返回 Back | 中文


The state of economy and Hong Kong people's vision of the future on the eve of the announcement of the Budget could aptly be likened to the heavy mist obscuring our view for the last few days.

Visibility fell to zero when any expectations for the Budget were dashed by Financial Secretary Donald Tsang's now famous statement that he would never "seek temporary applause from the public with the taxpayer's hard-earned money".

But Mr. Tsang's two-hour speech, in which he announced a series of tax breaks, came as timely rain lifting the winter gloom and the thunderous applause from the people seemed to herald the approach of spring and promise sunshine after rain.


The good news brought by the Budget is a shot in the arm, lifting the spirit of Hong Kong people and sending a strong signal to the international community: Hong Kong is still standing, unscathed by the financial turmoil, in fact strong enough to provide much relief for its people. Hong Kong is now more firmly established than ever as an international financial centre with unique strengths of its own.

Take a closer look at this signal and we can identify three main points: (1) the Government will spend within its means; (2) the fundamentals of our economy are sound and we can expect further growth; (3) our tax revenues are high; and (4) our reserves are enviable.

As regards the first points, Mr. Tsang has indeed tried his best to stimulate growth. Public spending for 1998/9 will hit a historic high of 19.3% of Gross Domestic Product (GDP), representing a 18.4% rise in monetary terms and a 11.2% rise in real terms. Further, the Budget project just a 1.2% rise in public spending in real terms for 1999/2000, 3.6% for 2000/2001 and 3% for 2001/2002.

In fact, Mr. Tsang had exhausted his resources or even dipped into future resources when he helped the Chief Executive prepare the first SAR Policy Address last October, which projected an image of a caring government to the public. His Budget Speech last month, therefore, despite the tax concessions, contained fewer major pleasant surprises. But what more can we expect? He has already made the best of a difficult job.


I have already registered, in my response to the Policy Address, grave doubt about the 5% growth rate predicted by the Medium Range Forecast, considering the consequences of the financial crisis. The Budget is more realistic in projecting a relatively conservative 3.5% growth rate for 1998, roughly in line with forecasts by local analysts. But I think the Budget is still too optimistic in using an average 5% growth rate as the basis for forecasting budget surpluses for the three years following the coming budget year. I remain doubtful, therefore, about these optimistic forecasts and I think they call for concern and regular review.

Mr. Tsang is probably very confident about a rapid recovery from the financial turmoil. But according to a statement issued by Chief Executive Tung Chee-hwa in Europe yesterday, the Government believes it will at least take a year before our economy will gradually bounce back. I hope the Administration will reveal in its response to my query if it has any contingent plans in case external circumstance prevent a rapid economic recovery.


Undoubtedly, it is the tax breaks that have won Mr. Tsang most applause. But he has not sought "temporary applause from the public with the taxpayer's hard-earned money". The Government has never 'paid' to exchange for "temporary applause". In fact, all it did was to 'keep' a bit more money in taxpayers' pockets.

The positive response from the public has confirmed a belief I have repeatedly stated in this Council over the years. In my speech at last year's Budget debate, I urged the Government to review its tax policy in order to make Hong Kong more competitive. Now Mr. Tsang has been able to draw thunderous applause by "taking a bit less" from taxpayers' pockets, without squandering their hard-earned money on endless politically motivated causes. It goes to show that financial prudence and popular support need not be opposites. With sound financial management, the Government can have both.


At last year's Budget debate, I devoted almost half of my speech to discussing what I considered to be a reasonable level of surplus and reserves for Hong Kong and was pleased by the Financial Secretary's promise to give us more details this year. After the Policy Address was delivered last October, I urged the Chief Executive to clarify if the Government had a set policy on reserves, which seemed to be growing indefinitely, and whether the Government's aim was to accumulate wealth or to return it to the people of Hong Kong. These important questions have finally found perceptive responses in this year's Budget.

Last year I demanded specifically that the Government maintain a level of reserves equivalent to a year's public expenditure and return the rest to the people of Hong Kong through the setting up of different foundation funds.

Mr. Tsang has responded by setting out the operation, contingency and monetary requirements for reserves. The first two requirements demand reserves of a year's public expenditure, which coincides with the amount I recommended. This is actually quite conservative but the fact that it has been generally accepted by economists, the industrial and commercial sector shows that the people of Hong Kong basically keep their faith with prudent management. As regards the monetary requirement, Mr. Tsang has adopted "M1" as the standard for measuring supply and has allowed for a deviation of 25%. I think this is debatable.

Considering the recent spate of surprise attacks by speculators on the Hong Kong dollar, I can fully understand that a large amount of reserves will boost the confidence and the sense of security of finance officials, especially those in the Hong Kong Monetary Authority, in their dealings with speculators. But trained economists will definitely question if there are sufficient scientific and theoretic grounds for us to say that huge reserves can stabilise the dollar peg or restore people's confidence. Theoretically speaking, the effectiveness of such policy is more apparent than real, if not downright dubious. Mr. Tsang could perhaps find some support if he explained it as just a short-term measure to boost confidence, especially since it takes time to plan how the huge reserves can best be used. But I am afraid it will be too passive to aim to use reserves as a long-term policy to combat speculators.

In the eyes of seasoned investors, the size of a country's reserves is not the crucial consideration for buying and selling its currency. It is not only a waste to set aside billions of taxpayers' money for reserves; it also unnecessary increases, albeit indirectly, the social cost of maintaining the dollar peg.

