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Madam President,
The 1999-2000 Budget has been the subject of wide and intensive community discussion since its announcement. The views expressed by members of the public, academics and representatives of various industries have received extensive media coverage. During the Budget Debate in this Council on 24 and 25 March, all 59 Members offered their own candid and thoughtful views. I wish to thank them and the community for their genuine care and concern about our economic prospects, and for their active and earnest participation in the Budget discussion. 2 The majority of Hong Kong people and Members of this Council support the principle of a deficit budget in 1999-2000 and the proposals I put forward to restore our finances to health over the medium term. The major initiatives announced in the Budget Speech have also been well-received. The community has responded warmly and positively to the Budget. In the typical Hong Kong way, our people have not reacted with despondency to the challenges posed by the economic downswing. Instead, they are prepared to confront and overcome these challenges with all their energy and determination. I am deeply moved and encouraged by this Hong Kong spirit. It has fortified my confidence in the future of Hong Kong. 3 This does not necessarily mean that each and every one of my proposals has received unanimous support. Nor do I expect this to be the case. In Hong Kong, we have no difficulty accepting that each individual may look at the Budget from his or her own perspective and come to different conclusions. We believe it is natural and healthy for a mature community like ours to have and to express a wide range of opinions. This underlines the diversity and freedom which are so cherished in Hong Kong. 4 During the Budget Debate in this Council last week, some Members said that they could not support the Budget because their fiscal principles were very different from those practised by the Government. These differences stem from diametrically opposite beliefs in the wisdom of Article 107 of the Basic Law and its binding effect. I must make it clear that, legally, the Government should not and will not depart from the constitutional provisions of the Basic Law. Neither will we compromise our well-established principle of fiscal prudence.
5 Some people believe that this year's Budget has aroused widespread interest because I have tried to cover in my Speech not only the Government's revenue and expenditure proposals but also a number of important new initiatives. They have suggested that I have extended the boundaries of the Budget Speech this year. This is not true. When I delivered my first Budget Speech in 1996, I said, "A Budget is not simply an accounting exercise. It is not just the routine report on the territory's economic and financial well-being." I have always believed that, in this annual set-piece, the Government should account for its stewardship of Hong Kong's economic and social affairs, address community concerns, and provide leadership by offering a clear vision of what the future holds for Hong Kong. That explains why I have not only outlined in this year's Budget Speech key initiatives and programmes which will impinge on the public finances in 1999-2000 and over the medium range, but have also put forward a number of major developments affecting our economy in the longer term. 6 If the 1999 Budget is unique, it is because it is drawn up when Hong Kong is in the depths of the worst recession for decades. Like all Hong Kong people, I am anxious that the Budget will help relieve our economic plight, tap into the opportunities presented by the recession, stimulate new ideas, create new strengths and - ultimately - sharpen our competitive edge. Hence the larger-than-normal menu of initiatives. The Government will spare no effort in taking forward these initiatives.
7 The Chief Secretary for Administration has fully covered the proposed reforms of the civil service. This will be one of the Government's top priorities in the coming year. But our work on enhancing efficiency will not stop there. In parallel with reforming the civil service, we will also explore various means to maximise private sector participation in the delivery of public services. 8 The Secretary for Transport has spoken on the proposed sale to the public of a minority share in the Mass Transit Railway Corporation (MTRC). I wish only to re-emphasise one point. The main driving force of this proposal stems from our intentions to maximise the efficiency of the MTRC, to encourage greater public ownership and market supervision of this Corporation, and to develop a deeper securities market. Obtaining income from the sale will be an added benefit, a useful boost to our finances over the medium term, but it is not the prime motive. Let me also reassure Members that in pursuing this privatisation plan, the public interest will be over-riding.
9 The Secretary for Information Technology and Broadcasting and the Secretary for Economic Services have discussed the Cyberport and Disney projects at length. I will not dwell on them. But I do wish to reassure Members that if we conclude the current negotiations on these projects successfully, we will immediately present our proposals for Members' scrutiny, with total transparency and full justification. We will demonstrate that we have been fair and circumspect, and have maintained a level-playing field under the rule of law. We cannot proceed without Members' support. 10 Our involvement in these projects does not imply the Government has departed from its established policy of "minimum intervention and maximum support". The development strategy for the Cyberport and Disney projects follows essentially the same principles as for our industrial estates, container terminals and Ocean Park, with the main public contribution being to make available land and supporting infrastructure. The challenges of globalised competition and the current recession demand a decisive response on the part of the Government. We must be prepared to pursue innovative projects in a timely manner. There is no reason why we should not pursue such projects in partnership with the private sector, provided always that such a partnership arrangement is fair, cost-effective and in the overall interests of Hong Kong. In the process, we pledge to remain forever vigilant in guarding what has made Hong Kong successful in the past.
11 Members of this Council and the community at large have given strong and clear support to the series of reforms that I announced for the securities and futures markets. The enhanced competitiveness and synergy to be derived from the reform are the key to Hong Kong's continued success as an international financial centre in the new millennium. We have commenced work on all three fronts of the reform since 3 March. First, the Steering Committee on the Enhancement of Financial Infrastructure has already met three times and is making steady progress. Second, we are preparing drafting proposals for the composite Securities and Futures Bill, some of which will be ready for market consultation shortly. Third, the two exchanges have appointed financial advisors to advise on the demutualisation and merger exercise with a view to reaching agreement by the end of September. The Government also expects to appoint its own financial adviser soon. The Secretary for Financial Services has maintained close liaison with the leadership of the Exchanges and Hong Kong Clearing and will soon establish a co-ordinating committee involving these leaders and other industry representatives to oversee the demutualisation and merger exercise. In parallel, the Securities and Futures Commission (SFC) and the market bodies are taking actions to rationalise the various market regulatory functions between the SFC and the future body to be set up after the merger. These include market surveillance, listing, regulation of intermediaries and investor compensation arrangements. 12 We have made a promising start. To bring the reform to its successful conclusion, we will listen to the views of the community and address carefully and swiftly the concerns of the industry and this Council. With the heartening support demonstrated by the market over the last few weeks, I am confident that the target we set for ourselves can be achieved in a timely manner. We must proceed resolutely with the reform, adhering to our published target dates. 13 On the banking side, we have just completed a public consultation exercise on the various findings and recommendations of the banking sector review. The Hong Kong Monetary Authority will analyse the views received and proceed prudently with implementing the outcome.
