On 21 November 2001, the Director of Audit tabled another of his headline catching Report No. 37 in the Legislative Council. The Report No. 37 contains 10 chapters including the management of medical equipment, the administration of sale of land by public auction.

In response to the fierce public criticisms caused by the PAC Report No. 37, the Chief Executive (CE) promised a vigorous crackdown on slack management and irresponsible officials. He said that the Government would not tolerate slack staff, would not tolerate wastefulness in the public coffers as well as would not tolerate unreasonably slack management. The Chief Executive also stated that he would take action pending the final conclusions and recommendations of the Public Accounts Committee.

The Committee already held 9 public hearings to receive evidence from Controlling Officers. It will meet several times a week throughout the holiday season, in order to finalise our own independent report on or before 6 February 2002.

The Panel held 7 meetings (including two special meetings to consider the item on "Reviving the economy" and the consultation document "A Broader-based Tax System for Hong Kong?"; to receive a briefing on the Summary Results of the 2001 Population Census; a joint meeting with Panel on Administration of Justice and Legal Services and Security to discuss Anti- terrorism legislation and related issues as well as an informal meeting to receive a briefing on the draft research report on Protection for Banking Consumers in the United Kingdom and the United States of America: Fees and Charges) to date and the relevant agenda are attached as Appendix I.

On 3 December 2001, the Financial Secretary (FS) has provided the Panel with a report on Hong Kong's latest economic situation. He claimed that the public should interpret "going north" as a positive rather than a negative message: "one should not interpret it as saying that Hong Kong has no opportunities and we have to flee." The financial chief also said the financial deficit for this year would be very large, urging the public not to be too pessimistic.

A proposed list of future agenda items is attached as Appendix II for reference.

The Panel held 3 meeting since the last report.

The Panel focused on the Hong Kong International Airport Master Plan 2020, the extension in the scope of activities of the Airport Authority, the Port Development Strategy Review.

It also studied the Port Development for Hong Kong, logistics Hong Kong including the related staffing proposals in Economic Services Bureau as well as the Competition Policy Advisory Group Report 2000-2001.

The Panel held 3 meetings to date and also visited the Cyberport site on 5 December 2001.

The Panel studied the implementation of the full liberalisation of the local fixed telecommunications network services market from 1 January 2003, Capital Works Reserve Fund Head 710 Block Vote for Computerisation in 2002-03, the reduction of fees under the Film Censorship Regulations.

It also discussed the institutional arrangements for implementation of the Digital 21 Strategy and E-government initiatives, the provision of intelligent networks for buildings, as well as the progress of interconnection issues (including the provision of fixed telecommunications network services at public housing estates in new towns.

The Panel held 3 meetings to date.

The Panel mainly focused on the early retirement scheme put forward by the Hong Kong Institute of Education (HKIEd). It also received a briefing by the Secretary for Education and Manpower on the Chief Executive's Policy Address 2001, discussed the enhancement of Capacity Enhancement Grant for secondary schools, the improvements of student financial assistance schemes as well as the strengthening of the support for the education reform.

There were 4 meetings of Finance Committee and 9 meetings of House Committee. TD of HKSA were kept informed of progress on all Bills on a weekly basis.

The hefty 2001/2002 legislative programme dated 5 November is attached as Appendix III. The Chief Secretary had indicated that he would lessen LegCo's workload by introducing less Bills.

There were 18 meetings held to date.

The Committee is now entering the last phase of resolving LegCo's differences. Apparently, a record number of Amendments will be introduced affecting some two-thirds of all the clauses of the original Bill.

There was 4 meeting held since the last report. The objective of the Bill is to improve the operation of the Banking Ordinance (Cap. 155) (BO) by providing for: -

(a) the control over Authorized Institutions' places of business;

(b) the regulation of Internet advertisements for deposits;

(c) the maintenance by Authorized Institutions (AIs) of adequate systems of control to ensure the fitness and properness of their "managers";

(d) the establishment of local representative office by non-deposit-taking banks;

(e) the rationalization of the availability of the general defence under section 126 of BO;

(f) the notification by Monetary Authority (MA) of his decision on an application to use the name "bank" and the appeal from MA's decision to the Chief Executive in Council;

(g) the requirement that the relevant shares of a controller, to whom MA has served a notice of objection, shall be transferred to a nominee of MA; and

(h) the enactment of a redrafted section 71 of BO relating to the approval of chief executives and directors by MA.

