current standard Profits Tax rate of
15 per cent for unincorporated businesses will remain
unchanged, in line with the standard rate for Salaries
Tax.
118. The total cost of my Profits Tax package is
$1.6 billion in 1998-99. Because of our provisional tax
payment arrangement, the first-year cost is comparatively
low and does not reflect the full picture. The cumulative
cost of the package for the four years up to 2001-02 is
$19.9 billion.
119. These concessions do not undermine one of our most
significant and stable sources of revenue, nor do they in
any way detract from our ability to spend money on
community programmes. The published expenditure estimates
for 1998-99 clearly show that there is no validity in that
argument. This package is designed to sharpen our
competitive edge, to emphasize that our business
environment and tax system are second to none. Our
Profits Tax will now be lower; the system will remain
simple and predictable; it will be more competitive for
all.
120. A report on my proposals is published with the
printed version of this Speech. It marks the conclusion
of the Profits Tax review.
Other Business Related Taxes
121. In addition to the measures that I have set out on
Profits Tax, I have a number of other proposals to make
that should help our businesses in the current times and
work to improve Hong Kong's competitive position.
Capital Duty
122. In the 1996-97 Budget, I reduced the ad valorem
capital duty charged under the Companies Ordinance from
0.6 per cent to 0.3 per cent. To augment the
attractiveness of Hong Kong as a place for company
incorporations and related activities, I propose to reduce
capital duty from 0.3 per cent to 0.1 per cent. We will
impose a cap at $30,000 per case, which will benefit
company mergers and restructuring activities involving
large share issues. The concessions will cost
$500 million in 1998-99 and $2.4 billion up to 2001-02.
Stamp Duty on Stock Transactions
123. I promised in the last Budget that I would be
prepared to review the Stamp Duty rate on stock
transactions if the securities industry reduced brokerage
charges so as to lower overall transaction costs. The
Securities and Futures Commission will lower its
transaction levy while the Stock Exchange of Hong Kong
will transfer a part of its transaction levy to a fund for
its future development. In response to these initiatives
and to help the competitiveness of our stock market, I
propose to reduce the rate of Stamp Duty from 0.3 per cent
to 0.25 per cent for a complete transaction.
124. While I fully appreciate the considerable
difficulties the brokerage industry may now be facing in
view of the recent developments in the market, the
industry cannot avoid forever the question of transaction
costs in the context of competitiveness. Brokerage
charges are much the largest component in the total cost
of transactions on the Stock Exchange. In their own
interest, as well as in the interest of the investing
public, I now appeal to the industry to adopt a more far-
sighted view and come forward with their own cost-
reduction initiatives as soon as possible.
125. To help the securities industry to continue to
develop new products to meet different market needs, I
also propose to make two further changes.
First, to replace the current Stamp Duty remission
for transactions in regional derivative options and
convertible bonds or notes with a specific exemption, so
as to simplify the process for granting the concession;
and
Second, to extend this exemption to cover
transactions in regional derivative warrants which have no
more than 40 per cent weighting by value in Hong Kong
stock.
126. The total cost of the concessions on stock
transactions I have proposed is $950 million in 1998-99
and $4.6 billion up to 2001-02.
Revenue Measures for Tourism
127. The recent downturn in tourism has raised concerns.
The industry has responded with attractive price-cutting
and enhanced promotional activities. We can also help.
Apart from providing funding for tourism facilities and
attractions, I now propose to make two tax concessions.
First, to reduce the rate of Hotel Accommodation Tax
from 5 per cent to 3 per cent.
Second, to reduce Air Passenger Departure Tax from
$100 to $50 when the new airport opens on July 6.
I trust that this will help underpin the efforts of our
tourism industry. It will put our airport tax down to a
level which is amongst the lowest in the region. The
reduction in airport tax will also benefit local
passengers and takes into account the higher cost for
travelling to the new airport at Chek Lap Kok. The total
cost of the two concessions is $660 million in 1998-99 and
$3.7 billion up to 2001-02.
128. Taken together, the measures that I have proposed to
help business will do much more than simply provide some
comfort in these difficult days. They will provide
permanent incentives for investment and a better
environment for new businesses to flourish. They will
help to strengthen our competitive positio and to
underscore our reputation as the best city in the world in
which to do business. That will be good for everybody in
Hong Kong.
Lower Rates
129. I would now like to deal with the question of Rates.
To alleviate the burden of Rates arising from the last
general revaluation which came into effect in April 1997,
in the last Budget I reduced the overall Rates percentage
charge from 5.5 per cent to 5 per cent. This is an
historic low. I also introduced a Rates relief scheme
which limited increases in Rates payments to no more than
20 per cent in 1997-98 and in 1998-99.
130. During the Budget consultation, some Members urged me
to consider reducing Rates to alleviate the financial
burden on property owners arising from the charging of
Government rent. Many others have made the same proposal
to me. My colleagues and I have carefully examined the
subject. I do not consider reducing Rates on such grounds
justified. First of all, Government rent is payable by
less than 50 per cent of the tenements subject to Rates.
An across-the-board Rates reduction for this reason is not
warranted. Second, it must be remembered that the
charging of Government rent in itself represents a massive
concession in respect of extension of non-renewable leases
and the grant of new leases beyond 1997. The alternative
to the rent was for the property owners concerned to pay a
lump sum premium.
131. I am also very conscious that Rates represent the
most widely based and one of the most secure sources of
revenue. The uncertainties of the years ahead urge
caution on me when considering whether I should tamper
with this reliable support.
132. But, I do share Members' view that some concession on
Rates is the revenue measure that can give benefit to the
greatest number of individuals and businesses in the
community. I also have to apply the test of whether we
really need the revenue now. I have decided that, in view
of our healthy financial position and in line with our
policy of not raising more revenue than necessary, I will
reduce the overall Rates percentage charge from 5 per cent
to 4.5 per cent for one year in 1998-99. The reduction
will be borne entirely by the General Rates: the Rates
funding of the Municipal Councils will not be affected.
The Rates relief scheme for 1998-99 will also continue to
apply.
133. I have to explain to Members why I have proposed only
a one-year reduction. The recent turbulence in the
financial markets has affected the property market. The
impact is likely to be reflected in rental values over
the next few years. Consequently there is much
uncertainty over the future growth of Rates revenue.
Given the scale of revenue concessions I propose on other
taxes, and the uncertain economic outlook, I cannot find
assurance that a permanent concession on Rates is
affordable.
134. As for the amount of the concession, I have to bear
in mind that the Municipal Councils are mainly funded out
of Rates revenue, and that in the New Territories, of the
overall Rates charge of 5 per cent, revenue from 4.2 per
cent is now required to meet the Regional Council's
commitments. Given the uncertain yield from Rates over
the next few years, any greater reduction than half a
percentage point could well jeopardize the funding for the
Regional Council. A 2 or 3 percentage point cut as
proposed by some would completely undermine the funding of
regional services and put that for urban services in
peril.
135. As Members know, we are conducting a review of the
structure of district organisations. Any substantial
change arising from the review may have implications for
the present financial arrangement for the Municipal
Councils. It would be unwise to take action now which
would pre-empt our options. When the review is completed
and the funding implications are known, and when the
effect on rental values of the recent financial turmoil is
clearer, I will re-examine the situation. In the next
Budget I will decide whether the reduction I now propose
should be continued or varied in future years.
136. Almost all properties subject to Rates will benefit
from the reduction that I have proposed. The cost to
General Rates is $1.7 billion in 1998-99.
137. In my last Budget Speech, I reported that we were
studying the possibility of conducting general revaluation
on an annual basis. This already complex issue has been
made more so by recent events in the property and rental
market. We need more time to consider.
Freezing Fees and Charges
138. There have been calls for a freeze on increases to
fees and charges. As Members know, at the heart of our
charging policy is the principle that the user should make
a due contribution to the cost of providing the services.
I have been a vigorous defender of this principle over the
years, for two reasons. First it is fair. Second, it
enables us to maintain the benefits of our low tax system.
In order to uphold this principle, we seek to increase
fees and charges on an annual basis, generally in line
with inflation. But exceptional times demand exceptional
measures. This is a year in which Government as far as
possible should not be adding to the costs of individuals
or of businesses. I am freezing most Government fees and
charges at their current levels with immediate effect for
the next twelve months. This freeze will not apply to
fees and charges for the commercially-oriented services
provided by trading funds, which are required by law to
ensure that revenues cover expenditure, nor to services
provided at full cost to certain public entities. Nor
will it apply to any new fees that are in the pipeline. I
remain committed to the 'user pays' principle. I will
obviously need to take the effects of this freeze into
account when considering fee increases in future. But we
will remain vigilant in our efforts to keep service costs,
and thus fees and charges, at the lowest possible level.
In this context I would like to announce that, following
the latest costing review, we will reduce the passenger
embarkation fee at the Marine Ferry Terminals by
28 per cent from $25 to $18.
139. The cost to the revenue of the freeze on fees and
charges will be about $160 million in 1998-99. The
reduction in the passenger embarkation fee will cost
$65 million in 1998-99 and $335 million up to 2001-02.
Implementation
140. That finally concludes my revenue proposals for this
year. The proposed increases in duties on fuel, tobacco
and methyl alcohol come into immediate effect under a
Public Revenue Protection Order issued today. My
proposals on Rates, Stamp Duty on stock transactions,
Capital Duty, Hotel Accommodation Tax, Estate Duty and
Passenger Embarkation Fees will come into effect on April
1 this year. The reduction in Air Passenger Departure Tax
will take place on July 6, 1998. My proposals on Salaries
Tax and Profits Tax will, where appropriate, take effect
from the year of assessment starting on April 1, 1998. My
other proposals on Stamp Duty exemptions will be
implemented as soon as the necessary legislative changes
have been made. Details of the proposals are contained in
the Supplement to the printed version of this speech.
CONCLUSION
141. The package of revenue measures that I have put
forward this afternoon will cost the revenue $13.6 billion
in 1998-99 and nearly $100 billion up to 2001-02. Despite
the harsher economic outlook in the year ahead,
concessions on this scale are affordable, thanks to the
underlying strength of our economy and our prudent fiscal
management. I trust that this package will be seen as a
serious attempt, within the constraints of economic
uncertainties and the imperative of maintaining healthy
public finances, to leave money with those who have earned
it, to confront uncertain times by enhancing the
competitiveness of our business and by reducing burdens on
individuals and families.
142. Today's Budget is not going to lift Hong Kong
overnight out of economic worries. External events over
which we have little if any influence set our economic
climate. Within Hong Kong I must be realistic in what I
forecast and what I attempt. The Government's task is to
uphold the framework of the liberal, open society and free
market economy assured to Hong Kong in the Basic Law.
