HK Financial Secretary Presents 2003-2004 Budgets

Home>>Business

Last updated at: (Beijing Time) Wednesday, March 05, 2003

HK Financial Secretary Presents 2003-2004 Budgets

Financial Secretary of the Hong Kong Special Administrative Region (SAR) Antony Leung began to present 2003-2004 budget report to the Legislative Council at 2:30p.m. local time (06:30 GMT) Wednesday.

DISCUSSION

CHINESE

SEND TO FRIEND

Financial Secretary of the Hong Kong Special Administrative Region (SAR) Antony Leung began to present 2003-2004 budget report to the Legislative Council at 2:30p.m. local time (06:30 GMT) Wednesday.

This is the first annual budget report of the second SAR government and the second budget report presented by Leung since he assumed office as financial secretary in 2001.

It is the best time and it is the worst time, said Antony Leung, quoting the famous words of British writer Charles Dickens.

Delivering his 2003/2004 budget report at the Legislative Council Wednesday afternoon, Leung said the continuous high rate of unemployment, plus the influence brought by the negative property assets, is depressing the consumption and investment sentiment in Hong Kong.

The Hong Kong citizens have low confidence in the economic prospects, he said, noting it may be the worst time for Hong Kong.

On the other hand, Leung said, the national economy is developing very fast and China is the market that the world is vying for.

As the most internationalized commercial city in the country and in the region, Hong Kong has its geographical and institutional advantages.

Citing the decreased cost of running business in Hong Kong and the increased competitiveness of the city, Leung said it is the best time for Hong Kong.

Hong Kong's economic growth trend is sound with a 2.3 percent economic growth in real terms in2002. He said Hong Kong's economic growth rate in 2002 was remarkable, comparing with the 0.6 percent grown rate in 2001.

He said goods and services export in 2002 recorded a significant increase which provided impetus for the economic growth.

However, the deflation was worse than expected, as composite price index fell 3 percent last year. Consumption and investment were also weak because of the continuous deflation, he added.

The HK government will press on with projects that yield economic and social benefits to the community, said Leung.

Leung announced that the average annual provision earmarked for infrastructure works is about 29 billion HK dollars (3.7 billion US dollars) over the next five years, similar to that for the past few years.

Meanwhile, the government will introduce a list of infrastructure projects for private sector participation on a trial basis to speed up project delivery, increase opportunities for investment in Hong Kong and further the principle of "big market, small government," Leung said.

The government will invite the private sector to submit expressions of interest on 10 or so recreational and cultural facilities projects worth about 2.5 billion HK dollars (321 million US dollars), he said.

Currently, the Home Affairs Bureau is working on the details, Leung said, adding that the government will consider extending the scheme to cover projects under the purview of other bureaux.

The Administrative Region government is speeding up its discussion with the central government on closer economic and trade relations, the senior official said Wednesday.

He said, Hong Kong has been intensified its cooperation with the Pearl River Delta in the past few years and has facilitated the flow of people and goods by deploying resources and streamlining procedures.

He said in the fourth quarter of last year, the flow of people through the land check points was 9 percent higher than that of the same period in 2001 and the number of goods vehicles crossing the check points also rose by 8 percent.

"We will continue to improve facilities at our boundary crossing and construct new cross-boundary links," Leung said.

He said to attract more overseas companies to invest in the greater Pearl River Delta region and to set up office in Hong Kong, the SAR government will provide additional funding of 200 million HK dollars ( 25.64 million US dollars) over the coming years for promotion activities.

The Hong Kong Special Administrative Region (SAR) government will continue to promote tourism and the tourist attractions are coming on stream, Leung said.

Antony Leung said tourism has been one of the fastest growing services of HK's economy in the past few years and the Hong Kong Tourism Board is forecasting a growth rate in excess of 8 percent this year.

He said the government will work together with the business sector to create new lighting effects on both sides of Victoria Harbor from the ferries or from either side of the harbor.

A new sightseeing ferry service will be operating this year and visitors will be able to enjoy the most spectacular night view in the world, he said.

