MR CHAN KIN-POR (in Cantonese): President, as Hong Kong’s competitiveness has shown signs of decline in recent years, this Council has made repeated calls for the Government to timely address this issue squarely. In this year’s Budget, the Financial Secretary has made a positive response by raising issues pertaining to Hong Kong’s competitiveness and the development of industries. Although we consider that there are still many inadequacies, it is nonetheless a good start for the Government has finally acknowledged and realized where the problems lie.
It is pointed out in the Budget that our competitive edge cannot be taken for granted, nor is it self-sustaining. It is essential that we seize every opportunity to improve. On the other hand, we should adapt to evolving circumstances. Meanwhile, the Budget considers that there is still ample room for the four pillar industries to flourish and keep moving up the value chain, providing support and job opportunities for our economy. Furthermore, it is pointed out in the Budget that we must nurture with patience new industries which have international competitiveness, with a view to opening up more new opportunities for our future economic development.
While I fully agree with the aforesaid analysis in the Budget, I think more efforts should be made in order to upgrade and reinforce Hong Kong’s competitiveness. But obviously, the proposals put forward in the Budget are not forceful enough. In upgrading the four pillar industries, only some remedial measures have been carried out. As the Government still insists on adhering to the principle of “big market, small government”, it has not proposed any in-depth development and reform measures. In fact, efforts can be made in quite a number of areas. For instance, the Government may strive for collaboration with free-trade zones on the Mainland in a more proactive manner, or actively attract investment by international investors. It is worthy for us to conduct such studies.
I hope the Financial Services Development Council can put forward more innovative proposals in future to explore a greater number of and more extensive fields for Hong Kong’s financial services industry and enable it to pursue diversified development. As regards the remaining three pillar industries, the Government should conduct a comprehensive review and propose reform measures to upgrade the overall competitiveness of the industries.
As regards the development of new industries, besides innovation and technology, the Budget has mentioned nothing about other industries which can be developed, including the six priority industries. In fact, in the long run, it is imperative for Hong Kong to develop more industries, so that the economy can develop in a more diversified and stable manner and avoid over reliance on the development of financial services and trade.
After the outbreak of the financial turmoil, financial businesses contracted sharply, and Hong Kong people suffered great hardship at that time. As the saying goes, “lessons from the past can guide the future”. Now that the economy is robust and Hong Kong is in a state of full employment, if we show no interest in developing emerging industries, it is totally wrong. Honestly, the financial market can take a dramatic turn at any time. No one can guarantee if Hong Kong can maintain its status as a financial hub in the long run. Therefore, a diversified economy must be our way forward.
Of the six priority industries, innovation and technology is expected to prosper with the Government’s vigorous support. As regards medical and education services, some people hold the view that they should not be developed as industries. As for the remaining industries, including testing and certification, cultural and creative industries, and environmental industries, I believe efforts are being made to develop the businesses. Nevertheless, in the absence of the Government’s vigorous support, the pace of development will definitely be beset with difficulties, and industries can hardly develop successfully. I hope the Government can take into consideration the diversification of Hong Kong’s industrial structure and continue to allocate resources to support the development of emerging industries.
Another highlight of the Budget is the analysis of a structural deficit and an ageing population. Should we fail to address the shadows cast by these two problems at an early stage, they can turn into time bombs at any time.
It is pointed out in the Budge that if government expenditure keeps growing and outpacing economic and revenue growth, a structural deficit would surface in seven to 15 years. The Financial Secretary considers that although the projections spark off a clear warning, we should not be over worry because our economy will continue to grow in the coming 20 to 30 years. This implies that our revenue will continue to rise and we can still afford expenditure increases, only that the growth in public expenditure must be restrained. Therefore, the Budget proposes that public expenditure should not exceed 20% of GDP. In addition, the Government should save for future generations and set up a “Future Fund”.
Quite a number of Members have criticized the Financial Secretary for “crying wolf” again. I agree that the Government should exercise prudence in financial management, but it should observe the principle of “spending or saving money for good reasons” rather than allowing no room for change by adhering to the principle that public expenditure should not exceed 20% of GDP. Otherwise, it will find its hands and feet tied when responding to social needs or implementing new initiatives in the future. The setting up of a “Future Fund” is actually aimed at freezing part of the reserves for the future. Although I have no objection to savings because it is a good thing, I think the community should be allowed to discuss whether or not this method should be used. After all, Hong Kong has more than $700 billion in fiscal reserves. Coupled with the Exchange Fund, Hong Kong actually has more than $1,000 billion. A too conservative approach is not necessarily appropriate.