143. What this Budget will do is provide a comprehensive
and coherent set of measure which will ensure:
that all the new expenditure pledges made by the
Chief Executive in his Policy Address are met, so that
even in these difficult days we are sustaining our long-
term investment programmes on infrastructure, housing and
education, preparing Hong Kong for new opportunities that
will arise;
that at the end of what will be a hard year, most
taxes will be lighter;
that every salaries taxpayer struggling with a home
mortgage has relief;
that almost every ratepayer pays less;
that every company has a lower tax burden;
that there are stronger incentives for investments
that will improve competitiveness and the future
performance of our economy;
that the personal tax structure is more equitable,
with a gentler, steadier gradation, and that it creates
incentives to encourage family care and support for the
elderly and for the disabled;
that our fiscal balance remains strong so that we can
keep investing to good effect in the community in the
years ahead and have a firm cushion against any new
contingencies; and
most of all, that we have adhered to our prudent
fiscal policy and have observed the provisions of the
Basic Law relevant to the Budget.
144. If today's Budget also helps to demonstrate to the
world how different Hong Kong's economy is from those
elsewhere in Asia: how the turmoil around us has not
seriously set back our prospects for the future - because
we have devised our programme carefully, with clear vision
for the long-term implications of our actions; and because
we are working within a healthy, open, well regulated
system - then that too will be good for Hong Kong.
145. Perhaps the best way to help restore the confidence
of international investors is to maintain confidence in
ourselves. It will be a difficult year, but Hong Kong has
gone through many tough times before and has emerged the
stronger from them. The new Hong Kong Special
Administrative Region is home to no less enterprising
spirits than the old Hong Kong. Government is committed
to no less prudent financial management, and has the means
to make even more far-sighted investment in the people and
the infrastructure that will keep this city steadily on
course through all the sea changes in the world economy.
146. Today I have sought to give new impetus to past
strengths. By judiciously applying the resources and
revenue measures available to Government in concert to
increase opportunities, I have aimed to refresh the
spirits of business and community alike. It is your
spirits, your vitality, your entrepreneurial élan that is
the bedrock on which the economy of this city is built.
147. Honourable Members, like many other Asian economies,
we are experiencing the effects of a severe and abrupt
downswing after almost a decade of remarkable growth. But
these will not last. We will ride out the storm. Our
main markets, particularly the Mainland of China and the
United States, remain prosperous. We can expect continued
if moderate growth in 1998. Best of all, we can take this
passing set back as a spur to new achievement. Self-pity
and recriminations are pointless. Our businesses can tap
the huge reward potential in Asian markets. Many are
already mapping out new strategies for their next phase of
growth. Our workforce has the skills, the flexibility and
the determination to rise to the challenges of new
conditions. Our country stands steadfast beside us. We
are working to enable our economy to build on the
advantage that our relationship with the Mainland gives
us. The arrangements for avoidance of double taxation
that we have made are an important first step to help
develop new dimensions in the flow of trade and economic
activity between us.
148. This Budget shows your Administration rising with you
to the challenges we face. No gimmicks, no complaints.
We seek to smooth the path ahead with a sensible package
of targeted relief set beside intensive investments and a
sharpening of our competitive edge to sustain long-term
economic growth. My colleagues and I in the Civil Service
stand by the community. Like you, we share their present
worries. We need to work hard together to overcome them:
everyone giving their honest best.
End
2. Transcript of FS's press conference
***********************************
Following is the transcript of a press conference
given by the Financial Secretary, Mr Donald Tsang, this
afternoon (Wednesday). He was accompanied by the
Secretary for Financial Services, Mr Rafael Hui; the
Secretary for the Treasury, Mr Kwong Ki-chi; and
Commissioner of Inland Revenue, Mr H S Wong.
FS: Good afternoon. Thank you for waiting for me. Before
taking your questions, may I just say a few words in
English for the benefit of those who have had to put up
with my Cantonese for the past couple of hours.
In the Budget that I presented this afternoon I have
done four things. First, I have set out the importance of
currency stability in Hong Kong. I have affirmed our
commitment to maintain a currency board system and our
commitment to the linked exchange rate at the current
level of parity. I have outlined wide-ranging
improvements that we intend to make in the regulation and
operation of our banking system, financial markets and
stock market. Hong Kong has stood up pretty well to the
stormy weather in the region's economies, but we have
learnt a few things which we want to act on now.
The second thing was, I have set out guidelines -
guidelines for the handling of our very strong fiscal
reserves. These are designed to give confidence of our
commitment to monetary stability and to give assurance
that we can sustain a very strong level of public
investment in the years ahead. There will be improved
arrangements for the management of our fiscal reserves;
that will help to contribute better to the funds for
public revenue in the years to come. There will be
interest, of course, on the reserves and this will be
likely to be the fourth largest source of public revenue
in the coming year.
The third thing is, I have reconfirmed the
Government's commitment to proceed with all - I stress,
all - the expenditure programmes announced by the Chief
Executive in his last October Policy Address.
And fourth, I have announced the largest package of
tax reductions in Hong Kong's history. Over the next four
financial years the effect of tax reductions will leave
nearly $100 billion more in the hands of those who have
earned it. Two-thirds of the concessions will go directly
to individuals and I explained all those concessions in
the speech. And you have, of course, a leaflet which
conveniently explains all the items there. One-third of
our tax reductions will go to businesses directly. There
will be extensive improvements to the profits tax regime,
including a reduction in the standard tax rate from 16.5%
to 16%.
Particularly important is that we have now reached
agreement with the tax authorities of Central Government
on the avoidance of double taxation on Hong Kong
businesses operating in the Mainland. This should prove
to be of significant long term advantage to Hong Kong
based businesses.
While some measures are intended to give short term
relief, such as the one year reduction in rates and the
one year freeze on government fees and charges, most of
the changes have been designed with Hong Kong's
competitiveness and long term interest in mind. They
reinforce our position as a haven of low taxes. The
improved profits tax system creates stronger incentives
for investment and that will upgrade our productivity.
The salaries tax structure is now much more fair and will
lighten the burden of 99% of taxpayers.
One final point. Despite the financial trouble
around us, Hong Kong can afford to make these substantial
tax reductions and keep on course with our recurrent and
capital spending. This will be a difficult year but
growth in our economy will continue and this growth will
sustain the underlying public revenue.
We have, of course, as you know, added to the public
revenue since July 1, the government rent and the full
proceeds of the land transactions. On top of that we have
now substantially more interest income. And also, we have
income from the interest generated by the Land Fund as
well. All these combine to give us greater strength and
flexibility to meet our spending commitments, to cut taxes
and retain strong reserves.
Our fundamental principle of fiscal prudence remains.
We have kept our expenditure within the guidelines and as
far as revenue goes, despite the very wide ranging tax
concessions I have given, I have proposed a balanced
Budget with a small surplus of about $10 billion. And,
overall public spending will remain below 20% of GDP. In
short, we are sticking very firmly to those prudent
financial fiscal policies and this will be a hallmark of
my Budget this year.
You can see that I have tried, in the Budget, to use
Hong Kong's strengths to help us ride out the current
storm. And most of all, I am seeking to use all the
flexibility to renew the great strengths of Hong Kong -
the strength of entrepreneurial-ship, the strength of
resilience.
Perhaps my colleagues and I are happy to answer your
questions.
Question: I am wondering what the message in this Budget
is for the overseas investment community, even among whom
you find some people saying Hong Kong has very large
reserves, they ought to start spending them?
FS: I don't know who these guys are. I have not heard
them yet. But as far as the reputable organisations are
concerned, including the IMF, the World Bank, credit
agencies of all kinds, the indication is quite clear:
against the backdrop of financial instability in the
region, we have to be exceedingly cautious how we plan our
finances.
I think my message is quite clear to them. Look at
us, look at our Budget, it is a fiscally prudent Budget;
it has met the wishes of our local people but at the same
time it has been prudently formulated so that we have our
reserves not only for this year but over the forecast
period we maintain very healthy reserves; we are able to
stand any instability that might come our way.
Question (HK Standard): You are giving back super, super
generous tax concessions --
FS: Thank you very much. I haven't heard that description
used by your other colleagues.
Question: -- and also ... ten years ... compared to as a
proportion of GDP. So, do you still think it is prudent
enough? And also, was there any political pressures in
the budgeting process because of the regional crises or
because of the ...?
FS: Just look at the passage, the paragraphs in my Budget
speech dealing with my medium term forecast. I looked at
the tax concessions given this year, not only in terms of
impact on revenue returns for this year which at the end
of the day still creates a surplus, I have looked at the
consequences over the medium range period right up to
2002. Over that period, each and every year we still
produce a surplus. In fact it is about, in the
subsequent three years, $70 billion altogether. So at the
end of the forecast period, instead of $400-odd billion
reserves we are going to have in excess of $500 billion
reserves. So we have kept, also, as far as expenditure
goes, within the growth rate of the economy as a whole.
In every respect I have complied with a very strict
discipline we impose on ourselves on spending and on
revenue cuts. I think we can afford it. All these years
we have prepared ourselves for hard times like this, so
that we can do both things. First of all we continue our
spending programme, and at the same time we are giving
generous tax cuts. At the same time, producing our
reserves at the end of the day - a surplus at the end of
the day. I think it is a prudent Budget and it is also an
affordable one.
Question (Dow Jones): Could you tell us why you felt it
was necessary to target a reserves level? And if you are
going to target a reserve level, why such a wide band?
FS: It has been the subject of much discussion in past
years. I think it is only fair and it is an act of
responsibility on my part, to account for the guidelines
within which I have to maintain our reserves. Otherwise
it can go on increasing forever. So, I would have thought
it would be necessary to find a rational basis for it. My
colleagues have worked hard on it and we have produced
what we believe to be a right level. But it could not be
in a straight line. It cannot be a very strict figure.
Partly because it is the first time we have produced this
formula; we have not had experience of working on it yet;
we need time to see which is appropriate.
And secondly, we are dealing with economic matters,
economic matters subject to a lot of external forces. I
just cannot stick to one figure and I think a reasonable
range is what we should aim for. And I think the proposal
here provides a rational basis to gauge the level of
reserves that we should have and at the same time enables
us to tell international investors, this place is well
funded. We are well funded to meet the needs of monetary
requirements, to meet the needs of currency requirements
and meet the needs of seasonable requirements. And I
think the explanation is quite clear.
But whether or not we will continue with this band
depends on the experience in coming years. But I think it
provides quite a rational and a reasonable basis.
Question (Wall Street Journal): Mr Secretary, your
projections for a Budget surplus this year seem to be
predicated on two things. One, robust land sales of about
HK$50 billion. And two, 3.5% GDP growth, which is higher
than many private sector economists are forecasting. Two
questions. One, aren't your forecasts a little bit on the
optimistic side? And, two, if there is a bit of a deficit
this year, would that be a concern for you or are you
pretty confident that as long as things more or less
balance out it is OK?
FS: Let me answer one part about the GDP growth and then
I'll hand over to Mr Kwong to answer the other part about
land sales and all the rest of it.
First, look at this year. This year we achieved, in
1997, a growth rate of 5.2%. This compared quite
favourably with our trend forecast rate, although slightly
lower than I thought earlier on. But what I am
forecasting in the coming year, 1998, is only 3.5%. So I
do not think that is optimistic. And it is consistent, in
fact slightly lower than all the knowledgeable forecasters
and reliable forecasters about Hong Kong's economy. All
the banks' forecasts, all the IMF forecasts, I think it is
consistent with most of them. In fact, slightly more
conservative than they have forecast. So I believe all
the revenue proposals I have made predicated on that
growth rate, and it is a firm basis - a firm basis upon
which we have built various things.