A 21 percent increase of visitors to Hong Kong was recorded last year and the service quality is an important part of HK's competitive advantage.

He said that two "thank you" letters from Shanghai clearly bear this out. A tourist from Shanghai shopped in a department store in Hong Kong but forgot to take his purchase away with him, while another let behind a mobile phone while shopping in a leather goods store. On their way back to the stores, the two tourists were worried about how they would able to explain their problems to the salespersons and retrieve their belongings.

However, not only were they able to get them without difficulty, they were also courteously treated at every stage by those they encountered. They recounted their happy experience to the media after returning to Shanghai and the magazine published the two stories.

This shows that every individual makes his contribution to the investment environment, he noted.

The Hong Kong Special Administrative Region (HKSAR) government will take action on three fronts to address the unemployment problem, according to the Financial Secretary.

First, the government will continue to promote industries such as tourism and the local community economy, which can provide jobs for those with comparatively low educational qualifications and skills.

Second, it will reinforce various vocational programs and the newly-established Manpower Development Committee will examine how to optimize the use of resources and will launch new training programs and formats to better meet the needs of the labor market.

Third, in the face of economic restructuring and the persistently high rate of unemployment, the HKSAR government will provide additional non-recurrent funding of 270 million HK dollars (34.6 million US dollars) to ease unemployment.

Of this, 50 million HK dollars (6.4 million US dollars) is earmarked for expansion of the Re-employment Training Program for the Middle-aged, increasing the number of places from 2,000 to 12,000.

Another 26 million HK dollars (3.3 million US dollars) will be allocated for the provision of attachment training for 2,000 university graduates to enhance their job-related skills.

The remaining 200 million HK dollars (25.6 million US dollars), coupled with resources redeployed internally, will be used to extend about 3,600 temporary jobs.

The financial secretary said the government will also enhance the training of local domestic helpers to improve their skills.

In addition, the government will launch new Intensive Employment Assistance Projects with an allocation of 100 million HK dollars (12.8 million US dollars) from the Lotteries Fund to assist longer-term Comprehensive Social Security Assistance recipients to get back to work, Leung said.

Leung said the total budget deficit of the HKSAR government for 2002/03 is estimated at 70 billion Hong Kong dollars (8.9 billion US dollars).

The amount is 24.8 billion Hong Kong dollars (3.1 billion US dollars) higher than what was originally estimated, said Leung when delivering his budget speech for the 2003/04 fiscal year at the HKSAR Legislative Council Wednesday afternoon.

The higher estimated deficit is due to the government revenue having decreased by 19.2 percent from what was originally estimated, with non-recurrent revenue falling by 29.3 billion Hong Kong dollars (3.7 billion US dollars), he said.

The fall in non-recurrent revenue was the result of the government's one-year suspension of land sales starting November last year, leading to a decrease in land sales revenue of 13.9 billion Hong Kong dollars (1.7 billion US dollars) from what was originally estimated.

As the government is studying the possibility of merging of the two railways in Hong Kong, the Mass Transit Railway Corporation (MTRC) and the Kowloon Canton Railway Corporation, the delay of the sale of the second tranche of MTRC's shares has also led to government revenue falling by another 15 billion Hong Kong dollars (1.9 billion US dollars).

Leung said the government is not totally against issuing government bonds, but there is no need to do so right now.

He said that some have suggested that the government should issue bonds, and employ financial management techniques to generate revenue which could be classified as income under Hong Kong's cash-based accounting system, so as to avoid substantially raising tax and cutting expenditure.

He said the suggestions have been under consideration and the questions that have to be considered are "the use of the funds so raised, and the interest costs so incurred."

Recalling that the government has issued bonds on three occasions in the past, Leung noted issuance of bonds can only meet cashflow requirements but cannot solve the underlying problem.

"For the time being, we can draw on our fiscal reserves to cope with the deficit, and the cost of issuing bonds is higher than the investment income from the fiscal reserves," Leung said.

"Therefore, we do not see any need to issue bonds," Leung said.

Leung revealed the plan to increase various tax rates to raise additional revenue when delivering budget speech for the 2003/04 fiscal year at the HKSAR Legislative Council.

