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15th Legco Report to HKSA Council By Hon. Eric K.C. Li

I. Highlights

The second quarter of 1999 was packed with political drama. The numerous reform proposals of the Government were beginning to backfire because they lack well thought out implementation details.

The controversial manner in which the Government had handled the Cyperport project (subject of my Legco Column in the June issue of the Hong Kong Accountant) and the right of abode issue threw further doubts as to whether or not the Government had taken public opinions seriously. Although the economy did cease sliding downwards and business confidence gradually restored as I had predicted in March, the Treasury is still struggling in trying to redress the serious fiscal imbalance against the background of strong political opposition to any new revenue raising measures.

Political commentators sprung into full vigour in the last couple of weeks busy taking stock on Tung's rule after two full years. Most concluded that the civil services machinery is now backing him and that he has a workable majority support in Legco to see most things through. However, this is still not a free license to steamroller everything through with little regard to implementation details and reasoned public opinions. This manner of administration is especially unwise at a time when the economic mood is so bad that it must have already bred much political discontent generally.

The long expected revamp of the Executive Council did not happen. A good chance missed for the Chief Executive to secure vital political allys with credible opinion leaders and bring him closer to the political factions of the Legislative Council.

As I have forewarned in my last report, the self regulation regime of the accountancy profession was under heavy fire from the media with the Democratic Party and the Stock Exchange lurking behind the scene. I have tried my best to help the President and the Registrar to anticipate their every move and to always tread a step ahead of them in our strategic planning. From the way the Financial Affairs Panel has turned out yesterday, I think our initial efforts are paying off. I urge the Council to take further steps to strengthen our communications with the Democratic Party and the Stock Exchange in order to remove any remaining misunderstanding.

II. Committees and Panels

1. Public Accounts Committee (PAC):
@ On 21 April 1999, the Director of Audit tabled his headline catching Report No. 32 in the Legislative Council. The Committee, after holding three days of public hearings to receive evidence from the Controlling Officers, have been meeting several times a week in order to finalise our own independent report on time. I will present yet another very useful and constructive PAC Report to LegCo tomorrow.
2. Financial Affairs Panel:
@ The Panel held 5 meetings since the last report and the relevant agenda are attached as Appendix I. A special meeting held on the 11 June 1999 was devoted to receive a briefing by the Financial Secretary on the overall economic development of Hong Kong.

I have put forward numerous views on behalf of the accountancy profession during these meetings on draft Bills and especially on the Composite Securities and Futures Bill and the Regulatory mechanisms for auditors. There were good press coverage today. Minutes will be passed to HKSA as and when they become ready and extracts will be published on Eric's Bits and Bytes.

A proposed list of future agenda items dated 26 May 1999 is attached as Appendix II for reference.

3. Welfare Services Panel:
@ The Panel held 4 meetings since the last report. The Panel studied the services for demented elderly, active employment assistance programme, strengthening of social security field units and the Special Investigation Team and the creation of one Chief Clinical Psychologist post in the Social Welfare Department.

It also concentrated on the progress of Year 2000 (Y2K) compliance exercise in social welfare organisations, the honoraria and allowances for Guardianship Board members and witnesses, community rehabilitation network, contracting out the meal service of Community Care Services, the review of school social work service, as well as the review of Comprehensive Social Security Assistance Scheme (CSSA).

A special meeting was held to discuss the annual inflation adjustment of the standard payment rates under the Comprehensive Social Security Assistance Allowance Scheme and the Social Security Allowance Scheme.

4. Economic Services Panel:
@ The Panel held 4 meetings since the last report. It focused on the China Light and Power Company Limited's revised tariff structure, the retail prices of major fuels, the Year 2000 compliance in Government, Government-funded and Government-regulated organizations under the purview of the Economic Services, the interconnection between China Light and Power Co. Ltd. And Hong Kong Electric Co. Ltd. and competition in the electricity supply industry, the consultancy study on fisheries resources and fishing operations in Hong Kong, and the terminal handling charges. It also discussed the airport charges of the Hong Kong International Airport, the demand side management programme.

A Joint meeting with Home Affairs, Planning, Lands and Works Panel and Public Service was held to discuss the follow-up on the recommendations of the three inquiry reports on the opening of the new airport.

5. Information Technology and Broadcasting Panel:
@ The Panel held 5 meetings since the last report. The Panel mainly focused on the Secure Central Internet Gateway System, the opening of the external telecommunications services market, the implementation of the mobile phone number portability scheme, the progress of Year 2000 compliance exercise under the purview of the Information Technology and Broadcasting Bureau, and in the office of the Ombudsman and Government Records Service Division, Chief Secretary for Administration's office. It also examined the public opinion survey on the operation of the Control of Obscene and Indecent Articles Ordinance as well as the measures to promote the development of the film industry and to enhance Hong Kong's position as a film production centre.

There were two special meetings to receive a briefing by the Administration on the Cyperport project as well as the 1998 Review of Fixed Telecommunications - Moratorium on the issue of further Local Fixed Telecommunications Network Services Licences and Licensing of Additional External Facilities-Based Operators.

6. Finance Committee and House Committee:
@ There were 6 meetings of Finance Committee and 23 meetings of House Committee (including 10 special meetings from 6 to 19 May 1999 to discuss the issue of the right of abode in the Hong Kong Special Administrative Region of 1.675 million people in the Mainland.)

There was also two special House Committee meetings to examine the problem of Hong Kong residents detained in the Mainland as well as to receive a briefing by the Administration on the decision of the Standing Committee of the National People's Congress in respect of the Chief Executive's request for an interpretation of Articles 22(4) and 24(2)(3) of the Basic Law.

