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View From LegCo Rep.

It is very gratifying to see that the Financial Secretary has responded to a number of recommendations the HKSA has been pushing for; most notably the technical proposals on taxation dealing with foreign fund managers and financial institutions and hotel refurbishment.

The Financial Secretary has also very positively responded to our suggestion to clearly map out in macro terms his strategy on the promotion of the services industry, and in particular my call on him to use the Trade Development Council as the vehicle to market the enormous benefits of our tax regime and the increasing significance of the service sector to our economy.

However, I would still urge the Financial Secretary to do more. To create a favourable business environment in Hong Kong, what we really need is continued investment in infrastructure, both physical and in terms of human resources. Infrastructural investments vital in promoting economic growth. In this year's Budget, we see drastic cuts in infrastructural investment to save funds for tax cuts and increased recurrent expenditure.

It is also essential that we maintain our international competitiveness. Singapore aggressively reduced its tax rates a few days before the Budget was announced. The fact that we have not made similar tax cuts is slightly conservative on the part of the administration. I will be very disappointed if next year, when the political uncertainty is removed and the investment on the new airport begins to bear fruit, a cut in tax rates is not made. This year, Mr. Tsang clearly paid special attention to the needs of the grassroots and low wage earners - next year it should be business investors' turn.

Promotion of the service industry requires more than packaging and good public relations. All the concrete, tangible proposals to promote the service sector have been allocated little funding - $50 million here, $50 million there - compared to the billions of dollars given away in tax allowances. While the strategy the Financial Secretary mapped out is useful, it is not sufficient on its own without real investment in research, promotion, infrastructural support and real tax cuts to keep ace with other regional business centres like Singapore.

I am also slightly concerned at narrowing of the tax net. This will further put to risk, in the very long term, the principle of a balanced budget. Although the Financial Secretary is spending within the 18 per cent GDP limit, the components of expenditure have been shifting from capital expenditure to recurrent expenditure. When you match a narrower tax base with a less stable and more volatile source of revenue to finance a recurrent and ever growing expenditure, you put to risk a balanced budget.

Li Ka-cheung, Eric

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