Speech at Council meeting-2nd Reading Government Bill- Appropriation Bill 2023

Appropriation Bill 2023


President, during my recent visit to the Greater Bay Area, I fully realized that I had to see and talk to the people there in person to grasp the most accurate information.  The same applies to officials of the SAR Government.  According to the Budget, the expenditure of the Civil Service College on national studies training programmes on the Mainland is only $23.2 million.  If we divide the funding by 180 000 civil servants, each person is only allocated slightly over $100.  I hope that the Government will increase the proportion of such spending in the future.  Various Policy Bureaux should also increase the resources for visits to the Mainland as appropriate, so as to expedite our integration into the overall development of the country.

Let us talk more about the Budget.  Financial Secretary Paul CHAN (“the Financial Secretary”) has chosen an orange cover for this year’s Budget.  Oranges can be sweet or sour.  The Budget focuses on strengthening economic momentum, striving for economic growth, and making long-term plans for Hong Kong’s future development.  At the same time, it also cares about people’s livelihood and provides support for the underprivileged.  Despite the fact that the Budget has scaled back on some of the relief measures, it can still be considered a slightly sweet orange when taken as a whole.  Of course, while some people may not find this orange sweet at all, the Budget is still a tasty portion of fruit for the public.

Prior to delivering the Budget speech, the Financial Secretary had highlighted the sustainability of public finances, the progress of economic recovery and the actual needs of the community as the major issues of public concern.  In view of this, I am going to comment on the Budget in these three areas.

On the economic front, after enduring the epidemic for three years, Hong Kong’s economy is at an early stage of recovery.  The Budget aims to promote Hong Kong to the outside world; stabilize people’s livelihood, attract enterprises and talents, promote the upgrading and transformation of industries such as digital economy, life technology and artificial intelligence in the domestic economy; and at the same time consolidate and enhance the advantages of traditional industries including finance, aviation, shipping and trade.  This direction is correct, and the measures are also effective.  With persistent hard work, the results may not be immediate, but they will definitely be seen over time.

The financial sector is pleased to see that the Budget places Hong Kong’s status as an international financial centre above all other traditional centres to be consolidated and enhanced.  In a comprehensive manner, the Budget aims to widen mutual access between the Mainland and Hong Kong, strengthen our offshore Renminbi business centre, deepen our capital market and bond market, expand asset management, insurance and financial technology.  It even covers non-traditional risk transfer instruments and financial inclusiveness.  I believe that this will help to boost the higher quality and broader development of Hong Kong as an international financial centre.

At the same time, the Budget also supports the future digital transformation of the industry, including the further promotion of digital currency payments, such as the use of Hong Kong’s Faster Payment System and Thailand’s PromptPay under the collaboration between the Hong Kong Monetary Authority and the Bank of Thailand, and the Commercial Data Interchange which facilitates banks’ loan approval process through the use of big data.  The Government has also enhanced the funding for the “iAM Smart” platform and the Digital Transformation Support Pilot Programme to meet the transformation needs of the industry, including actively nurturing financial technology talents, implementing internship programmes and providing cross-boundary training.  To attract foreign investment, the Capital Investment Entrant Scheme will attract more new capital to Hong Kong and bring new business opportunities to different sectors and industries.

The extension of the application period for the SME Financing Guarantee Scheme until March next year should provide more breathing space for small and medium enterprises, enabling them to gain a firm foothold and plan for gradual development.  To relieve the pressure of business operations, the reduction of profits tax, rates for non-domestic properties and rents and fees for government premises will be helpful to a certain extent.

With regard to people’s livelihood needs, although this year’s economy is expected to perform better than last year’s, there is definitely a lag before the business environment of different industries improves, and the incomes of wage earners from different strata return to previous levels.  In the face of tremendous pressure to reduce public expenditure, the Financial Secretary has decided to continue to disburse consumption vouchers of $5,000 and introduce a series of tax relief measures in the new financial year.  These initiatives will not only ease the economic pressure on people but also help consolidate the momentum of the economic recovery.

To alleviate people’s burden of life, the Budget, as in the past, introduces a series of relief measures, such as reducing salaries tax and tax under personal assessment; providing rates concession for domestic properties; providing an allowance equal to one half of a month of the standard rate Comprehensive Social Security Assistance payments, Old Age Allowance, Old Age Living Allowance or Disability Allowance; extending the Public Transport Fare Subsidy Scheme; and granting residential electricity account a subsidy.  These measures are in line with the expectations of the community and the public.  However, the increase in the basic child allowance and the additional child allowance for each child born during the year of assessment is merely better than nothing.

