MR CHAN CHUN-YING (in Cantonese):
President, the SAR Government announced in this year’s Budget that it would have an estimated record-high surplus of $138 billion in the 2017-2018 financial year, with the fiscal reserves being expected to reach $1,092 billion. The Government decided to share with the community about 40% of the annual surplus, i.e. $52 billion, and use the remaining for improving services and investing for the future by way of investing heavily in innovation and technology, strengthening the traditional pillar industries, attracting and training talent, investing in various infrastructures, enhancing the competitiveness of Hong Kong and improving people’s quality of life. After the delivery of the Budget, there were strong demands in society for widening the coverage of measures to share fruits of success. A few weeks later, the Government decided to launch a new Caring and Sharing Scheme. If we take into account this “gap-plugging” measure, the “candies” to be dished out will amount to a record high of almost $64 billion. Unexpectedly, the willingness of the Government to share its huge surplus with the community has, for no reason, given rise to a happy problem. Anyway, I will support the Budget as it will bring benefits to the public as well as to the long-term development of Hong Kong. Today, I would like to speak on the measures to deal with fiscal surplus, the long-term fiscal planning and the development of the financial sector. Firstly, how fiscal surplus should be handled. According to Fiscal Monitor published by the International Monetary Fund last October, among the 35 developed economies being monitored, only 15 of them were expected to have surplus in 2017; and Hong Kong topped the list with a fiscal surplus amounting to 5.2% of its Gross Domestic Product (“GDP”). Hong Kong, South Korea, Norway and Singapore were the few economies which had recorded fiscal surplus for each of the past 10 years. While many governments around the world are in straitened conditions and have to raise loans for economic development, the SAR Government has, under the principles of prudent financial management and keeping its expenditure within the limits of revenues over the past two decades after the reunification of Hong Kong with China, grossly underestimated its budget, resulting in getting record-high surpluses year after year. Although Hong Kong was hit by the burst of the dotcom bubble, the SARS incident, etc. between 1998 and 2004, leading to an accumulated fiscal deficit of close to $200 billion, our fiscal reserves managed to double from some $400 billion at the time of reunification in 1997 to the latest figure of over $1,000 billion. Adding this figure to the accumulated surplus of the Exchange Fund, which exceeds $700 billion, and the Housing Reserve of around $80 billion, Hong Kong’s disposable reserves will be close to $2,000 billion, excluding the surplus of government funds of $120 billion in the Consolidated Account. Some people even say that Hong Kong has a structural fiscal surplus. This Budget manifests the boldness of the SAR Government in investing for the future and its willingness to adopt a new fiscal philosophy. It is what I expected from the new Government when I spoke in the Budget debate last year. According to the Budget, it is proposed that public expenditure will increase slightly from 20% to 21% of our GDP. Given that Hong Kong’s GDP stood at $2,660 billion in 2017, 1% of it means $26.6 billion. It is unlikely that the 1% increase in public expenditure will, in any way, affect the fiscal stability of the Government. Hong Kong has no lack of financial resources. What we need is a new public finance philosophy to guide an effective investment of surplus in different domains of Hong Kong, including housing, infrastructure, health care, elderly care and education, so as to maintain and enhance our overall competitiveness, improve people’s quality of life and health, make Hong Kong a better place to live and work in, and give people hopes. In view of the huge government surplus, it is high time for us to consider whether a cap should be set for our fiscal reserves. My suggestion is that in any financial year when the amount of fiscal reserves exceeds the cap, the Government should boldly adopt deficit budgeting to increase funding for expeditiously handling social problems such as housing. I must clarify that it is never a problem to have hefty reserves. What matters is how the reserves can be put to good use and will not be managed in a way to simply maintain the basic purchasing power. As the Government is in charge of managing public money, which is a fortune accumulated by the public over the years, I urge the Government to adopt forward-looking and strategic financial management principles in optimizing the use of surplus to invest for Hong Kong and relieve our people’s burdens. Secondly, the enhancement in long-term fiscal planning. President, it is important for us to consider how Hong Kong can maintain healthy public finance. Despite persistent fiscal surpluses, there are weaknesses in our financial structure which are difficult to overcome. A narrow tax base and the overreliance of land revenue are our long-standing problems. Hong Kong is actually doomed to have a narrow tax base under the simple and low tax regime. This view is supported by the fact that in 2015-2016, about 51% of the working population did not need to pay salaries tax and 5% of taxpayers contributed 63% of the total revenue from salaries tax. Besides, around 91% of corporations did not need to pay profits tax while some 5% of corporate taxpayers contributed 86% of revenue from profits tax. Tax concessions granted in consideration of the huge surplus have further narrowed the tax base. It is difficult to find a perfect solution to this problem. If any new taxes are introduced, our low, simple and competitive tax regime will lose its appeal. On the other hand, as Hong Kong consistently runs a fiscal surplus, the public will object to the widening of tax base. Nevertheless, I think the Government should rise up to challenges amid controversies by actively considering whether new taxes, such as the vacant property tax hinted lately, should be introduced. As for liabilities, the Government still has some unfunded commitments and liabilities, including civil service pensions, outstanding commitment for capital works projects and government guarantees for various liabilities. Yet, as these commitments and liabilities are not required to be paid off in a single financial year but have long repayment periods, the Government may deduct the present value of the liabilities to get the amount of the remaining financial resources, so as to decide on how the resources should be used. The Government should set up a dedicated reserve fund for its remaining financial resources in order to make long-term investment. These resources should include not only the annual cash surplus but also the large number of sites and properties owned by the Government. Currently, properties under the management of the Government Property Agency include over 20 000 residential units, offices totalling over 1 million sq m and sites exceeding 170 000 sq m in area. If the rental income from government canteens, car