The Administration has given notice to resume the Second Reading debate on the Bill at the LegCo on 19 December 2001.

There was 3 meetings held since the last report. The Bill seeks to:

(a) to introduce a number of technical amendments to the Mandatory Provident Fund Schemes Ordinance (Cap. 485) to better protect the interests of members of mandatory provident fund (MPF) schemes and enhance the effective operation of the MPF System; and

(b) to confer on the Mandatory Provident Fund Schemes Authority (MPFA) certain functions and powers to facilitate its regulation of MPF schemes.

The Bill also proposes consequential and other technical amendments to the Mandatory Provident Fund Schemes (General) Regulation (Cap. 485 sub. leg.). These technical amendments include those relating to strengthening the mechanism of charging contribution surcharge when employers fail to pay contributions and providing flexibility to employers in making contributions in respect of casual employees.

The Bills Committee has held 4 meetings. It seeks to give effect to most of the recommendations contained in the Report on Corporate Rescue and Insolvent Trading issued by the Law Reform Commission (LRC) of Hong Kong.

The Bill proposes to inaugurate the new regime of provisional supervision and voluntary arrangements. The central idea is to stay all proceedings (with some specified exceptions) against at insolvent company so as to enable an independent professional appointed as a provisional supervisor to prepare a proposal which could salvage the company or part of its undertaking, or achieve the more advantageous realization of its assets or satisfaction of its debts and liabilities. The period of stay ("moratorium") would initially be 30 days which could be extended by the court up to six months upon application by the provisional supervisor.

Complementary to the new regime of moratorium is the introduction of the concept of "insolvent trade" (Clause 8 of Schedule 8). When a company is unable to pay its debts when they become due and the directors or manager of that company knowing that the company cannot avoid insolvency continue to incur debts, each of them could, upon the application of the liquidator in the subsequent liquidation of the company, be declared by the court to be liable for insolvent trading, and be ordered to pay such compensation to the company as the court may think proper in all the circumstances of the case. The Administration believes that this provision could encourage directors and senior management of a corporation to act on insolvency earlier rather than later.

HKSA made 2 written submissions to the Bill. In principle, HKSA supports the introduction of legislation to provide a framework for a corporate rescue procedure, it was believed that legislation of this nature is important for the business and investment environment in Hong Kong. HKSA, however, expresses concern about a number of provisions of the Bill, in particular those relating to payment of employees entitlements, personal liabilities of the provisional supervisor, secured creditors, separate ordinance and insolvent trading. Detailed comments on the Companies (Corporate Rescue) Bill is attached as Appendix IV.

The Bills Committee has held 2 meetings with the Administration. The objective of the Bill is to amend the Inland Revenue Ordinance (Cap. 112) ("Ordinance") to increase the maximum amount of home loan interest deduction for the years of assessment 2001/02 and 2002/03 and to provide for transitional matters.

The Bill gives legal effect to the proposal in paragraph 104 of the Policy Address of the Chief Executive by: (a) increasing the maximum amount of home loan interest deduction from $100,000 to $150,000 for the years of assessment 2001/02 and 2002/03; and (b) making transitional provisions to enable a person liable to pay provisional salaries tax in relation to the year of assessment 2001/02 to apply to have the payment of the whole or part of such tax held over until he is required to pay salaries tax for that year of assessment.

Members note that over 110 000 taxpayers who are paying or will be paying an amount of home loan interest in excess of the current tax-deduction ceiling for home loan interest will benefit from the new ceiling of $150,000. The maximum tax saving for a taxpayer will be $8,500 per year, or $17,000 for two years. Upon the implementation of this concession proposal, the Government's revenue from salaries tax will decrease by $1 billion.

During discussion, Hon CHAN Yuen-han has asked the Administration to explain the rationale for limiting the proposed enhanced ceiling for home loan interest deduction to two years of assessment and to consider extending the proposed enhanced ceiling to beyond 2002-03. Hon Albert HO has also indicated that he will consider moving a Committee Stage amendment (CSA) to clause 3 of the Bill to increase the maximum amount of home loan interest deduction from $150,000 to $180,000 for the years of assessment 2001-02 and 2002-03, but ended in failure.

The Administration, however, considers that both proposals have charging effect as defined in Rule 57(6) of the Rules of Procedure of the Legislative Council since, if implemented, each proposal would result in a reduction of revenue from a lawfully established source at a future date.

The Bill was finally passed on 21 November 2001.

