Hon KP Chan on Motion of Thanks to the Chief Executive for His Policy Address
Finance
• I fully support the Policy Address in boosting up competitiveness of financial sectors of Hong Kong, in particular development of offshore RMB business. Our key direction for the next five to ten years should be the offshore centre for RMB supported by the State.
• I fully realize the demand of the society for reduction in MPF management fee. Yet, we must also recognize that operating costs of service providers are significant. Even so, MPF providers are offering low-fee investment choices with administrative fees below 1 percent. Meanwhile, administration costs may also be reduced if compliance and operations requirements are simplified and automated. Management fees would be further lowered progressively through market competition. Thus, I urge the Government to consider submissions on MPF fees with caution including their implications in broader perspective. Care should always be taken to avoid interfering with the free market and disrupting market order.
• Actually, fund returns are much more important to employees than management fees. The Government should realize that returns on funds are related to risks, not fees. If returns were poor, low fees would not serve any purpose. Therefore, control of MPF fees would be unproductive. On the contrary, it might de-motivate service providers to perform and this would not be in the long term interest of MPF.
• The proposed lift of the prescribed Maximum Relevant Income Level for MPF contribution to $25,000 will come into force in June next year. For over 10 years since launch, the Maximum Relevant Income Level has been kept at $20,000, falling well behind inflation as measured by consumer prices. The authorities should review MPF contribution rate and relevant incomes levels more often with a view to keeping the final payment sufficient to support retirement.
• The Government should expedite discussions with the Mainland to put in place three key supports to the insurance industry. The first issue is admission criteria of Hong Kong insurance companies to operate in the Mainland, particularly reducing the threshold for entry and expanding areas of cooperation with local partners. The next issue is early admission of Hong Kong insurance companies to domestic bond and investment markets. It would help remove the bottleneck of product development due to grossly insufficient investments in RMB. The last issue is promotion of Hong Kong as reinsurance centre of Southeast Asia coincidental with the development of offshore RMB business. If Hong Kong reinsurance providers might remit RMB premiums received in the Mainland across the border, Hong Kong would have a good chance to become an international reinsurance centre.
• The Policy Address reaffirms the establishment of an independent Insurance Authority. The industry is urging the Government to avoid over-regulation or layman regulator. The proposed IA will have five levels of regulation. The Government should assure that there are at least two representatives of the industry at each level so that our voices are fully heard.
• The Government should not forget that one of the purposes of an independent IA is to promote long term development of the insurance industry. Unfortunately, the Policy Address does not say much on the development of products, institutions and the insurance industry at large. I urge the Government to consider what an independent IA could do for the industry in terms of better, more efficient and more favourable operating environment apart from supervision, investigation and penalty.
Housing
• The Policy Address stresses that land formation would not be suspended at time of market downturn so that there would be timely and adequate supply when demand picks up. I fully support the Government in making a long term and stable land policy. Land formation should not be influenced by short term market disruptions. Land reserve policy should not be affected by fluctuations in property or land price.
• East Kowloon Commercial District development is a highlight of the Policy Address. It would add some 4 million square metres to office supply. As office shortage has been bothering the business sector for years, a long term resolution is essential to sustain business development in Hong Kong.
• I am glad to hear that policy of queue for public rental housing of three years on average will stay and supply would be adjusted accordingly. I also welcome the resumption of HOS but the new Scheme would mean double benefits. When calculating the premium to be paid, the Housing Authority may take the subsidised portion of a unit’s purchase price as a loan to the owner, the amount of which will not be adjusted even if the market value of the unit increases in future, and only require the owner to repay this loan to the Housing Authority before selling the unit on the open market. It would help make HOS much more attractive and investible, resulting in a much higher application rate and lowering the chances of successful application for those citizens who are most in need.
• The proposed change of policy in pricing and resale would only benefit successful HOS applicants at the expense of everyone else. I would rather see the prior proven policy restored because it is more equitable and more logical.
Environment
• The Policy Address devotes many paragraphs on the environment. However, there are not many new measures and there is no breakthrough in air quality objectives.