TD of HKSA was kept informed of progress on all bills on a weekly basis. I have maintained a constant dialogue with both the Financial Services Bureau and the HKSA always in anticipation of potential problems.

III. Bill Committees Joined

1. Companies (Amendment) Bill 1999
@ The Bills Committee held 3 meetings to discuss the Bill with the Administration. The object of the Bill is to update and streamline the operation of the Companies Ordinance (Cap. 32) ("the Ordinance"). The main purposes of the Bill are to: (a) provides merger relief to companies upon their mergers and reconstructions; (b) introduces a new procedure for deregistering solvent, defunct private companies; (c) removes the requirement to record and report the nationality of directors and secretaries; and (d) introduces some miscellaneous amendments.

The Hong Kong Society of Accountants (HKSA) was invited to assist in the deliberation of the Bills Committee at two of the meetings as it had been heavily involved in formulating the merger relief provisions in the Bill. As the Council has suggested, I gave this Bill my strong backing which should have helped to secure a relatively smooth passage on 23 June 1999.

I have also taken the opportunity to place on record my reservation with regard to the need to charge for an Inland Revenue tax clearance certificate. This would help provide a more 'open' position for HKSA in future reviews. Ironically, this mechanism of tax certification is now holding back the announcement of the effective date of the enacted Ordinance. I am now pressing for the effective date to commence on 1 September this year.

2. Revenue Bill 1999
@ The Bills Committee held 7 meetings with the Administration and received 2,256 submissions. It seeks to amend certain Ordinances to give effect to the proposals in the Budget introduced by the Government for the 1999-2000 financial year, and for connected purposes.

Second Reading debate on the Bill will resume tomorrow and the Secretary for the Treasury will be meeting me in the morning to exchange views. Council Member's thoughts welcome.

3. Tax Reserve Certificates (Amendment) Bill 1999
@ This Bill is to improve the tax reserve certificates (TRCs) system by: (a) abolishing paper certificates for normal TRCs and replacing it by scripless TRCs, and (b) paying TRCs interest at moving rates prescribed for conditional TRCs.

Council will remember that this is a direct response to my earlier criticisms made in public during the 3 October 1997 Finance Committee. The Bill was passed without controversy on 2 June 1999.

4. Banking (Amendment) Bill 1999
@ The objective of this Bill is to amend the Banking ordinance (Cap. 155) (the Ordinance) so as to: (a) bring Hong Kong's banking supervision framework in closer conformity with the Core Principle for Effective Banking Supervision published by the Basle Committee on Banking Supervision in September 1999 (Core Principle); (b) revise the provisions governing the publication and submission of annual audited accounts of authorised institutions (AI); and (c) improve the operation of the Ordinance in the light of market developments.

HKSA has given blessing to the Bill which is tabled for enactment tomorrow.

5. Adaptation of Law Bill (No. 10) Bill
@ This controversial Bill which seeks to allow the US Authority to probe into the tax affairs of US taxpayers in Hong Kong is still stalled after the HKSA made its submission. Further meeting is expected to be held to continue discussion.
6. Subcommittee on Public Revenue Protection (Revenue) Order 1999
@ There was only 1 meeting on Public Revenue Protection (Revenue) Order 1999. This subcommittee studies the Public Revenue Protection (Revenue) Order that is a temporary measure taken under the Public Revenue Protection Ordinance (Cap. 120) to give effect to most of the revenue proposals announced in the Budget Speech delivered by the Financial Secretary on 3 March 1999 when moving the Second Reading of the Appropriation Bill 1999. The Protection Order 1999 was signed by the Chief Executive, after consultation with the Executive Council, on March 1999 and came into operation on 1 April 1999.

The Revenue Bill Committee had subsequently taken over the work of this Subcommittee.

7. Alice Ho Miu Ling Nethersole Hospital Incorporation (Amendment) Bill 1999 - A
@ Private Member's Bill:

I have been invited to introduce this Private Member's Bill on behalf of the Hospital Board. This Bill seeks to clarify and further define the power of investment of the corporation established under the Alice Ho Miu Ling Nethersole Hospital Incorporation Ordinance (Cap. 1072). It was passed without controversy on 26 May 1999 as the First Private Member's Bill in the history of the HKSAR.

V. Motion Debate

List attached as Appendix IV. Speeches on my Web Page and highlights will be published in my circulars to members.

VI. Questions

I have asked another 2 (1 written and 1 oral) questions, since the last report which are attached as Appendix V. The relevant HKSA Committees may wish to be advised and to consider the replies further.

A worthwhile note is that the Secretary for Manpower and Education has directly responded to my appeal in the recent Budget Speech to review their policy on allocating monies from the Language Fund. I understand that a working group is now set up with a representative nominated by HKSA.

VII General Political Background

The summer months will be quieter with most senior officials and politicians away on vacation breaks. However, the preparatory works for the Chief Executive's Policy Address to be delivered on the 6 October 1999 will be put together in earnest. The Government may wish to save some ammunition e.g. Disney project, Chinese Medical Centre, Consolidation of youth services and the Composite Securities and Futures Bill etc for announcement closer to that date.

The third quarter will give the Administration some breathing space to sort out the many implementation details necessary to take its various ambitious reforms forward. The economic performance of this quarter will be watched closely to see if it is truly a turning point for a sustained recovery in the last quarter of 1999. This may set the mood for the Policy Address.


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