K C is there anything you would add about revenue
proposals - whether we have been too optimistic?
Mr Kwong: In forecasting the land revenue in 1998/99 we
have taken into account the sites that will be available
in the year, the economic situation right to the end of,
in fact, January and early February. And I think I can
reasonably say that it is a conservative estimate. On the
other revenue sources we have also taken into account the
likely impact of the slow-down in growth in 1998. So in
overall terms it is an estimate which we think is
reasonable, reflecting in full the economic circumstances
we face.
End
3. Budget aims to ride out Asian turbulence
****************************************
The object of the 1998/99 Budget is to help Hong Kong
ride out the economic turbulence that has swept Asia and
to work to renew its distinctive strengths, the Financial
Secretary, Mr Donald Tsang, said today (Wednesday).
Presenting the first Budget of the Hong Kong Special
Administrative Region in the Provisional Legislative
Council, Mr Tsang said: "The main thought that has shaped
this budget is that in this time of economic uncertainty,
when people and businesses have experienced reduction of
asset values or face gloomier prospects, the measures that
I set out must aim to provide comfort, bolster confidence
and strengthen competitiveness."
He said that given its exposure to external events
Hong Kong could not avoid collateral damage, but he noted:
"We are in Asia, but Asia with a difference. We own a
truly free market, a modern, resilient economy, able to
evolve rapidly with changing conditions."
Mr Tsang said the conditions under which he framed
the Budget were the most complex faced by a Financial
Secretary for many years. The historic change in Hong
Kong's status in 1997 had put the integrity of Hong Kong's
public finances to the proof.
The first three quarters of 1997 saw a booming
economy in Hong Kong, which brought unprecedented
revenues. The Land Fund boosted our reserves
significantly.
"Then came the profound shocks of economic turbulence
that swept Asia in the fourth quarter of last year. The
effects still linger. In the aftermath lie grave
uncertainties for 1998 that demand cool thinking and
careful action."
Mr Tsang said he had to find the balance under which
we could take forward the new policy programme that the
Chief Executive had laid down, meet the ambitious
investment programme, advance the social objectives and
strengthen Hong Kong's competitiveness, while giving
assurance that our public finances would remain stable.
"Our approach to the economy must be based on sound
premises, so that none have grounds to lose faith in Hong
Kong. Giving assurance of continuity, matched with
incentive for new growth, ranks the highest in my mind."
Mr Tsang said the object of his Budget might be met
in two ways: first, by reducing burdens on individuals and
giving them new incentives; second, through measures that
strengthened our economy, that helped to propagate
competitive, enterprising business activity.
"These two approaches reinforce each other.
Individuals who feel less burden or worry are more likely
to spend, helping to sustain business activity.
"Business that is adapting and growing, new start-ups
or companies finding new markets, all sustain employment.
They also create wealth for investment in education,
services and infrastructure that will bring future
benefit.
"All this in time will help to give back confidence
to individuals to invest, to spend and to develop new
skills."
He said it was the aggregate of all the millions of
individual economic decisions made each day by the
citizens and the businesses of this city that drove our
economy.
"We must give room for the power of diversity, the
natural growth of the free market, and the efficiency of
individual choice to work. Government, while exercising
imagination, will not impose an unnatural economic
strategy.
"We will direct our actions to removing constraints;
to providing a common stock of education, social services
and infrastructure; and to instituting sound, efficient
regulation.
"That creates conditions in which the greatest
diversity of individual endeavour has opportunity to
develop to our common advantage. A healthy, sustainable
economy depends on this."
He noted that Hong Kong was a truly free and
resilient market because the Government had kept itself
small, had left each individual the freedom to make his or
her own economic choices.
"Our fiscal prudence has sometimes been criticised
but I hope that the virtues of that prudence will become
more apparent today."
End
4. GDP growth of 3.5% forecast
***************************
Hong Kong's economic growth is expected to be
moderate for much of 1998, and, for the year as a whole,
GDP is forecast to grow by 3.5 per cent.
The Financial Secretary, Mr Donald Tsang, said this
in the Provisional Legislative Council meeting today
(Wednesday) when presenting his 1998/99 Budget.
He said that although much depended on the duration
of the region's financial instability and on the speed of
our own adjustment process, he considered this growth
forecast realistic.
Much uncertainty still prevailed on the regional
financial scene, and the restoration of a stable financial
environment was a pre-condition for returning to good
economic growth for the region, he said.
"Until this happens Hong Kong's opportunities will be
constrained, and we will continue to suffer from the
spilling over of uncertainty.
"On the other hand, economic growth in the Mainland
of China should continue to be steady. Overall, the
economy there is expected to move forward in reasonable
shape, with GDP rising by 8 per cent this year and with
the on-going process of reform and structural change
adding potential for further growth."
Mr Tsang said that for the two major components of
domestic demand in 1998, he forecast private consumption
expenditure to grow by 3 per cent, and gross domestic
fixed capital formation by 2.5 per cent.
In the external sector, given the strength of the US
dollar relative to other Asian currencies, exports of
goods in 1998 might have a slightly slower growth than in
1997.
The demand situation in our major markets was mixed.
Economic growth in most of East Asia, except the Mainland
of China, had been set back considerably, and the Japanese
economy was expected to stay sluggish.
The United States and the United Kingdom should
continue to enjoy solid growth, if perhaps at a lower rate
than they have seen over the past few years. Continental
Europe might pick up gradually, but the conditions
required for European Monetary Union could inhibit a fast
revival. Trade with the Mainland should remain a bright
spot.
Taking these factors together, Mr Tsang forecast
total exports of goods in 1998 to grow by 4.8 per cent,
comprising increases of 1 per cent in domestic exports and
5.5 per cent in re-exports.
He said that although the tourism industry has been
making intensive efforts to regain business for Hong Kong,
it might take some time to recover from the recent blows.
Nevertheless, the edge Hong Kong possessed in a wide
range of service areas should help sustain growth in our
trade-related services, as well as in our export of
financial and other professional and business support
services. Taken together, he forecast exports of services
in 1998 to grow by 3.5 per cent.
On inflation, Mr Tsang forecast the increase in the
Composite Consumer Price Index to settle further to an
average of around 5 per cent in 1998.
Inflation from external sources was expected to
remain subdued, given the continued strength of the US
dollar; currency depreciation in the East Asian economies;
low inflation in our major suppliers; and, soft world
commodity prices.
Domestically generated inflationary pressures were
likely to recede as overall economic growth moderates,
placing less strain on local resources.
The easing in property prices and rentals would
improve home affordability and reduce the cost of doing
business in Hong Kong, he said.
End
5. Steps to deal with unemployment
*******************************
The Financial Secretary, Mr Donald Tsang, gave an
assurance today (Wednesday) that steps are being taken to
deal with unemployment which he said is likely to rise in
the months ahead as the economy slackens.
Presenting his 1998/99 Budget in the Provisional
Legislative Council, Mr Tsang said the Secretary for
Education and Manpower had already taken the initiative to
co-ordinate all the agencies involved in giving services
to those who lose employment, to ensure that quick and
efficient help is given, especially in retraining and
finding new jobs. Training and retraining programmes had
been amply funded.
He said: "We are pressing ahead with major public
sector construction programmes which provide much direct
employment.
"To ensure that those seeking jobs can take advantage
from the opportunities in this area, we will shortly be
approaching the Finance Committee of this Council for a
grant of $80 million to the Construction Industry Training
Authority to expand its programmes.
"We will do all that we can to ensure that
adjustments to the downturn can take place quickly, and
that the economy is able to generate new jobs again
promptly as conditions start to improve."
End
6. Linked exchange rate mechanism to stay
**************************************
Observing that currency stability is crucial to Hong
Kong's prospects in the years ahead, the Financial
Secretary, Mr Donald Tsang, said today (Wednesday) that
extensive consultations had produced a consensus that the
existing linked exchange rate mechanism should continue.
Making his 1998/99 Budget address, Mr Tsang
acknowledged there was understandable public concern at
the price being paid for defending the Hong Kong dollar,
and he said the sharp interest rate hike on October 23
last year, though very short-lived, was unprecedented and
had hit business hard at the time.
Higher local interest rates since then have triggered
corrections in the stock and property markets and exerted
pressure on businesses and home buyers.
"The downward adjustment in asset values is painful,
but we need to keep a sober perspective. Exuberant
sentiment last year had been pushing up the price of
stocks and property to levels which were hardly
sustainable," he said.
Mr Tsang said a free floating exchange rate would not
be a panacea. Regional economies with floating exchange
rates had seen sharper falls in their asset values.
"From the start of 1997 to early February this year,
the value of stocks in Thailand, Malaysia, Indonesia and
South Korea have fallen by 62%, 65%, 76% and 54%
respectively in US$ terms; and that in Singapore by 47%,
compared to the drop in value in the Hang Seng Index of
22%.
"The on-going experience in regional economies shows
that financial markets are having difficulty in finding
sustainable levels. The uncertainty and disturbance that
would be caused by a change in our exchange rate regime
could destroy public confidence in the monetary system.
"That would fatally damage Hong Kong as the leading
international financial centre in the region. The loss of
the stability that we have provided in the region could
also trigger a fresh wave of devaluation that would wash
back on us."
Mr Tsang said some commentators had suggested that
Hong Kong would benefit from a competitive devaluation.
"Frankly speaking, devaluation is not a way out.
Everything that we manufacture we make with imported
products. Almost everything we consume we import.
Devalue today and tomorrow all those imports will cost us
more. That would mean a surge in inflation and an
immediate economic disruption.
"I do not see what gain there would be for Hong Kong
to add the pains of high inflation to the hard times we
already face."
He said the linked exchange rate mechanism had
protected the value of the Hong Kong dollar, and it should
be remembered that as our economy moved ever further into
high value added services and manufacture, the
depreciation of other currencies in the region affects us
less.
"Our flexible economic system and increasingly well
educated, well trained management and workforce can
maintain competitiveness through tighter cost controls,
productivity improvement and expansion into new markets.
"And there is an upside to the painful adjustment
process that is now going on. As property prices, rentals
and other costs come down, the competitiveness of our
economy is steadily strengthening."
Mr Tsang said most people understood the need for
currency stability, and the question was could we achieve
it in a less painful way? He said he had been consulting
widely on this issue and last October had asked the Hong
Kong Monetary Authority to conduct a review of the
currency defences.
"As well as to the International Monetary Fund and
overseas experts, I want to give my personal thanks to all
those local academics, analysts, businessmen and market
participants who gave us much helpful advice and raised
many pertinent questions for consideration.
"A clear consensus that emerged from the
consultations and review is that the linked exchange rate
mechanism has served us well for the last 14 years. It
has been the anchor for monetary policy and stable
economic growth. It should continue.