parks, automatic teller machines, etc. is also taken into account, Hong Kong will indeed have more than $2,000 billion of disposable reserves. It is necessary for Hong Kong to save its remaining fiscal surplus and assets for the sake of tackling population ageing and meeting other long-term fiscal challenges. If we take this as the starting point, Hong Kong should have its own wealth management fund. Over the past few years, sovereign wealth funds (“SWFs”) have boomed all over the world. According to the estimates of the Sovereign Wealth Fund Institute, SWFs around the world amassed $7,200 billion in assets in 2016. Norway’s SWF, the world’s largest SWF in asset terms, has its funds coming from oil export revenue, the Government’s foreign exchange reserves generated from trade surplus, as well as fiscal surplus. Its investment returns are used to pay for the health care expenses and pensions of Norwegian nationals. By investing in growth investment tools since 1996, the SWF in question grew to over $1,000 billion in assets in 2017, with the return on investment reaching 13.7%. Its investment is characterized by a diversified portfolio (comprising stocks, bonds and properties) and strategic investment. President, a few years ago, the SAR Government injected a sum of $220 billion from the Land Fund, plus some of its annual surplus, into the Future Fund, which was then handed to the Hong Kong Monetary Authority (“HKMA”) for investment to gain higher returns. The Future Fund, however, is quite different from the wealth management funds of other places in terms of operation. The SAR Government should learn from Norway’s example of how to make use of fiscal reserves wisely and study actively the investment approaches and strengths of other successful funds. While the Government has set up numerous small funds in the past, it never explains in its annual Budget how the development of these funds can be sustained. Instead, it just keeps on injecting into those funds according to the needs in a particular year. For example, this year, the Government will inject $10 billion into the Innovation and Technology Fund, another $5 billion into the Elite Athletes Development Fund, $1.5 billion into the Dedicated Fund on Branding, Upgrading and Domestic Sales, and $1 billion into the SME Export Marketing and Development Funds. The Government should change its current LEGISLATIVE COUNCIL ― 25 April 2018 8905 practice of allowing its funds to decide whether their money should be managed by HKMA. It should consider standardizing the investment approach of different types of funds to provide them with self-financing funding through the annual distribution of dividends. These funds can then attain financial self-sufficiency and sustain their development. Lastly, the Budget should give more support to maintain the development of the financial industry and strengthen financial integration. In this Budget, the Government has shown its determination in developing the financial industry. Apart from proposing to set up an academy of finance to upgrade our financial talent pool, it also supports the development of green finance in Hong Kong by proposing to launch a green bond issuance programme of $100 billion to provide funding for green public works projects of the Government. Moreover, the Government will offer grants to eligible enterprises issuing bonds in Hong Kong for the first time to attract local, Mainland and overseas enterprises to issue bonds in Hong Kong. It has also proposed to amend the qualifying debt instrument scheme by increasing the types of qualified instruments. In addition to instruments lodged and cleared by the Central Moneymarkets Unit of HKMA, debt securities listed on the Stock Exchange of Hong Kong will also become eligible. However, it does not seem to be adequate for the Budget to set aside a dedicated provision of only $500 million for the development of the financial services industry in the coming five years. In the next five years, the financial industry will have to strengthen its development in financial technology and will be presented with the opportunities brought by the Belt and Road Initiative and the Guangdong-Hong Kong-Macao Bay Area (“the Bay Area”). I therefore advise the Government to increase the dedicated provision as appropriate in order to seize the opportunities presented to us. The planning of the Bay Area is crucial to the future development of Hong Kong. Among the 11 cities in the Bay Area, Hong Kong and Macao are the two international cities which have already connected to the global economy as well as the whole world. Hong Kong and Macao are also separate customs territories with the status of free port. As for the nine other cities in the Pearl River Delta (“PRD”), though they are closely related to the global economy and have become the major investment areas of multi-national corporations as well as the largest import/export and global manufacturing bases in China, they are yet to be connected to the global economy and are not fully internationalized. The “two” and “nine” cities mentioned above can still be divided into two or even three groups among which a seamless flow of people, goods, information and capital and a convenient socio-economic system are yet to be established. With regard to the planning and development of the Bay Area, innovation in systems and institutions is the most difficult and yet the most crucial part. It is particularly difficult to strike a balance between full integration of the Bay Area and maintenance of “one country, two systems”. For example, it is now very inconvenient for a resident of the Bay Area to open a bank or investment account in a non-residing city because account opening involves the stringent requirements imposed by regulatory authorities and the limitations posed by access conditions. If the requirements for account opening and the access conditions can be relaxed in the Bay Area, the residents therein will be able to manage their wealth more effectively. Furthermore, at present, if business enterprises in the nine PRD cities obtain loans from, or provide loan guarantees to, financial institutions in Hong Kong or Macao, the loans in question will be considered as foreign debts and hence subject to the cumbersome provisions on the management of foreign debts. If loans and various financing or loan guarantees and securities in the Bay Area are no longer considered as foreign debts, and enterprises in the Bay Area are allowed to freely engage in financing, and provision of guarantees and securities in the 11 cities in the Bay Area, the capital flow in the region will be greatly promoted. Although I cannot tell clearly how many resources should be put in for this kind of ideas and development directions, if the funds in the Budget can be reallocated as appropriate to give sufficient support, the relevant policy study should be able to complete expeditiously. President, around the world, few economies can manage to have fiscal surpluses persistently. While each year Hong Kong people have argued incessantly about the “candies” to be dished out and the level of their “sweetness”, it is my hope that Hong Kong will continue to have the happy problem of recording fiscal surplus every year.
I so submit. Thank you, President.