I firmly believe there is scope for the SAR Government to "return people's wealth to the people within limits". Now that the Commission on Strategic Development, headed by the Chief Executive, has embarked on the task of planning for a new era, our huge reserves will have an invaluable part to play. It can provide strong back-up in a number of areas, for example, in boosting our competitiveness, allowing us to adapt the changing circumstances on the mainland, or absorbing external economic impacts. I believe this is the most positive way the reserves can be put to use and, from the perspective of Hong Kong's overall economic interest, this is obviously the best investment.


Strictly speaking, the value of Government assets far exceeds the $400 billion reserves it has accumulated over the years, because potential income can be derived from the development and sales of Government properties, from the Government's huge investments in the airport, railways and mortgage companies, and also from the commercial activities of various Government trading funds. I have therefore always concerned myself with how Government manages these investments with an aim to increasing its value.

I have previously expressed my concern about the tendency for various Government departments to upsize rather than downsize in the face of economic slump. Mr. Tsang responded by saying at the press briefing after his Budget Speech, that he had already asked Government departments where the "user pay" principle applies to freeze their charges. This is no doubt the right recipe. But can the Government afford to be complacent about its attempts at improving efficiency? Doesn't it have something to learn from the Chinese Government, which is right now launching a determined drive to privatise state-owned enterprises and streamline its structure in order to improve efficiency in preparation for more fierce competition in China's continuing transformation into a market economy?

The Government has been very fortunate not to have to face any financial crisis for more than ten years and therefore has never seen any need for a shakeup. Complacency may have crept into some Government departments. Let's not forget we are now in the middle of a slump and everywhere people are striving to cut down on costs to stay competitive. Shouldn't this serve to alert those Government departments which operate trading funds and charge customers for services?

Looking ahead at the Budget's projection of just a 1.2% growth in public spending in real terms next years, it will be important for the Government to improve its efficiency.

"Riding out storm": Renewing Hong Kong's strengths" should not remain just a slogan chanted by Mr. Tsang alone. Everybody in those Government departments providing direct service to the public should strive for better performance at lower costs to turn the slogan into a reality.

I therefore recommend that the Efficiency Unit work with the Treasury to study the streamlining practices in private enterprises and provide Government departments with sound advice and measurable targets so that public services will be more responsible to market situation and give good value for money.


Apart from the Chinese Government's radical reforms, other Southeast Asian countries are also pressing ahead with reforms and innovations and trying to take advantage of their low exchange rates to boost their competitiveness. Hong Kong does not have much of a breathing space.

Confronting competition from the international community, Mr. Tsang has come up with a series of novel ideas; reducing profits tax; providing various tax concessions and further opening up the market to boost competitiveness and create a better investment environment for such major industries as finance, tourism and telecommunications; investing in infrastructure; and improving transportation networks. All these measures are set out with specific targets to be met by moderate means so as to boost the market without artificial interference. Further, Mr. Tsang has accepted the 27 recommendations on tax reforms by the HKSA, making the Budget, at least to me, almost impossible not to support.

The Government has promised to provide pamphlets for Hong Kong's overseas offices to explain the advantages of Hong Kong's profit tax system. The Government will also give clear guidelines on the territorial source principle in accessing corporate tax and provide advance ruling on offshore income. Further, shortly after the handover, the Government has actively sought to negotiate with the Chinese authorities on double taxation and succeeded in completing specific arrangements on favourable terms, providing a relief form the nightmarish situation that has been bothering those in China trade for years. All these positive measures are good news the accounting profession has been looking forward to for a long time.

These are the right moves, but I would like to press on with further recommendations on behalf of the accounting profession. From the Budget's comprehensive review of profits tax, we appreciate that the Government has already provided considerable tax reliefs in profits tax, but there is still a strong expectation from the accounting profession for the Government to introduce further reductions such as group tax relief or allow tax loss be carried backward to offset against profits made in the previous two financial years.

Such concessions will be unique among Southeast Asian countries and therefore help highlight how favourable our profits tax regime is. After all, the plunge in profit during a slump is only "temporary", certainly not something individual companies want to see. A company which as previously contributed considerable tax profits but is suffering temporary loss surely deserves some help from the Government - in the form of a rebate of the tax it paid in the previous two years or some of the tax paid by other group companies. I hope Mr. Tsang will reconsider this as it is completely in line with the principle of "returning wealth to the people".


The Hong Kong market is full of vigour. We are not afraid of tough tests and we take every opportunities to improve our strengths. We should be able to cope with the consequences of the financial crisis with certain short-term changes. We should in fact turn this crisis into an opportunity by:

  1. curbing the atmosphere of rampant speculation which has dampered productivity in the last year or two:

  2. investigating and remedying the weaknesses of the property, shares and foreign exchange markets and their regulatory bodies, as exposed by the collapse of CA Pacific and Peregrine and by the speculative activities of derivative tools during the currency crisis, in order to make the system more resilient to speculation.

  3. capitalising on the lower costs to (a) streamline government structure and improve efficiency; (b) help the industrial and commercial sectors and invest judiciously in the emerging high technology industry; and

  4. to further bring down inflation.

If Hong Kong can proudly lay claim to a high level of autonomy, our people should have the confidence to meet the challenges ahead. The Government has been forward-looking but can go even further. Not by holding on to our huge reserves but by using this asset imaginatively to the advantage of our economy. Then the recent financial crisis would be like a fire of refinement and the SAR would come out of it transformed, a phoenix rising from the ashes, ready to soar into the high sky of the twenty-first century.

返回 Back | 中文