"The system has been working as designed. This was
the verdict of the International Monetary Fund last year,
and I quote: 'It is important to recognise that allowing
interest rates to rise in response to exchange market
pressures is an essential element of the currency board
mechanism that lies at the heart of Hong Kong's monetary
arrangements. Recent events demonstrate the system is
working exactly as intended...'
"The reforms that the Monetary Authority has
introduced over the past decade have proved themselves in
practice. Indeed, the international banking community has
warmly hailed the Hong Kong dollar exchange rate system as
a pillar of stability and a moderating force during the
financial turmoil."
Mr Tsang said some suggestions had been made,
designed to maintain both exchange rate and interest rate
stability under exchange market pressures.
"We are studying these proposals carefully. Our
analysis so far suggests that, to a varying degree, they
carry downside risks of undermining the credibility of the
linked exchange rate mechanism and incurring contingent
liabilities on our foreign reserves.
"The virtues of the present linked rate mechanism are
its simplicity and transparency. We must be careful not
to complicate the operations of the currency board. That
would detract from its robustness and add to uncertainty."
Mr Tsang also said there had been some controversy
over the exercise of discretion in monetary management by
the Monetary Authority, arising from its role as the
lender of last resort for the banking system.
He said: "Discretion is necessary, and I am satisfied
that it has been exercised in a manner consistent with the
discipline of the currency board system. I am pleased
that the Authority has issued clarification on how banks
can access the Liquidity Adjustment Facility, which has
had the effect of calming market sentiment. To the extent
to which this would not undermine the effectiveness of its
actions, the Authority intends to provide further
clarification of the circumstances in which its discretion
would be exercised, for the benefit of market
participants.
"The review since October has highlighted useful
lessons for Hong Kong from the regional turmoil. It has
reinforced our conviction that we must maintain sound
macroeconomic fundamentals in terms of a consistent
monetary policy, prudent fiscal discipline and a non-
interventionist economic philosophy.
"At the micro level, we must reinforce our efforts to
ensure that banks in Hong Kong manage their risks
prudently; that they pay special attention to the quality
of their assets, so as not to be overly exposed to those
that are vulnerable to interest rate volatility; and that
they have regard to the conditions imposed by the currency
board system.
"The Hong Kong Monetary Authority has done well in
banking supervision. Generally our banks are well
managed. They have some of the highest capital adequacy
ratios in the world. They are efficient and competitive.
But we are not complacent. The Monetary Authority has
announced a consultancy study into the banking system this
year. This will address whether measures are needed to
improve the resilience of the system to internal and
external shocks.
"Many have asked me how long the present relatively
high interest rates will last. That all depends on how
long the regional economic situation remains unsettled.
The higher interest rates reflect the perceived risks in
Asia and the slowdown in capital flows to the region.
Other regional currencies with floating exchange rates are
also facing higher interest rates.
"I cannot predict when better conditions will return.
The situation varies greatly from country to country, and
it is clear that the problems are not only financial.
Structural, political, institutional and social problems
have to be addressed in many different combinations.
"I am heartened by the steps being taken in South
Korea, by the signs in Japan and by the support provided
by the International Monetary Fund and APEC. I will
continue to hope and to work for the best. But we will
also continue to guard Hong Kong against the threat of
further squalls."
End
7. 1997/98 surplus forecast to be $77 billion
******************************************
An exceptional and record level of government
receipts from land premiums and stamp duty in the first
half of 1997/98 has increased the forecast budget surplus
for that year to $77 billion, the Financial Secretary,
Mr Donald Tsang, said today (Wednesday).
This was $45.3 billion higher than the surplus of
$31.7 billion originally estimated for a year which had
proved to be unique in so many ways that could not have
been foreseen, he said.
The figure did not include the Land Fund.
Revenue was expected to be $39.9 billion more than
originally estimated and recurrent receipts were forecast
to be $23.7 billion higher than originally estimated.
"Of this, $16.2 billion comes from higher than
expected receipts from stamp duty, reflecting the
exceptional level of turnover in both the stock and
property markets in the first half of the financial year.
Stamp duty collections for the first six months of 1997/98
were more than two and a half times the level in the
corresponding period in 1996/97.
"Firmer interest rates, together with the increased
surpluses in 1996/97 and 1997/98, have brought in higher
interest earnings on our fiscal reserves. We have also
seen slightly better receipts from salaries and profits
taxes."
Mr Tsang said capital receipts were now expected to
be $16.2 billion above the original estimate. This was
explained almost entirely by higher than anticipated
receipts from land premiums, now forecast to be
$16.8 billion greater than estimated.
"This is partly because during the year we made
available more land for sale than was anticipated at the
time of preparing the 1997/98 Estimates. The other reason
is the surge in property values in the first half of
1997."
Mr Tsang said that on the expenditure side, the
revised estimate for 1997-98 was $197.7 billion, an
underspending of $5.4 billion.
"Mainly as a result of some slippage in capital
projects and a lower than expected redemption rate of New
Territories land exchange entitlements, spending from the
various special funds will be $7.8 billion lower than
originally estimated."
This was offset by higher than budgeted spending of
$2.4 billion on the General Revenue Account where
advantage had been taken of the strong financial position
to set up the Quality Education Fund for which no
provision was made in the original estimates.
End
8. Good fiscal reserves vital for confidence
*****************************************
Good reserves of public funds are vital to
international confidence in our finances and in the
maintenance of the linked exchange rate - they are
fundamental to our economic prospects, the Financial
Secretary, Mr Donald Tsang, said in his 1998/99 Budget
Speech today (Wednesday).
Noting that he had promised to address the matter of
fiscal reserves in last year's budget debate, Mr Tsang
said that with the inclusion of the Land Fund, accumulated
fiscal reserves would be $446 billion at March 31, 1998.
"I am acutely aware that the size of fiscal reserves
which I propose to maintain may be the subject of debate.
But I am convinced that present circumstances fully
justify them," he said.
"I am deeply aware of the needs that many people in
the community have, and of the fears that have been
aroused by the difficulties we are now going through. No
one in a position of public responsibility can be
insensitive to them. I trust that what I have said
already, and the measures I am about to set out, will show
my commitment to respond to those needs and concerns.
"But I must stress that my actions are not based on
impulse. They are made possible because of the prudent
management of our finances and careful control of the
public sector's role within the economy. We have saved,
not run up debts. We have not committed ourselves to
spend more than we can afford. We have made sensible
investments. These simple principles will remain
inviolate in their application to our public finances."
He said the Administration must keep substantial
public funds in reserve for three purposes - to meet the
operating, the contingency and the monetary requirements
of public finance.
"The operating requirement is for the Administration
to have money on hand to meet its day to day cash flow
needs and to cover the several months in the financial
year when expenditure exceeds revenue. This is the
smallest of the reserve requirements. An amount
equivalent to three months of government expenditure is
adequate for operational purposes.
"The contingency requirement is to offset the effects
of any downswing in the economic cycle, or to cope with
the consequences of unforeseen events in the world or the
region that would have serious implications for public
finance. At such times, an adequate level of contingency
reserves enables us to hold fast to our investment and
spending plans without the need for increased taxation,
helping the economy adjust quickly to new conditions.
There can be no absolute definition of what an adequate
level of contingency reserves is. I think it makes sense
to set a range, in proportion to total annual expenditure.
"During years of strong economic growth, we could aim
for the high end of the range. During down turns, we can
let this portion of the reserves fall back towards the
lower end of the range while we maintain public investment
and expenditure programmes. Taking into account the three
months' government expenditure I propose to set aside as
our operational reserve, I consider that an amount equal
to nine months' expenditure should be sufficient to meet
our contingency requirement. Given the unpredictability
of contingencies, a margin of plus or minus three months'
expenditure should be allowed.
"On the monetary side, a reserve to underpin exchange
rate stability is desirable. Both the Hong Kong Monetary
Authority and the International Monetary Fund have
emphasised the importance of placing our fiscal reserves
with the Exchange Fund to strengthen public confidence in
our policy framework. I accept this need. Recent events
have underlined it. It is not easy to define the
appropriate level of fiscal reserves for monetary
purposes, except that experience has shown that the higher
the fiscal reserves, the greater the public confidence.
We have decided to adopt the Hong Kong Dollar money supply
under the M1 definition as the benchmark. Again, a range
would apply of plus or minus 25 per cent of M1.
"It is important to stress that I have proposed these
guidelines in the light of present conditions, fresh from
the experience of an historic regional financial crisis.
My colleagues and I will review the guidelines once we
have built up some experience in following them."
Mr Tsang added: "For me, as for all Financial
Secretaries of this small city, it is wise to recall the
words of a foreign Finance Minister, years ago, confronted
with a need for maintaining expenditure in difficult days.
"I have no nest eggs", he said: "I am looking for someone
else's nest to rob next year."
"I hold responsibility for safeguarding Hong Kong's
nest egg, our reserves. We have today the unprecedented
opportunity to set those reserves upon a largely self
sustaining basis: a basis that will underpin our financial
stability and economic prospects no matter whether the
future brings more storm clouds or sunshine.
"I could justify to no-one: not to this Council; not
to the community; not to my successors, were I to
compromise the safety that Hong Kong's hard earned
reserves have established for us all. I will not set in
train actions today, however well intentioned, that will
drain away those reserves and risk my successors having to
become robbers of the community's wealth."
Mr Tsang said he wanted to emphasise though, that
even as our reserves had been strengthening, we had been
increasing support to the community.
Over the last 10 years, recurrent Government
expenditure had grown by 65 per cent. He emphasised that
that was growth in real terms, almost precisely in line
with GDP growth.
Over that period, recurrent expenditure on social
welfare had grown by 202 per cent, again growth in real
terms. Next year it would grow by 13.6 per cent.
Consistent, substantial improvements in social services
were being made.
Mr Tsang said the present economic difficulties had
led him to re-examine how much more he could do with the
reserves and fund arrangements to give support to
individuals and to the economy. He had also been
examining the suggestion made in the Economic Sub-Group of
the Preparatory Committee that we should set up more funds
for investment purposes.
"On that point, members are aware that we have the
Capital Works Reserve Fund and the Capital Investment
Fund, established under section 29 of the Public Finance
Ordinance. The estimates published last Friday make clear
that in the coming year we intend to commence work on
$62.9 billion worth of major capital projects to be funded
from the Capital Works Reserve Fund.
"We will also be making substantial investments from
the Capital Investment Fund. $15.2 billion will be
provided in 1998/99, chiefly as equity for the West Rail
Project. We have the Loan Fund, which extends financial
assistance to worthwhile projects or individuals in need.
Members will be aware of the massive new loans that the
Chief Executive announced last October. Expenditure from
the Loan Fund will amount to another $16.4 billion in the
coming financial year.
"There is also the Lotteries Fund, providing a steady
source of financial support to development of welfare
facilities. It will provide over $1.1 billion in 1998/99.
All the funds I have mentioned are operating well and are
not short of liquidity. There is no need to establish
more general funds of this nature.
