Speech at Panel on Financial Affairs

Briefing by the Financial Secretary on Hong Kong’s latest overall economic situation

Property market

Mr CHAN Chun-ying commented that the information shown on page 11 of the powerpoint provided by the Administration had only reflected Hong Kong people’s debt servicing capability but not their home purchase affordability. To better reflect the home purchase affordability ratio, Mr CHAN suggested that the Administration should consider providing information to facilitate comparison of the total value of flats with the gross domestic product of Hong Kong and/or comparison of the total value of flats with the income of taxpayers in Hong Kong. He also sought information on the actual residential flat supply in the past few years, and suggested that the Administration should provide such information in the powerpoint for briefings in the future.

FS said that the projected supply of first-hand domestic units in the next few years included unsold units in completed projects, units under construction but not yet included in presale, and units from disposed sites where construction might start anytime. The number of completed units in each year from 2012 to 2017 were 10 100 units, 8 300 units, 15 700 units, 11 300 units, 14 600 units and 17 800 units respectively, and the number in 2018 was estimated to be above 17 000 units. Moreover, there were about 22 300 unsold units readily available for sale or presale in completed and uncompleted projects as at the end of October 2018. He further took note of Mr CHAN’s suggestion regarding improvement to the presentation of  information relating to Hong Kong people’s ability to afford home purchase.


2019-2020 Budget Consultation

Tax related issues

Mr CHAN Chun-ying enquired whether the Administration would consider introducing new tax items in the coming Budget, and raising the cost recovery rates set for government fees and charges to expedite recovery of the full cost in providing the services concerned.

On whether new tax measures would be introduced, FS responded that this would only be announced in the 2019-2020 Budget given the sensitivity of tax measures. Regarding increasing government fees and charges, FS said that the Government would duly consider various factors, including the overall economic situation and the possible impact on people’s livelihood, before proposing such a move.

Utilization of fiscal reserves and budget surplus

Mr CHAN Chun-ying noted that there were satisfactory investment returns from the Long-Term Growth Portfolio (“LTGP”) under EF. He enquired whether the Administration would consider increasing the investment under LTGP. He also asked if the Administration would consider setting up a designated department for monitoring its direct investments in private enterprises, such as the MTR Corporation Limited (“MTRCL”) and the Hongkong International Theme Parks Limited (“HKITP”), in which the Government was a major shareholder.

FS said that there had been stable investment returns from LTGP with an annualized internal rate of return of around 13% from 2009 to 2017. There was further room to increase the investments under LTGP and the Administration and HKMA would exercise prudence in selecting suitable projects with stable returns. As regards Government’s investments in MTRCL and HKITP, FS advised that MTRCL was a listed corporation with its operation supervised by its Board of Directors. The Government had been monitoring the financial positions and the progress of the expansion and development plan of the Hong Kong Disneyland Resort (“HKDL”) through regular meetings with HKITP’s management team. FS said that B/Ds were subject to value for money audits conducted by the Audit Commission and the Administration had no plan to set up a designated office to oversee the investments in these companies.


Funding requirements for a centralized electronic platform for the administration of Mandatory Provident Fund registered schemes

Costs for and challenges in the development of the centralized platform

Mr CHAN Chun-ying expressed support for the Administration’s proposal. Noting that the development of CP would last for some nine years, he was concerned whether the proposed miscellaneous and contingency fees of about $239.4 million for the project, which accounted for around 7% of the total project cost, was sufficient. He enquired how the estimate had been worked out and whether the estimate had taken into account factors such as inflation. He further enquired about the estimated cost to be incurred by the existing 14 trustees for upgrading their existing information technology systems in order to tie in with the development of CP.

Chief Corporate Affairs Officer and Executive Director, Mandatory Provident Fund Schemes Authority (“CAO/MPFA”) advised that the percentage of the proposed miscellaneous and contingency fees mentioned by Mr CHAN Chun-ying was based on the total project cost. If based on capital expenditure (which stood at some $1.865 billion) of the project for developing CP, the miscellaneous and contingency fees accounted for around 10%, which was considered reasonable for projects of similar nature carried out by the Office of the Government Chief Information Officer. He also advised that as revealed in MPFA’s consultancy studies, the total expenditure to be incurred by the existing 14 trustees was roughly estimated to be less than half of the capital expenditure of the project. The expenditure for each trustee would depend on the scale of its operation.

Mr CHAN Chun-ying enquired about the estimated time for CP to operate in parallel with the paper-based MPF scheme administration system as it would take time to encourage employers and scheme members to use CP and to boost its digital take-up rate, and whether the proposed funding of $3,367.15 million had catered for such a scenario.

On the handling of paper-based MPF scheme administration processes, DS(FS)2 advised that the Working Group on eMPF (“the Working Group”), which comprised representatives of the existing 14 trustees, had developed a set of technical specifications covering 18 major areas of MPF scheme administration processes. The Working Group would examine the feasibility to digitalize the various processes in each of the 18 areas to facilitate their handling by CP. For those administration processes that could not be digitalized, MPFA would discuss with trustees to explore ways to standardize the processes concerned where possible. He added that it was inevitable to have a certain level of paper-based transactions. He also envisaged there could be few IT-challenged users who might not readily adapt to full electronic transactions. Hence, there would be service centres to assist users during the inception years of CP. As for the division of work between CP and trustees, DS(FS)2 advised that after the launch of CP, trustees would continue to owe fiduciary duties to their scheme members and perform certain statutory duties including undertaking anti-money laundering measures. It was believed that with the implementation of CP, the processing time of time-consuming administration tasks (particularly those relating to the submission of contribution payments by employers) could be significantly reduced.

Regarding the promotion of digital take-up rate, CAO/MPFA advised that a dedicated task force had been formed under the Working Group to tackle this issue. MPFA together with trustees would formulate and implement relevant measures to raise the digital take-up rate prior to the launch of CP. While all trustees had been providing digital tools for use by employers and scheme members, it was noticed that the usage rate of such tools varied greatly among trustees. The dedicated task force would examine the practices of trustees with higher digital take-up rates and encourage them to share the successful experience with their counterparts. On the development schedule of the project, DS(FS)2 pointed out that while the Administration was confident that the hardware of CP could be completed by 2022 as scheduled, certain tasks (especially those relating to master data management), which expected to take longer time for development, might cause delay to the launch of CP. The Administration and MPFA would not underestimate the complications involved.


Possible modifications to the Rates Concession Mechanism


Mr CHAN Chun-ying considered Option 1 not a feasible approach for providing rates concession. He commented that the proposed change would complicate the existing rates concession mechanism and cause inconvenience to owners because owners would need to inform RVD of the ownership status of their properties and owners with more than one rateable property would need to elect one of the properties to receive the rates concession. Moreover, individuals might hold properties through limited companies, or even hold each property through a separate limited company. These individuals would still be able to enjoy rates concession in respect of more than one property. Given that rates concession was a one-off budget measure, he expressed grave concern for RVD to invest considerable resources to develop and maintain the required computer system, as well as to update the information therein.

SFST said that when considering possible changes to the current rates concession mechanism, the Administration was mindful that rates concession was by nature only a one-off relief measure. As regards the new computer system for capturing property ownership information under Option 1, SFST advised that the set-up costs required in the initial two years to gear up for the implementation of the revised mechanism would amount to $200 million to $300 million