The Bills Committee has held 4 meetings. The Bill is to amend the Kowloon-Canton Railway Corporation Ordinance (Cap. 372) to create the office of Chief Executive Officer of the Kowloon-Canton Railway Corporation ("KCRC")

The Bills Committee notes that in order to preserve the efficiency of the present operation and to maintain the stability of the Corporation, the existing Chairman-cum-Chief Executive has been invited to serve as the new CEO for another two years, subject to the passage of the Bill by the LegCo. The proposed arrangement is also accepted by the KCRC Board. Some members maintain the view that the proposed arrangement is undesirable as it will preempt the Chairman's power to determine the appointment of the CEO, and in turn, affect his power and working relationship with the CEO.

During the scrutiny of the Bill, the Bills Committee has identified a number of issues worth further pursuing outside the context of the Bill. These include:

(a) the factors taken into consideration in determining the remuneration and fringe benefits for senior management of statutory bodies;

(b) the effectiveness of appointing policy secretaries to the managing boards of statutory bodies to play a monitoring role;

(c) whether statutory bodies should be put under the scrutiny of the Director of Audit; and

(d) the feasibility of setting up a professional team to oversee Government equity on various statutory bodies.

The Administration has given notice to resume the Second Reading debate on the Bill at the LegCo on 19 December 2001.

The Subcommittee has held 3 meetings with representatives of the Law Society of Hong Kong and the Hong Kong Solicitors Indemnity Fund Limited (HKSIF), the Administration as well as representatives from a few law firms.

The objective of the Rules is to increase the contributions to the Solicitors Indemnity Fund with effect from 1 October 2001. The level of increase for the 2001 contribution is about 130%.

Some members of the Subcommittee point out that many small solicitors firms operating with marginal profits may be forced out of business because of the increase in contributions which they cannot afford to pay. The Subcommittee has also requested the Law Society to conduct an independent review of the existing Scheme to address the various issues raised by its members. It has also suggested that the Law Society should consult its members on the recommendation of the review to decide on the way forward and make a progress report to LegCo by a certain date.

After discussion, the Law Society has suggested that it will give an undertaking which would have the same effect as the proposal being considered by the Subcommittee. The Subcommittee has considered the undertaking, in the form of a draft letter from the president of the Law Society to the Chairman of the Subcommittee. In the draft letter, the Law Society assures Members that once the parameters and likely cost out expeditiously an independent review and will inform LegCo of the progress of the review on or before 30 September 2003. Any recommended arrangements will have to be acceptable to members of the Law Society, approved by the Chief Justice and transformed into amendments to the statutory rules to be approved by LegCo before the expiration of the five-year contracts at the end of September 2005.

As the Law Society has undertaken to make a report to LegCo on the progress of the review on or before 30 September 2003, the Subcommittee recommends that the matter should be referred to the Panel on Administration of Justice and Legal Services for follow-up. Upon receipt of the report from the Law Society, the Panel shall report to the House Committee which will then decide whether the report should be referred to a Panel or a subcommittee for further action.

Finally, the Subcommittee recommends that the Chairman should address the Council on the Amendment Rules at the meeting on 31 October 2001.

The Subcommittee had held 11 meetings and had discussed in detail the provisions of the Occupational Safety and Health (Display Screen Equipment) Regulation and the draft Health Guide.

The Regulation seeks to protect the occupational safety and health of employees who normally use display screen equipment (DSE) as a significant part of their work. The Administration proposes that non-compliance by a responsible person and an employer with the various requirements is made offences of strict liability punishable with a fine at level 5, i.e. $50,000, and non-compliance by a DSE user with any system of work or any practice provided for his safety and health is subject to a fine at level 3, i.e. $10,000.

I had strong reservations about introducing the Regulation at the present moment in view of its wide scope and the heavy penalty for non-compliance. I was concerned about the cost implications for the small and medium enterprises to carry out improvement measures to comply with the various requirements stipulated in the Regulation. I also expressed doubts as to whether the small and medium enterprises were aware of the provisions of the Regulation, including the offences of strict liability.

List attached as Appendix V. In addition, I have written a 'Letters to Hong Kong' on the 'Affordable Railroads and Highways' on 8 December 2001 for the RTHK. Speeches on my Web Page and highlights will be published in my circulars to members.

I have asked only 1 question - (sending and receiving Short Messages Services (SMS) among customers of different mobile phone network operators) since the last report which are attached as Appendix VI. The relevant HKSA Committees may wish to be advised and to consider the replies further.

To present orally.