"We can, however, inject resources into specific
funds when needed. The $5 billion Quality Education Fund
recently approved by this Council is one example. The
$80 million grant to the Construction Industry Training
Authority I proposed earlier would be another.
"In the remainder of this financial year I also
intend to approach the Finance Committee for approval to
make one-off grants to the Environment and Conservation
Fund, the Occupational Safety and Health Council and the
Consumer Council. We will continue to consider other
areas where one-off injections may be beneficial."
End
9. Revenue concessions key tool in encouraging growth
**************************************************
Besides expenditure, revenue concessions are a
powerful tool in encouraging growing economic
relationships, the Financial Secretary, Mr Donald Tsang,
said today (Wednesday) in forecasting a surplus of
$10.7 billion the 1998/99 financial year.
"They spread their beneficial effects well beyond the
individuals or the businesses that receive them directly.
Lower taxes leave them with more money to spend and
invest. Tax allowances and deductions can stimulate
spending and investment, productivity gains and innovation
that will sustain employment," he said in his Budget
address.
Discussing prospects, for 1998/99 and beyond,
Mr Tsang said that in a time of financial turmoil, those
responsible for public finance found themselves facing two
contradictory demands.
The first was from global financial markets and
international financial institutions to demonstrate that
we were living within our means, maintaining or
strengthening revenues, controlling expenditure and not
squandering reserves to shore up unsound policies and
practices.
The second was from our own people, faced with loss
or hardship, for relief through more public expenditure or
less taxation.
He said: "Thanks to the care with which our finances
are managed, I can respond positively to both those
demands. Three significant buttresses to our revenue base
help us to do this.
* First, since July 1, 1997 we now retain the full
proceeds of revenue from land transactions (rather than
broadly 50 per cent before July 1, 1997).
* Second, we will benefit from the investment
earnings on the substantially increased level of fiscal
reserves.
* Third, the introduction of Government rent for the
new grant or extension of land leases beyond June 30, 1997
results in an additional and stable source of revenue
yielding over $4 billion a year.
Mr Tsang said these boosts to revenue were reflected
in his Medium Range Forecast.
"It is a critical feature of our management of the
public finances that we look at the impact of our
expenditure and revenue proposals not only in the context
of the coming financial year but also over the medium
term. This is to assure ourselves and the community at
large that our proposals are affordable, not just this
year but in the years ahead. Such a discipline is more
important than ever in this time of uncertainty.
"The Forecast is based on conservative assumptions.
It shows that in each of the next four years, the coming
budget year and the following three, we should continue to
achieve budget surpluses, although much less than the
exceptional surplus for 1997/98.
"In 1998/99, we estimate there will be a balance of
$10.7 billion, followed by a further $70.8 billion over
the remaining three years of the Medium Range Forecast
period," he said.
By the end of 2001/2002, the fiscal reserves should
have grown to $527 billion. This remained within proposed
guidelines, and the lowering in the proportion of reserves
to expenditure reflected the difficult economic conditions
we were now facing.
"Set against the size of the Budget, the
uncertainties we face in 1998, and the need to preserve
the real value of the reserves over time, the surplus
forecast for 1998-99 is prudent. It is just over two per
cent of budgeted revenue and expenditure. A variation of
this order, particularly in today's uncertain
circumstances, is insignificant in budgetary forecasting
terms. What I am presenting is essentially a balanced
budget for 1998/99."
Mr Tsang said that after allowing for the initiatives
set out by the Chief Executive in October, Government
expenditure would amount to $233 billion in 1998/99. This
was consistent with the guideline of keeping growth in
Government expenditure within the trend rate of growth of
the economy over time. It did not include the investment
of $15.2 billion which would be made from the Capital
Investment Fund.
End
10. Salaries tax proposals reduce taxpayers' burden
***********************************************
The overall package on salaries tax will reduce the
burden on taxpayers by $8 billion in the coming year and
by $56.8 billion up to 2001/02, the Financial Secretary,
Mr Donald Tsang, said today (Wednesday).
Presenting the 1998/99 Budget in the Provisional
Legislative Council, Mr Tsang said he proposed to raise
the basic personal allowance from $100,000 to $108,000 and
the married person's allowance from $200,000 to $216,000.
He said: "This is an increase of eight per cent. It
follows a cumulative increase of 144 per cent in the
allowances between 1991/92 and 1997/98, which far exceeds
the cumulative inflation of 66 per cent during the same
period."
In addition, Mr Tsang proposed:
* to raise the allowance for the first and second
child by 11.1 per cent, from $27,000 to $30,000;
* to raise the allowance for the third to the ninth
child by 7.1 per cent, from $14,000 to $15,000;
* to raise the basic allowance for a dependent
parent or grandparent by 11.1 per cent, from $27,000 to
$30,000, and make a similar increase to the dependent
brother and sister allowance.
* a substantial increase in the maximum deduction
for training expenses by 50 per cent, from $20,000 to
$30,000 a year.
* to raise the single parent allowance by 44 per
cent, from $75,000 to $108,000, the same level as the
proposed basic personal allowance.
End
11. Fairer tax structure makes most people pay less
***********************************************
Ninety-nine per cent of salaries taxpayers will pay
less as a result of the proposals to make the whole tax
structure fairer, the Financial Secretary, Mr Donald
Tsang, said today (Wednesday).
The salaries taxpayers, Mr Tsang said, would have the
encouragement of keeping more of the wealth that they
earned. They would have greater freedom to plan for their
own economic security.
Introducing the tax incentives for individuals in his
Budget Speech to the Provisional Legislative Council,
Mr Tsang said of greatest significance for the overall
impact of taxation were the tax bands and marginal rates.
Mr Tsang said: "All sectors in the community
responded favourably to the changes I made to the marginal
tax structure last year. Middle-income salaries
taxpayers, the 'sandwich class' in particular, benefit
most.
"I consider that we can go further this year to once
again reduce their tax burden. I propose to widen the
marginal tax bands from the present $30,000 to $35,000.
"I also propose to reduce the marginal tax rates by
changing the incremental steps from six per cent to five
per cent so that the top marginal tax rate will be reduced
from 20 per cent to 17 per cent."
This means that at the lower end, a single person
will have to earn more than $9,000 a month to pay any tax
at all, while a married couple with two children will need
to earn more than $23,000 a month. At the upper end, a
single person will need to earn more than $120,000 a month
to pay salaries tax at the standard rate of 15 per cent,
while a married couple with two children would have to
earn more than $239,000 a month. Everyone in between will
pay less.
For example:
* A single person earning the median income of
$18,670 a month will pay $4,780 less tax, a 34 per cent
cut.
* A couple on median income with no children will
have their tax bill cut by 67 per cent to only $160.
* At typical sandwich class earnings of $45,000 a
month, a married couple with two children will have their
tax bill cut by $12,020 or 25.9 per cent.
Mr Tsang said: "A simple cut in the standard rate of
salaries tax would have benefited only those in the top
income bracket. The proposals I have set out make the
whole tax structure fairer.
"Once a person enters the tax net, the weight of tax
will increase more gently and more evenly than under the
present structure. The number who have to pay salaries
tax at the standard rate will be reduced from 71,000 to
10,000.
"The total number of salaries taxpayers will not be
reduced by these measures but 99 per cent will pay less."
End
12. Tax concession for mortgage interest payments
*********************************************
A new salaries tax deduction of a maximum of $100,000
per year per property for home mortgage interest payments
will be introduced as a tax relief for home buyers, the
Financial Secretary, Mr Donald Tsang, said today
(Wednesday) in the Provisional Legislative Council.
To ensure that only genuine home buyers may benefit,
the deduction will only apply in respect of properties for
self-occupation. Applicants may claim the deduction in
any five tax years. To encourage home ownership and
alleviate the burden on home buyers across the board, the
deduction will apply to all owner-occupiers with a
mortgage, not just first-time home buyers.
Mr Tsang said he knew that there was much concern
over the state of the property market at present and there
was worry at the effects of measures to increase housing
supply.
"Taking a long-term view, the present difficulties
are exceptional. Historically, property has always been
at a premium in Hong Kong. A growing population, deeply
attached to the ideal of having one's own home in which to
bring up a family, creates strong demand. This demand
will endure, whatever the state of the property market
today."
Noting that the Chief Executive had made home
ownership a matter of the highest priority and had
announced the target of achieving a home ownership rate of
70 per cent in 10 years, Mr Tsang said housing was given
top priority financially.
In 1998/99, total public spending on housing will be
$48.9 billion, an increase of 52.1 per cent over 1997/98.
Over the five years up to 2001/02, $11 billion will
be spent to accelerate housing-related infrastructure
development.
"Organizationally, we are now fully geared up for the
higher level of land supply and flat production that is
needed to meet our housing targets. We have cut the
planning and construction times for both public and
private sector flats, and have set up a comprehensive,
computerized monitoring system for the flat production
programme in the Housing Bureau.
"We have also set up efficient problem-solving
mechanisms at district and central government level,"
Mr Tsang said.
The Tenants Purchase Scheme represents a massive
transfer of wealth to the families that will benefit and
will help tens of thousands of families to achieve the
desire to own their own home.
"Over time, it will help to create a broader, less
distorted housing market. And as the momentum for the
scheme builds up, the Housing Authority and Housing
Department can refocus their work on their key task of
serving those in real need of public rental housing.
"The Chief Executive has pledged to reduce
applicants' waiting times from six and a half to three
years. We are committed to achieving that."
End
13. Revenue measures to improve care for the elderly
************************************************
Total spending on welfare payments and on direct
social and medical services for the elderly will increase
by 16.3 per cent in the coming financial year to
$14.5 billion, the Financial Secretary, Mr Donald Tsang,
said in his Budget address to the Provisional Legislative
Council today (Wednesday).
Noting that expanding the scale and increasing the
quality of services available to the growing number of the
elderly was one of the Government's core programmes,
Mr Tsang proposed two significant revenue measures to
advance the Government's efforts to help improve care for
the elderly today and to make better provision for them in
future.
"First, I intend to increase the additional allowance
for a dependent parent or grandparent living with a
taxpayer by 275 per cent, from $8,000 to $30,000.
Together with the basic allowance for such dependants this
will give $60,000 in allowances for taxpayers who have an
elderly dependant living with them."
Secondly, Mr Tsang said, he proposed to introduce a
new salaries tax deduction of up to $60,000 a year for
those who were supporting an elderly dependant in
residential care.
"This will help relieve a financial burden on these
taxpayers and may also serve to encourage the development
of better quality private sector care services. Those
claiming the deduction would not be eligible for the
salaries tax allowances for that dependant."
Reiterating the Government's firm commitment to
establish Mandatory Provident Fund schemes to give the
working population a viable and sustainable retirement
benefit system, Mr Tsang said he intended to use the tax
system to help the development of secure provision for the
financial needs of the retired in future.
"When the scheme comes into operation, I intend to
introduce a salaries tax deduction of up to $12,000 a year
for employees' compulsory contributions.
"Self-employed people will be eligible for an
equivalent deduction under the profits tax regime.
Employees making contributions to recognized occupational
retirement schemes exempted under the Mandatory Provident
Fund Schemes Ordinance will also obtain the deduction."