Nevertheless, although the Budget has pointed out the shadows cast by public finances, the method of reducing expenditure or savings still cannot adequately resolve the problems faced by Hong Kong. Only through fostering robust growth in our economy and upgrading the competitiveness of our economy can greater stability be achieved in our economic development to cope with future challenges. However, as I pointed out just now, the Budget has not outlined any new direction for promoting economic development. It is right for the Government to remind the community to be vigilant while enjoying security, but adequate effort has not been made as no proposals have been put forward for promoting further economic development.
The Budget has also responded to some concerns of the business sector, including inadequate commercial land. Given that exorbitant office rentals have pushed up operating costs and has directly deterred investors, the provision of additional commercial sites should be a top priority. The Budget has proposed that the 2014-2015 Land Sale Programme will include seven commercial sites and one hotel site. In addition, the Government will increase land supply for commercial use in different districts through seven measures, so as to accommodate more economic activities and create more job opportunities. The Government’s decision to provide additional commercial sites to facilitate business development is absolutely right.
On the other hand, it is worth mentioning that, despite the substantive measures proposed to alleviate poverty and support the disadvantaged, the Policy Address and the Budget have offered only limited assistance to the middle class. In fact, the middle class is facing considerable pressure in life. The Government has, on the one hand, made vigorous effort in alleviating poverty, but it has not offered much assistance to the middle class. Naturally, this will cause dissatisfaction among the middle class. Meanwhile, although the Government has always encouraged childbirth to boost the future young population, it has failed to provide incentives to encourage members of the public, especially the middle class, to rear children. I hope Child Allowance can be substantially increased for the purpose of encouraging childbirth while reducing the burden on the middle class.
Lastly, I would like to say a few words on issues of concern to the insurance sector. With reference to the ageing population problem, the Budget has mentioned a voluntary health protection scheme (HPS), the reservation of $50 billion as well as the Government’s intention to provide tax reliefs for subscribers of health protection insurance.
In fact, the Government has decided to substantially reduce the subsidies for healthcare insurance by merely providing a High-risk Pool and tax reliefs, and the expected subsidies will substantially reduce by 90% from $50 billion to $4.3 billion. From the perspective of premium concessions, if the annual premium under the HPS is $4,000, a 30% discount as previously proposed would mean an annual saving of $1,200. At present, the Government only mentions tax reliefs; the previous proposals of a 30% discount and discounts for long-term insurance are gone. As the average tax rate for Hong Kong people is approximately 8%, even if the $4,000 premium is entirely tax-free, it would only mean a concession of $320. As the appeal to members of the public has been greatly reduced as a result of the enormous gap, the insurance sector is doubtful of the success of the HPS. I hope the Government can reconsider making use of the $50 billion to provide subsidies and reinstate the original concessionary terms to implement and promote the HPS.
Furthermore, the Budget has also mentioned offshore Renminbi (RMB) business and pointed out that Hong Kong, with its first-mover advantage, should strengthen its existing services, including RMB-denominated cross-border reinsurance, which is one of our concerns.
Honestly, owing to the great complexity of the relevant rules, regulations and restrictions, the trade has all along been uncertain about whether RMB-denominated cross-border reinsurance business can be conducted in Hong Kong. Now the Government has clearly stated that such business can be operated and will be further strengthened. This will offer great assistance to Hong Kong’s reinsurance business and attract more reinsurance companies to set up business in Hong Kong. The RMB premium collected by Hong Kong’s reinsurance companies can also be spent on Mainland investment projects. I believe the trade will follow up the matter shortly and endeavour to expand the relevant business.
In last year’s Budget, the Financial Secretary proposed to reduce half of the profits tax on the offshore insurance business of captive insurance companies. The Government will continue to strengthen and promote its effort and, through overseas and Mainland economic and trade networks, attract more enterprises to set up captive insurance companies in Hong Kong. Nevertheless, as the number of concessions offered by the Government is smaller than those offered by similar schemes in overseas countries, our scheme might become less attractive. After the implementation of the scheme, I hope the Government can conduct a comprehensive evaluation of its effectiveness and study the introduction of more concessionary measures to boost its competitiveness.
I so submit.