For salaries tax, Leung proposed that the marginal tax rates and tax bands under salaries tax revert to their levels before the concessions made in 1998/99.

If implemented, this would mean the size of the incremental steps would be increased from 5 percent to 6 percent, and the marginal tax rates would be adjusted upward to 2 percent, 8 percent, 14 percent and 20 percent respectively, with the bandwidth being reduced from 35,000 Hong Kong dollars (4487.1 US dollars) to 30,000 Hong Kong dollars (3846.1 US dollars), according to Leung.

For profits tax, Leung proposed that the profits tax rate for corporations be increased from 16 percent to 17.5 percent with effect from 2003/04, while profits tax rate for unincorporated businesses be increased from 15 percent to 16 percent, to be implemented in two phases in two years, in line with the adjustments in the standard rate of salaries tax.

The Hong Kong Special Administrative Region (SAR) government has decided to reduce operating expenditure from 220 billion HK dollars (28.2 billion US dollars), as originally estimated, to 200 billion HK dollars by 2006-07, Leung said.

Delivering his financial budget to the Legislative Council, Leung said the government would reduce civil service establishment by 10 percent to about 160,000 posts by 2006-07, launch a second round of the Voluntary Retirement Scheme and freeze civil service recruitment with effect from April 1 this year.

In addition, the salary of civil servants will be reduced to the level in cash terms as at June 30, 1997, a 6 percent cut in two phases over the next two years in the hope of saving 7 billion HK dollars (897 million US dollars).

Moreover, the government will absorb suggestions to economize vigorously and optimize use of resources.

According to estimates, after the full implementation of the proposed social security payment adjustments, annual expenditure in this area will be reduced by 11 percent, or about 1.71 billion HK dollars (220 million US dollars), Leung noted.

Hong Kong's deficit problem is a reflection of four changes that Hong Kong is facing, namely, cyclical economic adjustment, economic reconstructing, population aging and evolution of government policies, said Financial Secretary Antony Leung in his budget speech.

Leung said in the 2003/2004 budget speech that due to the consolidation of the property market and the bursting of the bubble economy, revenues generated directly and indirectly from real estate activities declined substantially.

Economic reconstructing, which saw quite a few of Hong Kong's economic activities shifting to the mainland, also had impact on Hong Kong's public finance as Hong Kong has a territorial-based tax system, Leung said.

Leung said the aging population in Hong Kong has also brought challenges to the public finance as it will lead to an increase in government expenditures on social welfare and health services.

Over the past decade, the percentage of persons aged 65 and above has increased from 9 percent to 11 percent and is forecast to rise to 24 percent by the year 2031.

Meanwhile, the evolution of government policies also has impact on public finance with public expenditure in money terms increasing at a rate of 8.3 percent per year during the past ten years, said the financial secretary.

Leung said it is necessary to take strong measures to tackle the deficit of the SAR government.

Leung quoted Chief Executive Tung Chee Hwa assaying in his policy address that "big market, small government" is the "underlying principle of the Administration's philosophy of governance."

The foundation for achieving the goal lies in containing the growth in public expenditure so that the public sector will not become a burden on the community, the official said.

Moreover, the government must continue to support the market by means of policy-making instead of participating in it directly, Leung said, citing the introduction of a new housing policy as an example.

The government has clearly stated the three approaches to be adopted, namely reprioritizing the provision of services, reorganizing the structure of government departments, reengineering procedures and making full use of the market, so as to optimize resources and provide better services for the public.

Questions?Comments? Click here

Interview: Why Does China Start Lunar Exploration Program? ( 5 Messages)

China-ASEAN Economic Cooperation Upgraded ( 19 Messages)

New Type of Nuclear Reactor Put into Use in Beijing ( 3 Messages)

Will Russian Oil Pipeline Lead to China or Japan? ( 23 Messages)

China's GDP Hit 1.23 Trillion US Dollars in 2002: NBS ( 4 Messages)

UAE Appeal on Saddam's Fate Draws Mixed Reactions ( 3 Messages)