Meanwhile, the Financial Secretary proposed to use
tax measures to help individuals and families who were
giving support to dependants who had disabilities. The
disabled dependant allowance will be increased by
140 per cent, from $25,000 to $60,000, double the basic
allowance for a dependant.
End
14. Low tax regime strengthened as estate duty reduced
**************************************************
The reduction in estate duty will help to strengthen
Hong Kong's position as a low tax regime, the Financial
Secretary, Mr Donald Tsang, said today (Wednesday) in the
Provisional Legislative Council.
The proposed changes in the duty rates include:
* The level of estate value below which no duty is
payable will be raised from $7 million to $7.5 million.
* The first duty band will cover estates over
$7.5 million up to $9 million. The duty rate will be
reduced from six per cent to five per cent.
* The second duty band will cover estates over
$9 million up to $10.5 million. The duty rate will be
reduced from 12 per cent to 10 per cent.
* The top duty rate, applying to estates valued at
over $10.5 million, will be reduced from 18 per cent to
15 per cent, the same level as that for the standard rate
of salaries tax and profits tax for unincorporated
businesses.
The cost of the proposal is $90 million in 1998/99
and $780 million up to 2001/02.
End
15. Range of profits tax improvements
*********************************
Delivering his Budget Speech in the Provisional
Legislative Council meeting today (Wednesday), the
Financial Secretary, Mr Donald Tsang, proposed a range of
recommendations based on the comprehensive review of the
profits tax last year.
On the matter of double taxation, which was a concern
for many of Hong Kong's businesses, the Financial
Secretary addressed this in a number of ways.
An arrangement had been made with the relevant
authorities in the Central People's Government on
avoidance of double taxation between the Mainland and Hong
Kong. The arrangement covers shipping, aviation, land
transportation, permanent establishment, services and
personal taxation.
The arrangement was set out in a Memorandum signed on
February 11, 1998.
"This will enhance cross-border business activities
and strengthen the competitiveness of Hong Kong business
operating in the Mainland," Mr Tsang said.
He also proposed to select a few target countries for
negotiation of comprehensive double taxation agreements,
where this would be in Hong Kong's overall interest.
"We will continue with our policy of negotiation of
double taxation relief arrangements on airline income with
our aviation partners," Mr Tsang said.
In addition, he proposed to amend the Inland Revenue
Ordinance to provide reciprocal tax exemption for shipping
income so that Hong Kong ship operators can benefit from
the tax relief offered by those countries with similar
reciprocal legislation.
"We will also enter into negotiation of double
taxation relief arrangements for shipping with other
places which do not provide reciprocal tax exemption in
their legislation, in order to alleviate the tax burden on
our shipping industry operating in those places."
This will strengthen the industry's competitiveness,
he added.
The Financial Secretary also mentioned a few more
improvements that he thought it was right to make.
He proposed to amend the Inland Revenue Ordinance to
replace the present restrictive listing of the types of
income derived by beneficiaries from fund management which
qualify for tax exemption with a general definition which
can keep pace with the fast-changing developments in fund
management.
"I propose to provide a concessionary tax rate at 50
per cent of the normal profits tax rate for the offshore
business of professional reinsurance companies authorised
in Hong Kong."
He explained that this would allow Hong Kong to
compete on level terms as a regional reinsurance centre.
Reinsurance companies can opt for the concession on an
irrevocable basis.
As an incentive to achieve higher productivity and
find ways to add higher value, Mr Tsang proposed to expand
the scope of deductions for capital expenditure on
research and development.
Mr Tsang also proposed to extend the hotel
refurbishment concession introduced in the 1996/97 Budget
to all other business sectors.
As an incentive to invest more in high value
manufacture and modern business systems, Mr Tsang proposed
to allow an immediate 100 per cent write-off for new
expenditure on plant and machinery specifically related to
manufacturing, and computer hardware and software, which
are owned by end users.
Meanwhile in the Budget speech, Mr Tsang said in
order to provide greater certainty for businesses, the
Inland Revenue Department will provide from April,on a
full cost recovery basis, an advance ruling service on the
source of profits.
End
16. Corporate profits tax reduced to 16 per cent
********************************************
Delivering his Budget Speech in the Provisional
Legislative Council today (Wednesday), the Financial
Secretary, Mr Donald Tsang, proposed to reduce the
corporate profits tax rate from 16.5 per cent to
16 per cent.
The current standard profits tax rate of 15 per cent
for unincorporated businesses will remain unchanged, in
line with the standard rate for salaries tax, he added.
"The total cost of my Profits Tax package is
$1.6 billion in 1998/99. Because of our provisional tax
payment arrangement, the first-year cost is comparatively
low and does not reflect the full picture.
"The cumulative cost of the package for the four
years up to 2001-02 is $19.9 billion," he added.
These concessions do not undermine one of our most
significant and stable sources of revenue, nor do they in
any way detract from our ability to spend money on
community programmes.
The published expenditure estimates for 1998/99
clearly show that there is no validity in that argument,
he said.
"This package is designed to sharpen our competitive
edge, to emphasise that our business environment and tax
system are second to none.
"Our profits tax will now be lower; the system will
remain simple and predictable; it will be more competitive
for all," he added.
Mr Tsang explained that there were divergent views on
whether or not to reduce the corporate Profits Tax rate.
"After careful consideration, I believe that a
moderate change is both affordable and necessary.
"Financially, we should not tax more than we need.
Even after the major concessions on personal taxation that
I have already announced, and leaving room for some
further important measures that I will come to later, our
financial strength still permits a modest reduction in the
corporate Profits Tax rate without imperilling our ability
to maintain a healthy revenue stream.
"Externally, while our tax rate is very low when
compared with our regional competitors, there is no room
for complacency. Our competitors are introducing a wide
range of tax incentives to attract investors. We have to
respond to these challenges," he said.
End
17. Capital duty and stamp duty on stock transactions reduced
*********************************************************
The Financial Secretary, Mr Donald Tsang, today
(Wednesday) proposed to reduce both the capital duty and
the stamp duty on stock transactions.
This should help our businesses in the current times
and work to improve Hong Kong's competitive position, he
said.
"To augment the attractiveness of Hong Kong as a
place for company incorporations and related activities, I
propose to reduce capital duty from 0.3 per cent to
0.1 per cent.
"We will impose a cap at $30,000 per case, which will
benefit company mergers and restructuring activities
involving large share issues."
The concessions will cost $500 million in 1998/99 and
$2.4 billion up to 2001/02, he added.
On stamp duty, Mr Tsang promised in the last Budget
that he would be prepared to review the Stamp Duty rate on
stock transactions if the securities industry reduced
brokerage charges so as to lower overall transaction
costs.
The Securities and Futures Commission will lower its
transaction levy while the Stock Exchange of Hong Kong
will transfer a part of its transaction levy to a fund for
its future development.
"In response to these initiatives and to help the
competitiveness of our stock market, I propose to reduce
the rate of Stamp Duty from 0.3 per cent to 0.25 per cent
for a complete transaction," he said.
While the Financial Secretary fully appreciated the
considerable difficulties the brokerage industry might now
be facing in view of the recent developments in the
market, he said the industry could not avoid forever the
question of transaction costs in the context of
competitiveness.
Brokerage charges are much the largest component in
the total cost of transactions on the Stock Exchange.
"In their own interest, as well as in the interest of
the investing public, I now appeal to the industry to
adopt a more far-sighted view and come forward with their
own cost-reduction initiatives as soon as possible.
"To help the securities industry to continue to
develop new products to meet different market needs, I
also propose to make two further changes.
* First, to replace the current Stamp Duty remission
for transactions in regional derivative options and
convertible bonds or notes with a specific exemption, so
as to simplify the process for granting the concession;
and
* Second, to extend this exemption to cover
transactions in regional derivative warrants which have no
more than 40 per cent weighting by value in Hong Kong
stock."
The total cost of the concessions on stock
transactions is $950 million in 1998/99 and $4.6 billion
up to 2001/02.
End
18. Revenue measures for tourism
****************************
The Financial Secretary, Mr Donald Tsang, today
(Wednesday) proposed to make two tax concessions to help
the tourism industry.
First, the rate of Hotel Accommodation Tax will be
reduced from 5 per cent to 3 per cent.
Second, the Air Passenger Departure Tax will be
reduced from $100 to $50 when the new airport opens on
July 6.
Moving the second reading of the Appropriation Bill
1998 in the Provisional Legislative Council meeting,
Mr Tsang said: "I trust that this will help underpin the
efforts of our tourism industry.
"It will put our airport tax down to a level which is
amongst the lowest in the region.
"The reduction in airport tax will also benefit local
passengers and takes into account the higher cost for
travelling to the new airport at Chek Lap Kok," he
explained.
The total cost of the two concessions is $660 million
in 1998/99 and $3.7 billion up to 2001/02.
Mr Tsang explained that the recent downturn in
tourism had raised concerns.
Although the industry had responded with attractive
price-cutting and enhanced promotional activities, the
Government could help by making tax concessions apart from
providing funding for tourism facilities and attractions.
End
19. Rates lowered to 4.5 per cent for one year
******************************************
In view of Hong Kong's healthy financial position and
in line with our policy of not raising more revenue than
necessary, the Financial Secretary, Mr Donald Tsang, today
(Wednesday) proposed to reduce the overall rates
percentage charge from five per cent to 4.5 per cent for
one year in 1998/99.
The reduction will be borne entirely by the General
Rates: the Rates funding of the Municipal Councils will
not be affected. The Rates relief scheme for 1998/99 will
also continue to apply, he said.
Mr Tsang said he did not consider it justified to
reduce rates to alleviate the financial burden on property
owners arising from the charging of Government rent.
First of all, he said Government rent was payable by
less than 50 per cent of the tenements subject to rates.
An across-the-board rates reduction for this reason is not
warranted.
Second, it must be remembered that the charging of
Government rent in itself represents a massive concession
in respect of extension of non-renewable leases and the
grant of new leases beyond 1997. The alternative to the
rent was for the property owners concerned to pay a lump
sum premium.
"I am also very conscious that rates represent the
most widely based and one of the most secure sources of
revenue.
"But I do share Members's view that some concession
on rates is the revenue measure that can give benefit to
the greatest number of individuals and businesses in the
community," he said.
Mr Tsang also explained why he had proposed only a
one-year reduction. "The recent turbulence in the
financial markets has affected the property market. The
impact is likely to be reflected in rental values over the
next few years. Consequently there is much uncertainty
over the future growth of Rates revenue.
"Given the scale of revenue concessions I propose on
other taxes, and the uncertain economic outlook, I cannot
find assurance that a permanent concession on Rates is
affordable.
"As for the amount of the concession, I have to bear
in mind that the Municipal Councils are mainly funded out
of Rates revenue, and that in the New Territories, of the
overall Rates charge of five per cent, revenue from
4.2 per cent is now required to meet the Regional
Council's commitments.
"Given the uncertain yield from Rates over the next
few years, any greater reduction than half a percentage
point could well jeopardize the funding for the Regional
Council.
