Second Reading Debate on Government Bill: APPROPRIATION BILL 2025
Deputy President, in the face of ongoing pressure on public finance, this year’s Budget introduced a series of measures that focus on cost-cutting, with supplementary efforts to increase revenue. This strategy is appropriate given the current state of economy recovery and highly uncertain external environment. Clearly, any increase in tax types or tax rates will undermine the public’s spending power and businesses’ willingness to invest, thus affecting the momentum of our economic growth. In contrast, a cost-cutting strategy that focuses on reducing government expenditure can avoid a direct impact on market confidence, while a revenue-generating strategy as a supplementary measure can help strike a balance between maintaining fiscal stability and stimulating the economy, without undermining the competitiveness of the tax system. The Budget addressed many of the community’s concerns and demonstrated the Government’s long-term commitment and pragmatic attitude.
Finance is Hong Kong’s core competitiveness. Although Hong Kong maintains third place globally in the latest Global Financial Centres Index, we still lag behind Singapore in terms of Fintech, ranking fourth and indicating a need for further breakthroughs. I am pleased to see that the Budget emphasized increasing investment in virtual assets and fintech innovation, which demonstrates a forward-looking approach. The Mainland has made remarkable achievements in fintech development in recent years. The Government should cooperate with the Mainland by, for example, establishing dedicated funds to support fintech research and application in both places, as well as strengthening in-depth exchanges in education and talent cultivation between the two places to nurture more top-notch fintech professionals for Hong Kong and drive the upgrading and development of our fintech level.
In the past year, the Government has introduced a number of measures to enhance the competitiveness of the securities market, including enhancing the listing regime of specialist technology companies, streamlining the listing application process, attracting overseas issuers to list in Hong Kong, etc. One of the highlights in the Budget is the first-ever proposal to explore the establishment of a post-delisting over-the-counter trading mechanism, which has been put forward by me and a number of Honourable colleagues in the Legislative Council. Providing a trading platform for delisted stocks will, if implemented effectively, not only broaden the market and improve the capital market ecosystem, but also help enhance investor protection and further increase the trading volume in the market.
According to the Report on the Work of the Government released during the “two sessions”, the second of the 10 major tasks is to pursue advancements in technological and industrial innovation. In order to seize future development opportunities, Hong Kong must lead transformation with technology. It is very appropriate for the Budget to identify AI as the key development area and set aside $1 billion for the establishment of the Hong Kong AI Research and Development Institute to promote the application of research outcomes. It also earmarked $100 million to facilitate the upgrading and digitalization of traditional enterprises, so as to enhance their overall productivity and competitiveness. It is believed that this will help revitalize traditional industries and promote the optimization of the overall industrial structure.
In an effort to cut expenditure, the Government has decided to impose a pay freeze for all personnel of executive authorities, the legislature and the judiciary. Given that last year’s 3% pay rise for civil servants and subvented organizations costed as much as $9 billion, this year’s pay freeze will save at least several billion dollars. Pay freeze is milder than pay cut, and I believe the civil service will understand that as the core of governance, it should demonstrate a commitment to weathering tough times together with the public. Despite that, the Government’s expenditure on “personal emoluments” will increase by $2.3 billion because 60% of civil servants who have not yet reached their maximum salary point will still receive pay adjustments under the salary increment system. The Administration should consider enhancing the salary increment system of the civil service by reserving increments to civil servants with outstanding performance, so as to encourage those with average performance to improve themselves. I think it would be more reasonable if less than half of the civil servants receive salary increments.
The Budget also proposed to cut 10 000 civil service positions within the next two years, in support of the Government’s bid to streamline procedures through technology and improve overall work efficiency. The Government should put into practice the concept of efficiency promotion by conducting in-depth studies on various departments, map out the situation and make necessary cuts. As stated by the Secretary for the Civil Service Mrs Ingrid YEUNG here present, we should achieve higher efficiency and greater output with a small civil service team.
The Budget did not adopt the proposal of “G19” Members and myself to cut recurrent expenditure more substantially, but did increase the reduction from 1% to 2%. As explained at the special meeting of the Finance Committee, only half of the Government’s $800 billion recurrent expenditure, i.e. about $400 billion, is subject to the 2% reduction. The other half includes public works projects which are not affected by the reduction. Statutory expenditure on social welfare and civil service pensions are also not subject to reduction. For this reason, I believe the Administration must strengthen monitoring of the expenditure that are not subject to reduction, so as to ensure the proper use of our public money.