14 Let me now deal with the question of our economic forecasts. We have forecast growth of 0.5 per cent for 1999 and a trend growth rate of 3.5 per cent over the medium term. This medium term forecast represents a significant reduction from the trend growth rate of 5 per cent which we have been following for much of the present decade. The negative growth of 5.1 per cent last year has also reduced the entire base of the forecast. These forecasts imply that our Gross Domestic Product will not return to its 1997 level until 2001. Even so, we have been criticised for being over-optimistic. 15 Economic forecasting is not an exact science. Nobody can claim precision in such an exercise. Our open economy means that our economic growth is substantially influenced by events outside Hong Kong, and uncertainties remain. But I must emphasise that our forecast is the outcome of a conscientious and professional assessment and computation based on the available information. Over the years, our track record shows our forecast have been more accurate than most others. I am particularly disconcerted by the suggestion that we have inflated the forecast in order to boost public spending in the coming years. This is not the case. Indeed, we are determined to control the growth of government spending at a rate lower than the 3.5 per cent trend growth forecast for the medium term.
16 Some Members have expressed concerns about a few of my revenue-raising proposals. I fully understand their views. In a recent letter to Members, I explained the need for us to put forward these proposals. As this is a matter of concern to the entire community, let me recapitulate the Government's considerations. 17 Despite the significant reduction in revenue from various sources as a result of the economic downswing, we will increase, instead of reduce, expenditure for the coming financial year, focusing on important social areas such as housing, health care and social welfare. We have continued to expand our investments in education and the physical infrastructure. I firmly believe that this approach is in the best interests of Hong Kong, and has the full support of the general public. By allowing expenditure to increase while our revenues decline, we will again record a fiscal deficit in 1999-2000. The Government is obliged under the Basic Law to minimise the fiscal deficit and to return to a balanced budget as soon as possible. Persistent fiscal deficits will damage our reputation for upholding fiscal prudence, erode investors' confidence and put pressure on our international credit ratings. A lower credit rating would increase the cost of borrowing for every business in Hong Kong that may seek to raise new capital. This would not bode well for our economic recovery. 18 To avoid these dire consequences, we have proposed the strategy of increasing taxes on a highly selective basis. Indeed, if we were not to choose direct taxes, given our decision to extend the freeze on government fees and charges, there are only be a handful of revenue items left for possible adjustments. We have proposed moderate increases in stamp duty on property transactions, betting duty, tunnel tolls, on-street parking meter charges and the inflation-linked adjustment of fixed penalties for traffic-related offences. None of these measures is targeted at individual industries. Given the need to raise additional revenue, whatever choices we make must necessarily mean that some people will have to bear a heavier burden. This is a price we have to pay. We cannot avoid it. The other option of raising revenue by widening the tax base would affect more people more severely. 19 When we met with representatives of the transport industry to explain the revenue raising proposals which affect them, they expressed particular concern over the proposed adjustment of fixed penalties for traffic-related offences. In view of these concerns, which have also been voiced by some Members, we have decided to defer the implementation of the new fixed penalties until after the passage of the Revenue Bill. 20 I appeal to Members once again to consider the revenue and expenditure proposals in the Budget in their entirety, to evaluate their fiscal effects in overall terms and, in particular, to have regard to the relevant provisions of the Basic Law covering the enactment of the annual Budget. Raising the level of taxes or Government charges is never an easy decision, but I hope Members will agree that overcoming fiscal deficits is a collective responsibility and a common objective of both the Administration and this Council. I urge you to support all the proposed revenue-raising measures, in the overall interests of Hong Kong. 21 We shall deal separately with the proposal to levy a land and sea departure tax. We will proceed carefully and take account of the views put forward by Members and other sectors of the community. But I must say that nothing we have heard so far has diminished the justifications we have advanced in pursuing this tax. 22 We need to raise our revenue base. As Dicken's famous syllogism goes: "Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery." This echoes the traditional wisdom which my mother shared with me when I was eight. Income from possible sale of assets can only provide temporary relief. We cannot rely on this to meet recurrent deficits. Nor should we employ debt financing for the same purpose. While the Government has not absolutely ruled out borrowing as a source of revenue, seeking to raise debt in the present circumstances is likely to provoke an unfavourable market reaction and to create added worries in our community about the state of Hong Kong's economy. And the fact is that we do not need debt financing at this time.
23 In conclusion, let me say that 1999 is a critical year for Hong Kong. It will be a year full of challenges. It will also be a year of opportunities. We should now all work hard together and concentrate on helping our community to recover from the recession. We must overcome the difficulties ahead. We must explore new avenues of activity. We must go on creating more jobs. Let us set aside our differences and strive together to give of our very best to the community. Together, let us set Hong Kong on the course to recovery. 24 It will soon be the Easter holidays. I am glad to report that as of today the Commissioner of Inland Revenue has issued all the 1.5 million tax rebate cheques, and many families and businesses can now look forward to the holidays in a much happier mood. If those Members who have reservations over the Budget could be persuaded to change their mind, that would be the best Easter gift of all for me. 25 Thank you, Madam President. |