"A two or three percentage point cut as proposed by
some would completely undermine the funding of regional
services and put that for urban services in peril," he
said.
Mr Tsang noted that Hong Kong was conducting a review
of the structure of district organizations and any
substantial change arising from the review might have
implications for the present financial arrangement for the
Municipal Councils. Thus it would be unwise to take
action now which would pre-empt our options.
"When the review is completed and the funding
implications are known, and when the effect on rental
values of the recent financial turmoil is clearer, I will
re-examine the situation.
"In the next Budget I will decide whether the
reduction I now propose should be continued or varied in
future years," he said.
Almost all properties subject to rates will benefit
from the reduction. The cost to General Rates is
$1.7 billion in 1998/99.
In his last Budget Speech, the Financial Secretary
reported that they were studying the possibility of
conducting general revaluation on an annual basis.
"This already complex issue has been made more so by
recent events in the property and rental market. We need
more time to consider," he added.
End
20. Freezing government fees and charges for one year
*************************************************
The Financial Secretary, Mr Donald Tsang, told the
Provisional Legislative Council today (Wednesday) that he
was freezing most government fees and charges at their
current levels with immediate effect for the next 12
months.
This freeze will not apply to fees and charges for
the commercially-oriented services provided by trading
funds, which are required by law to ensure that revenues
cover expenditure, nor to services provided at full cost
to certain public entities.
Nor will it apply to any new fees that are in the
pipeline. "I remain committed to the 'user pays'
principle," he said.
"I will obviously need to take the effects of this
freeze into account when considering fee increases in
future. But we will remain vigilant in our efforts to keep
service costs, and thus fees and charges, at the lowest
possible level.
"In this context I would like to announce that,
following the latest costing review, we will reduce the
passenger embarkation fee at the Marine Ferry Terminals by
28 per cent from $25 to $18," he added.
The cost to the revenue of the freeze on fees and
charges will be about $160 million in 1998/99. The
reduction in the passenger embarkation fee will cost
$65 million in 1998/99 and $335 million up to 2001/02.
The Financial Secretary explained that at the heart
of our charging policy was the principle that the user
should make a due contribution to the cost of providing
the services.
"I have been a vigorous defender of this principle
over the years, for two reasons. First it is fair.
Second, it enables us to maintain the benefits of our low
tax system," he said.
"In order to uphold this principle, we seek to
increase fees and charges on an annual basis, generally in
line with inflation.
"But exceptional times demand exceptional measures.
This is a year in which Government as far as possible
should not be adding to the costs of individuals or of
businesses." Thus he has proposed the freeze.
End
21. FS summarises his Budget Speech
*******************************
Following is the text of a TV/radio broadcast of the
summary by the Financial Secretary, Mr Donald Tsang, on
his Budget Speech delivered at the Provisional Legislative
Council meeting this (Wednesday) afternoon:
In the Budget that I presented this afternoon I have
done four things.
First, I have set out the importance of currency
stability to Hong Kong. I have affirmed our commitment to
maintain the currency board system and to maintain the
Linked Exchange Rate at the existing level of parity. I
have set out a wide ranging programme for improvements to
the regulation and operation of our banking system,
financial markets, and stock market. Hong Kong has stood
up to the stormy weather in the Region's economy quite
well, but we have learned some lessons that we need now to
act on.
Second, I have set out guidelines for the handling of
Hong Kong's strong fiscal reserves. These are designed to
give assurance of our commitment to monetary stability,
and assurance that we can maintain a strong level of
public investment in the years ahead. Improved
arrangements for management of the fiscal reserves should
help to ensure a better contribution from these funds to
public revenue.
Third, I have reconfirmed the Government's commitment
to proceed with all the expenditure programmes announced
by the Chief Executive last October.
Fourth, I have announced the largest package of tax
reductions in Hong Kong's history.
Over the next four financial years, the effect of the
tax reductions will be to leave nearly $100 billion more
in the hands of those who have earned it.
Two thirds of the concessions will go directly to
individuals, mostly through increases in Salaries Tax
allowances and improvements to the marginal tax structure.
I have introduced three major new deductions to help home
buyers; to help those caring for elderly dependants; and
to offset contributions to Provident Fund schemes.
Allowances for disabled dependants, for dependent parents
and grandparents and for single parent families have all
been increased substantially.
One third of the tax reductions will benefit
businesses directly, mostly through an extensive set of
improvements to the Profits Tax regime, including a
reduction in the standard rate of corporate Profits Tax to
16 per cent. We have also reached an understanding with
tax authorities of the Central Government on the removal
of double taxation on our businessmen operating in the
Mainland. The dialogue with Central Government on
improving tax arrangements continues.
While some of the measures, such as a one year
reduction in Rates and a one year freeze on most
Government fee increases, are intended to give short term
relief, most of the changes have been designed with Hong
Kong's long term competitiveness in mind. They reinforce
our position as a haven of low taxes. The improved
Profits Tax system creates stronger incentives for
investments that will upgrade productivity. The Salaries
Tax structure is now much fairer to middle income earners
and helps families to play their part in supporting the
elderly and people with disabilities.
Despite the financial troubles around us, Hong Kong
can afford to make these substantial tax reductions and
keep on course with all recurrent and capital spending
plans. This will be a more difficult year, but growth in
the economy will continue. This will sustain underlying
public revenue. Since July 1, 1997, we have added to
public revenue the new Government Rent and the full
proceeds of land transactions. On top of that, we now
receive substantially more in returns from the investment
of the fiscal reserves. That all combines to give us the
strength and flexibility to meet all our spending
commitments, to cut taxes and to retain strong reserves
against the threat of any further problems in the regional
economy.
Today's Budget has sought to use our strengths to
help ride out the present storms, but most of all, to use
our flexibility to renew Hong Kong's strengths. Together
we face a more difficult year: together, we can keep Hong
Kong a good home, a place of opportunity and hope.
End
22. 1998 Budget: Quotable Quotes
****************************
Following are the quotable quotes from the 1998/99
Budget Speech by the Financial Secretary, Mr Donald Tsang,
in the Provisional Legislative Council today (Wednesday):
From Introduction
-----------------
"The conditions under which I have framed this Budget
are the most complex faced by a Financial Secretary for
many years."
On the consequences of regional financial turmoil
"In the aftermath lie grave uncertainties for 1998
that demand cool thinking and careful action."
Philosophy
"Our approach to the economy must be based on sound
premises, so that none have grounds to lose faith in Hong
Kong. Giving assurance of continuity, matched with
incentive for new growth, ranks the highest in my mind."
"The measures that I set out must aim to provide
comfort, bolster confidence and strengthen
competitiveness."
"Their objective is to help us to ride out the
present storm and to work to renew Hong Kong's distinctive
strengths."
"It is the aggregate of all the millions of
individual economic decisions made each day by the
citizens and the businesses of this city that drives our
economy."
"We must give room for the power of diversity, the
natural growth of the free market, and the efficiency of
individual choice to work."
"Government, while exercising imagination, will not
impose an unnatural economic strategy."
Outlook
"Things will get better, but it will take time, and
there may be more knocks along the way."
"We are in Asia, but Asia with a difference. We own
a truly free market, a modern, resilient economy, able to
evolve rapidly with changing conditions."
"Our fiscal prudence has sometimes been criticized
but I hope that the virtues of that prudence will become
more apparent today."
Currency Stability and Linked Exchange Rate
-------------------------------------------
"Crucial to Hong Kong's prospects in the years ahead
is the stability of the currency."
"There is understandable public concern at the price
we are paying for defending the Hong Kong dollar."
"The downward adjustment in asset values is painful,
but we need to keep a sober perspective. Exuberant
sentiment last year had been pushing up the price of
stocks and property to levels which were hardly
sustainable."
"A free floating exchange rate would not be a
panacea."
"The uncertainty and disturbance that would be caused
by a change in our exchange rate regime could destroy
public confidence in the monetary system."
"The loss of the stability that we have provided in
the region could also trigger a fresh wave of devaluation
that would wash back on us."
"Devaluation is not a way out. Everything that we
manufacture we make with imported products. Almost
everything we consume we import."
"Devalue today and tomorrow all those imports will
cost us more. That would mean a surge in inflation and an
immediate economic disruption."
"I do not see what gain there would be for Hong Kong
to add the pains of high inflation to the hard times we
already face."
"The linked exchange rate mechanism has protected the
value of the Hong Kong dollar. As property prices,
rentals and other costs come down, the competitiveness of
our economy is steadily strengthening."
"Most people understand the need for currency
stability. The question is, could we achieve it in a less
painful way?"
"A clear consensus that emerged from the
consultations and review is that the linked exchange rate
mechanism has served us well for the last 14 years. It
has been the anchor for monetary policy and stable
economic growth. It should continue."
"Some suggestions have been made, designed to
maintain both exchange rate and interest rate stability
under exchange market pressures. Our analysis so far
suggests that, to a varying degree, they carry downside
risks of undermining the credibility of the linked
exchange rate mechanism and incurring contingent
liabilities on our foreign reserves."
"The virtues of the present linked rate mechanism are
its simplicity and transparency."
"The higher interest rates reflect the perceived
risks in Asia and the slowdown in capital flows to the
region."
"I will continue to hope and to work for the best.
But we will also continue to guard Hong Kong against the
threat of further squalls."
Improving Market Regulation
---------------------------
Programme
"We are looking at allegations of market
manipulation. We will take appropriate counter-measures
where these are justified."
"We are looking at the adequacy of the Financial
Resources Rules on registered entities and the regulators'
capability in surveillance, monitoring and enforcement of
compliance."
"We are examining whether the margins and marks are
adequate to ensure a secure settlement system."
"We are also considering how we should expand the
existing regulatory regime to govern companies dealing
with margin financing."
"We are also addressing the issues of disclosure and
investors' education."
Importance to Hong Kong of good market regulation
"The commitment to reform the securities and futures
market in 1987 has been the foundation stone for the
success of our financial services industry since then."
"We will make good our commitment to achieve the very
highest standards of market management and probity, so as
to safeguard the reputation and resilience of Hong Kong as
a leading international financial market."
Performance in 1997
-------------------
Economic
"In retrospect, the markets were becoming overheated,
and correction was becoming likely even without the
external shock in the fourth quarter."
"Despite strong performance in the first three
quarters, GDP for the year grew by 5.2 per cent only,
slightly above the 5 per cent growth in 1996. This
reflects the effects in the final quarter of the regional
financial turmoil."
"Unlike the preceding two years, the private sector
once again provided the major impetus for growth. That
was as it should be, given the predominance of private
enterprise in our economy."
Financial
"A year ago, I said that this would be a unique year.
In the event, it has proved to be so in ways which I could
not then have foreseen."
"...the exceptional and record level of government
receipts from land premiums and stamp duty in the first
half of the financial year."
"I am now forecasting a surplus for 1997-98 of
$77 billion, $45.3 billion higher than the surplus of
$31.7 billion I originally estimated in my 1997 Budget."
"I now expect revenue for the year to be
$39.9 billion more than originally estimated."