• The Policy Address categorically states that the Government would support the environmental industry to participate in business activities in the Mainland such as exhibitions and trade missions. These measures will help the industry make full use of concessions under CEPA to explore business opportunities.
• Conventionally, the Government promotes industries by way of land grant, subvention and policy support. These measures are helpful but inadequate to make them prosper. I look forward to encouraging outcomes of this breakthrough and making it a show piece for other industries for the credit of the Environment Bureau.
• To promote emission reduction would require promoting energy conservation in the community by way of continued education and convincing campaigns. For instance, turning off unused lights is simple and effective means of saving energy. When the community accepts emission reduction and energy saving as daily routines, the Government will find promotion of other environmental measures much easier with less resistance.
Livelihood
• There are some new thinking this year, such as public transport concession of $2 per trip for the elderly and improving “portability” of Old Age Allowance. However, these are one-off measures and unhelpful in resolving grave imbalances of the economy and demography in the long term.
• The Government has not attended to root causes of imbalance in economic development timely. It has not provided proper supports to population policy. Therefore, Hong Kong is flooded with low skill, low educated labour. Wealth gap is widening. The Government should analyze structural changes in the labour force and plan for early revitalization of declining industries to absorb more workers of more skills.
• The proposition of six key industries is of good intention and proper direction. However, the Government does not provide sufficient leadership and has no working timetables. I ask the Government to push their developments with dedicated bureaux and task forces.
• The Government should consider economic and population imbalances together. I would urge the Government to set up a high level task force on population sustainability, population policy and industrial development. Population size would be planned. Industries would be developed and polices on employment, housing, health care, educations and other areas would be made on the basis of planned demography.
• The Government should look into alternative retirement arrangements for the benefit of those who are not covered by existing schemes. Grassroots should be encouraged to look after themselves. The Government should continue to promote employment with pertinent measures such as minimum wage for the working poor and “work-fare” instead of welfare.
Health Care
• I fully support the Health Protection Scheme (HPS) to promote private healthcare reform and proper use of the financial incentive of $50 billion earmarked by the Government. The Policy Address states the Government is prepared to implement the Scheme. Its target is the middle class who can afford private health care. As these are mostly taxpayers, the Government should seriously consider offering tax deduction for premium payment to help relieve their burden. Tax concession would also convey an important message that the Government is giving tangible support besides oral encouragement to those who plan for their future.
• Although such tax credit would inevitably cost public revenue, its impact on government purse would be limited as the estimated loss is no more than $200 million. On the other hand, tax concession would encourage people to plan for future medical expenses and become less dependent on public health care. The Government would end up saving more public resources. What matters most is that if more middle class could afford private health care, more resources of public health care would be released to the most needed grassroots.
• Health expenses around the world including Hong Kong have been surging in recent years. In the first half of this year, local medical insurance claims increased by 16 percent over last year. As early as the first stage of public consultation on public health reform, the Government already proposed to inject $50 billion to HPS in support. It would take further five years before the Scheme starts operation in 2015. Assuming medical costs are going up by 10 percent a year, the pledged sum by then would worth only $30 billion at today’s prices. The Government should review its financial adequacy and sustainability after launch in 2015. The public has expectation on the Government in providing a feasible and sustainable health protection scheme.
• Supply of hospital beds has become delicate in private health sector in Hong Kong. They are in serious shortage and individual hospitals reported 100 percent occupancy last year. If private patients did revert to public hospitals due to long queue, it would not be in the interest of the HPS and long term development of private health sector at large.
• All four proposed private hospitals will not commence service earlier than 2017. The Government should explain how demand for private wards in the interim six years would be met. These new hospitals are required to reserve 70 percent of services for Hong Kong residents. The Government should also explain the reason of not extending the same requirement to 13 existing private hospitals today rather than deferring the decision to 2017 when new hospitals start operation. Finally, the Government should explain why only two lots would be granted in the first quarter of 2012, rather than all four lots together so that the new hospitals may commence service early. I welcome these long term measures but short term problems are imminent. I ask the Government to provide immediate resolutions.