In terms of increasing revenue, the Budget adjusted the tolls of tunnels and trunk roads, licence fee for private cars, parking meter charges, fixed penalties for traffic offences, air passenger departure tax and land departure tax on private cars, with a view to upholding the “user pays” and “affordable users pay” principles. It is estimated that these measures will bring an additional revenue of $4.6 billion per year for the Government. While the targets of these charges are quite diverse, it is believed that the travel expenses of the groups concerned are bound to increase. The Government should continue to monitor the response of society and see whether there will be any adverse effect, so as to ensure that these adjustments are truly effective.
With regard to the regulation of betting activities, illegal bookmaking has long existed in Hong Kong and its scale continues to expand. The estimated turnover of illegal betting last year was as high as $70 billion to $90 billion. I am pleased to see that the Government is concerned about this situation and is considering the regulation of basketball betting activities, so as to reduce the room for illegal betting. The Government is currently conducting public consultations. If implemented, it will generate an annual fiscal revenue of about $1.5 billion for Hong Kong, based on the 50% duty rate for football betting. Having said that, the Government should put in more resources and take measures at the same time to guide the public (especially young people) away from gambling.
The Government adopted the proposal put forward by me and “G19” Members to bring back six seed capital funds with unspent balance totalling $61.5 billion to the Government’s accounts, so as to release significant public financial resources, which can be more accurately planned and deployed, thus enhancing the flexibility and efficiency of resource allocation. Currently, 42 such funds are not managed under the Government’s accounts. I have previously raised concerns about the insufficient transparency in fund management, mainly in terms of disclosing the annual balance and investment returns from the Hong Kong Monetary Authority. I suggest that starting from this year, the Administration should regularly publish a more detailed breakdown of the income and expenditure of each fund, so as to enhance the public’s right to know about the operation of the funds.
In terms of supporting infrastructure and stimulating the property market, with the commencement of works projects in the Northern Metropolis, expenditure on infrastructure will definitely increase in the next few years. Hence, the Government plans to increase the total bond issuance amount to $700 billion. Indeed, a stable cash flow is essential to ensuring the smooth implementation of projects and minimizing the financial pressure on other public services. With the increased bond issuance scale, our debt-to-GDP ratio is estimated to be in the range of 12% to 16%, which is slightly higher than last year’s interim estimate of 13%, but still lower than that in most developed economies, such as the United States (121%), Singapore (175%), South Korea (53%) and Switzerland (36%), so there is no need for concern. However, it is important that we catch the right timing for bond issuance and keep our bond interest expense at a reasonable level.
The Government has made a bold adjustment to its stamp duty policy by raising the maximum value of properties chargeable to the $100 stamp duty to $4 million. Based on a 1.5% duty rate, the stamp duty on such residential properties will be significantly reduced by $59,900, which will directly alleviate the burden on home buyers. This is a strong incentive for young people who are hesitant to purchase their own homes due to financial pressure. According to statistics, there were 7 623 transactions of flats priced between $3 million and $4 million last year, accounting for about 14.4% of the total number of residential property transactions. It is estimated that about 10 000 transactions will benefit from this new measure. Given the current sluggish property market, this measure will not only boost property transactions and activate the property exchange chain, but also enhance buyers’ and investors’ confidence in the real estate market.
The Financial Secretary has indicated an intention to avoid excessive reliance on revenue from land sale. Currently, governments around the world are gradually simplifying their tax regimes, lowering corporate tax rates and increasing reliance on indirect taxes. In order to maintain sound public finance and keep pace with international fiscal trends, Hong Kong needs to get away from the current situation of a narrow tax base and low level of indirect taxes. Regrettably, the Budget did not mention any plan for a tax base study. I hope that while maintaining the fundamental principles of a simple and low tax regime and ensuring the competitiveness of Hong Kong’s tax regime, the Government will expeditiously initiate a study on fiscal revenue and formulate an action plan, so as to proactively cope with the changes in our economy in the future.
Deputy President, at this critical time when the international political and economic situation has become more complicated with rising uncertainties, and the global financial market is turbulent, we must firmly uphold our beliefs, focus on Hong Kong’s unique position in the country’s modernization process and implement the various new initiatives outlined in the Government’s planning and Budget, so as to drive a higher-quality development through reform and innovation, thereby continuously strengthening our capability and confidence in coping with various challenges.
With these remarks, I support the Appropriation Bill 2025.