"Recurrent receipts are forecast to be $23.7 billion
higher than originally estimated."
"$16.2 billion comes from higher than expected
receipts from stamp duty, reflecting the exceptional level
of turnover in both the stock and property markets in the
first half of the financial year."
"Stamp duty collections for the first six months of
1997/98 were more than two and a half times the level in
the corresponding period in 1996/97."
"Capital receipts are now expected to be
$16.2 billion above the original estimate."
"Receipts from land premiums are now forecast to be
$16.8 billion greater than estimated. This is partly
because during the year we made available more land for
sale than was anticipated at the time of preparing the
1997/98 Estimates. The other reason is the surge in
property values in the first half of 1997."
"On the expenditure side, the revised estimate for
1997/98 is $197.7 billion, an underspending of
$5.4 billion. Spending from the various special funds
will be $7.8 billion lower than originally estimated.
This is offset by higher than budgeted spending of
$2.4 billion on the General Revenue Account."
Handling of the Reserves
------------------------
Three purposes
"I see three purposes for which it is necessary for
the Administration to hold substantial public funds in
reserve. I define these as reserves needed to meet the
operating, the contingency and the monetary requirements
of public finance."
Definitions
"The operating requirement is for the Administration
to have money on hand to meet its day to day cash flow
needs and to cover the several months in the financial
year when expenditure exceeds revenue."
"The contingency requirement is to offset the effects
of any downswing in the economic cycle, or to cope with
the consequences of unforeseen events in the world or the
region that would have serious implications for public
finance."
"An adequate level of contingency reserves enables us
to hold fast to our investment and spending plans without
the need for increased taxation, helping the economy
adjust quickly to new conditions."
"On the monetary side, a reserve to underpin exchange
rate stability is desirable."
Level Required
"Our estimated Government expenditure in 1997/98 is
$198 billion. M1 money supply averaged $202 billion in
1997. This indicates that, to meet the guidelines, the
fiscal reserves at the present time should stand at
between $300 and $500 billion."
Present situation
"Our total fiscal reserves at the end of March 1998
(including the Land Fund) are expected to be
$445.6 billion."
"The addition of the Land Fund is a one-off
contribution. This brings us to the heart of the matter.
How can we ensure that we maintain the fiscal reserves at
a satisfactory level in future?"
Use of Funds in 1998
"The present difficulties have led me to re-examine
how much more I can do with our reserves and fund
arrangements to give support to individuals and to the
economy."
"In the coming year we intend to commence work on
$62.9 billion worth of major capital projects to be funded
from the Capital Works Reserve Fund. We will also be
making substantial investments from the Capital Investment
Fund. $15.2 billion will be provided in 1998/99, chiefly
as equity for the West Rail Project. Expenditure from the
Loan Fund will amount to another $16.4 billion in the
coming financial year."
Why Good Reserves are so important
"I am acutely aware that the size of fiscal reserves
which I propose to maintain may be the subject of debate.
But I am convinced that present circumstances fully
justify them. Good reserves are vital to international
confidence in our finances and in the maintenance of the
linked exchange rate. They are fundamental to our
economic prospects."
"For me, as for all Financial Secretaries of this
small city, it is wise to recall the words of a foreign
Finance Minister, years ago, confronted with a need for
maintaining expenditure in difficult days. "I have no
nest eggs", he said: "I am looking for someone else's nest
to rob next year." (Quotation is from David Lloyd-George,
Chancellor of the Exchequer in the UK in 1908)
"I hold responsibility for safeguarding Hong Kong's
nest egg, our reserves. We have today the unprecedented
opportunity to set those reserves upon a largely self
sustaining basis: a basis that will underpin our financial
stability and economic prospects no matter whether the
future brings more storm clouds or sunshine."
"I could justify to no-one: not to this Council; not
to the community; not to my successors, were I to
compromise the safety that Hong Kong's hard earned
reserves have established for us all."
"I will not set in train actions today, however well
intentioned, that will drain away those reserves and risk
my successors having to become robbers of the community's
wealth."
Commitment to Spending on Social Needs
--------------------------------------
"Even as our reserves have been strengthening, we
have been increasing support to the community. Over the
last ten years, recurrent Government expenditure has grown
by 65 per cent. Recurrent expenditure on social welfare
has grown by 202 per cent. Consistent, substantial
improvements in social services are being made."
"I am deeply aware of the needs that many people in
the community have, and of the fears that have been
aroused by the difficulties we are now going through. No
one in a position of public responsibility can be
insensitive to them."
"My actions are not based on impulse. They are made
possible because of the prudent management of our finances
and careful control of the public sector's role within the
economy."
"We have saved, not run up debts. We have not
committed ourselves to spend more than we can afford. We
have made sensible investments. These simple principles
will remain inviolate in their application to our public
finances."
"In a time of financial turmoil, those like myself
who are responsible for public finance find themselves
faced with two contradictory demands. The first is from
global financial markets and international financial
institutions to demonstrate that we are living within our
means, maintaining or strengthening revenues, controlling
expenditure and not squandering reserves to shore up
unsound policies and practices. The second is from our
own people, faced with loss or hardship, for relief
through more public expenditure or less taxation."
"Thanks to the care with which our finances are
managed, I can respond positively to both those demands."
Prospects for 1998
------------------
"With nearly 85 per cent of our GDP derived from
services, our external competitiveness hinges not merely
on price, but ever more on product differentiation,
service diversity, quality and sophistication - the adding
of high value to all that we do."
"Much uncertainty still prevails on the regional
financial scene. Restoration of a stable financial
environment is a pre-condition for returning to good
economic growth for the region. Until this happens Hong
Kong's opportunities will be constrained, and we will
continue to suffer from the spilling over of uncertainty."
"For the year as a whole, I forecast GDP to grow by
3.5 per cent."
"We are pressing ahead with major public sector
construction programmes which provide much direct
employment."
"To ensure that those seeking jobs can take advantage
from the opportunities in this area, we will shortly be
approaching the Finance Committee of this Council for a
grant of $80 million to the Construction Industry Training
Authority."
"We will do all that we can to ensure that
adjustments to the downturn can take place quickly, and
that the economy is able to generate new jobs again
promptly as conditions start to improve."
"Today I will be setting out budgetary measures that
should help the economy as a whole to manage in these
difficult times, to adjust and to achieve the growth I
expect. But those measures will be fully consistent with
our traditionally prudent fiscal principles."
An Essentially Balanced Budget
"In 1998/99, we estimate there will be a balance of
$10.7 billion, followed by a further $70.8 billion over
the remaining three years of the Medium Range Forecast
period. By the end of 2001-2002 our fiscal reserves
should have grown to $527 billion."
"Set against the size of the Budget, the
uncertainties we face in 1998, and the need to preserve
the real value of the reserves over time, the surplus
forecast for 1998/99 is prudent. It is just over
2 per cent of budgeted revenue and expenditure."
"A variation of this order, particularly in today's
uncertain circumstances, is insignificant in budgetary
forecasting terms. What I am presenting is essentially a
balanced budget for 1998/99."
Revenue Measures
----------------
"It is not just by expenditure that we encourage
growing economic relationships. Revenue concessions are a
powerful tool. They spread their beneficial effects well
beyond the individuals or the businesses that receive them
directly."
"I have divided up my proposals on Salaries Tax to
emphasize underlying policy objectives, where this is
appropriate, but overall the package that I am about to
present will result in my reducing the burden on salaries
taxpayers by $8 billion in the coming year and by
$56.8 billion up to 2001/02."
Salaries Tax Reductions
The total number of salaries taxpayers will not be
reduced by these measures but 99 per cent will pay less.
They will have the encouragement of keeping more of the
wealth that they earn. They will have greater freedom to
plan for their own economic security."
Housing and Home Ownership
"Financially we are giving housing top priority."
"I have been looking for other means to give help to
the widest possible number of families that want to own
their own homes."
Helping Business
"Red tape is being cut. Services are being improved.
We aim to instil throughout Government the understanding
that our role is to find simple rules and principles that
give guidance in a complex, dynamic world."
"Overall, our objective is to provide an environment
in which business in all its diversity has good conditions
in which to flourish and good incentive to upgrade, add
value and remain competitive."
On Effect of Profits Tax Reductions
"These concessions do not undermine one of our most
significant and stable sources of revenue, nor do they in
any way detract from our ability to spend money on
community programmes."
"This package is designed to sharpen our competitive
edge, to emphasize that our business environment and tax
system are second to none. The system will remain simple
and predictable; it will be more competitive for all."
"Taken together, the measures that I have proposed to
help business will do much more than simply provide some
comfort in these difficult days. They will provide
permanent incentives for investment and a better
environment for new businesses....."
"They will help to strengthen our competitive
position and to underscore our reputation as the best city
in the world in which to do business. That will be good
for everybody in Hong Kong."
On Cost of Government Services
"...we will remain vigilant in our efforts to keep
service costs, and thus fees and charges, at the lowest
possible level."
Summary of Revenue Measures
"The package of revenue measures that I have put
forward this afternoon will cost the revenue $13.6 billion
in 1998/99 and nearly $100 billion up to 2001/02."
Conclusion
----------
"Despite the harsher economic outlook in the year
ahead, concessions on this scale are affordable, thanks to
the underlying strength of our economy and our prudent
fiscal management."
"I trust that this package will be seen as a serious
attempt, within the constraints of economic uncertainties
and the imperative of maintaining healthy public finances,
to leave money with those who have earned it, to confront
uncertain times by enhancing the competitiveness of our
business and by reducing burdens on individuals and
families."
"Today's Budget is not going to lift Hong Kong
overnight out of economic worries. The Government's task
is to uphold the framework of the liberal, open society
and free market economy assured to Hong Kong in the Basic
Law."
"If today's Budget also helps to demonstrate to the
world how different Hong Kong's economy is from those
elsewhere in Asia,..... then that too will be good for
Hong Kong."
"Perhaps the best way to help restore the confidence
of international investors is to maintain confidence in
ourselves."
"It will be a difficult year, but Hong Kong has gone
through many tough times before and has emerged the
stronger from them."
"The new Hong Kong Special Administrative Region is
home to no less enterprising spirits than the old Hong
Kong."
"Government is committed to no less prudent financial
management, and has the means to make even more far-
sighted investment in the people and the infrastructure
that will keep this city steadily on course through all
the sea changes in the world economy."
"Today I have sought to give new impetus to past
strengths."
"I have aimed to refresh the spirits of business and
community alike."
"It is your spirits, your vitality, your
entrepreneurial élan that is the bedrock on which the
economy of this city is built."
"We will ride out the storm. We can take this
passing set back as a spur to new achievement. Self-pity
and recriminations are pointless."
"This Budget shows your Administration rising with
you to the challenges we face. No gimmicks, no
complaints. We seek to smooth the path ahead with a
sensible package of targeted relief set beside intensive
investments and a sharpening of our competitive edge to
sustain long-term economic growth."
"My colleagues and I in the Civil Service stand by
the community. Like you, we share their present worries.
We need to work hard together to overcome them: everyone
giving their honest best."
End