In a departure from its unclear stance on bond issuance in the past, the Government has provided a clearer explanation of its position on bond issuance in this year’s Budget.  The purpose of issuing bonds to support the development of the local economy, especially the infrastructure, is clear and appropriate.  Bond issuance will ultimately benefit the community and help enhance public recognition, which is something we look forward to doing.

With regard to public finances, the Budget proposes to maintain fiscal reserves at the level equivalent to 12 months of government expenditure, and indicates that the public finance situation will gradually improve.  In fact, with strong financial backing and abundant fiscal reserves, Hong Kong will not be looked down upon by outsiders.  As Hong Kong is an international financial centre, the confidence of international investors in Hong Kong’s economy and financial markets is of paramount importance.  The recent problems faced by the Silicon Valley Bank in the United States (“US”) and Switzerland’s Credit Suisse Bank are also rooted in a lack of market confidence.

During the social riots in Hong Kong, two major credit rating agencies, Moody’s and Fitch, successively lowered Hong Kong’s credit ratings, despite recognizing the Government’s sound fiscal position as a major support for the ratings.  If the Government’s fiscal position weakens, there is a possibility that the rating agencies will express negative views again, which may affect the credit ratings of Hong Kong’s banking industry and undermine the confidence of international investors in Hong Kong as an international financial centre.

The Hong Kong economy has been expanding for more than ten consecutive years from 2004-2005 to 2018-2019.  The SAR Government recorded a fiscal surplus for 15 years in a row with over HK$800 billion in total.  Nevertheless, since 2019, due to the triple blows of the US “trade war” against China, the social riots and the COVID-19 epidemic, the Government has continued to record fiscal deficit.  Given the rigidity of government spending and the need to introduce counter-cyclical measures, the Government’s fiscal position has deteriorated sharply.  Over the past three years, the Government has spent over $600 billion on anti-epidemic and support measures, leading to a record-high fiscal deficit of over $200 billion in 2020-2021, followed by a projected deficit of over $100 billion in 2022-2023.

In the short term, I believe that Hong Kong’s fiscal reserves are still at an adequate level, and our fiscal position is still far better than that of the vast majority of economies.  However, we must pay attention to the long-term trend.  First, medical and welfare spending will continue to rise in the face of an ageing population.  Second, due to a lack of land supply, it is necessary to expedite the development of the Northern Metropolis, the reclamation works for Kau Yi Chau Artificial Islands, and the construction of public housing and infrastructure.  All these projects involve huge government spending.  At the same time, the Government needs to allocate resources to promote sustainable economic development so that Hong Kong will not miss out on the current development opportunities.

Hong Kong’s situation is special in that the Linked Exchange Rate System requires the monetary base to be fully backed by foreign reserves, and the SAR Government cannot arbitrarily increase the money supply to support fiscal spending.  It is infeasible, and absolutely impracticable, for Hong Kong to monetize fiscal deficit.  It is therefore necessary for the Budget to keep expenditure within the limits of revenues and strive to achieve a balance between revenue and expenditure to avoid deficits and liabilities.

In this situation where the growth of expenditure is unavoidable, it is necessary to explore new revenue sources or adjust tax rates, and gradually reduce the scale of one-time relief measures.  The Budget has managed to strike a balance in all aspects.  To increase government revenue, an annual special football betting duty of $2.4 billion is imposed on the Hong Kong Jockey Club, and a progressive rating system for domestic properties has been introduced.  The only drawback of the Budget is that it has left the answer blank to the question on increasing revenue sources in the long term.  As the Government must address this issue sooner or later, it is better to give a response earlier.  The Government has been aware of this issue for a long time, having launched a consultation exercise on tax reform in 2006.  Unfortunately, no consensus could be reached in the community at that time.

I also fully understand that the public will not welcome any review or increase of taxes, whether the economy is good or bad.  However, the simple and low tax regime that has been put in place in Hong Kong to attract foreign investment is also being challenged by the international tax reform proposals to address base erosion and profit shifting announced by the Organisation for Economic Co-operation and Development.

In the face of the huge fiscal deficit over the past two years and the rapid changes in the global economy, many people have begun to realize that the Government needs to broaden the tax base and stabilize revenue, and they have put forward various proposals.  This has never happened before when the economy was doing well.

Given the recent heated discussions in the community on how the Government should broaden revenue sources and reduce expenditure, now may be the best time to gather the views of different sectors.  The SAR Government should actively consider inviting academics, experts and business people with experience in international taxation and economic development to join discussions and make recommendations.  This would not only ensure that Hong Kong’s taxation system can keep pace with new developments in international taxation, but also maintain a favourable business environment and competitiveness, while hopefully avoiding the occurrence of frequent fluctuations caused by the narrow tax base.  This task puts to test the Financial Secretary’s ability to examine and resolve the issues with great wisdom.

With these remarks, President, I support the passage of the 2023-2024 Budget.