The Financial Secretary writes recently in his blog on official overseas visits. In my view, there is one really good paragraph that deserves sharing. He says, (Quote) “Nowadays, foreign government senior officials are arriving at Hong Kong almost every week with well prepared incentives to meet the management of our enterprises and invite them “removing” their bases abroad. They are actually coming to “steal” clients” (Unquote).
His remarks are supposed to defend overseas tours of our senior officials. However, they also clearly show that the Hong Kong economy is under real threat. Frankly, in the last 10 years, both pillar industries and emerging industries with advantages are lacking meaningful progress. We are still living on our comparative advantages. FS is cautioning us that foreigners never stop trying to take business away from us. If we do not endeavour to better the economy, we might end up losing all our edges one day.
There is an obvious change in official stance towards economic development this year. Previously, the Administration subscribed to the principle of big market and small government. Hong Kong might have missed many opportunities owing to our passive attitude. In this Budget, FS is eventually taking a more positive approach in promoting and even planning industrial development, including study on container terminal 10, expansion of Ocean Park and Disneyland, promotion of bond market, provision of tax incentives for captive insurance and private equity, and provision of related training and development in support. Though these measures still fall short of market aspiration, they reflect FS’s thoroughness in contemplating our economic future. I wish that Government would strive for economic development, particularly industries where we are already having clear advantages. They all need government support to mature. As FS says, we must compete head on with our rivals for more business.
I shall first talk about the insurance sector. There are many topics that deserve our attention. The spotlight is obviously the proposed 50% tax concessions on offshore policies for developing captive insurance in response to repetitive appeals from my constituency for years. It is intended to attract foreign enterprises to engage in captive insurance in Hong Kong.
Currently, there is only one captive insurer in Hong Kong established by a Chinese enterprise. In contrast, Singapore has over 60. Apart from underwriting, captive insurance would also bring in related expertise like legal, accounting, actuarial etc. They would also help develop Hong Kong into a center for re-insurance. Hence, benefits are comprehensive. It is noteworthy that almost all top 500 American companies engage in captive insurance abroad. Chinese enterprises would follow their footsteps. So long as we are equipped, Hong Kong would be their preferred location for captive business.
The basic question is: Are our terms attractive? Captive insurance in Singapore is outstanding simply because of its strong selling point of generous tax incentive. Hong Kong is offering tax concession of 50 percent but Singapore offers much better term of tax holiday of 10 years. Moreover, Mainland enterprises might face double taxation for their insurance operations in Hong Kong. If we could not overcome these obstacles and improve attractiveness, we would not only lose out to rivals in attracting but also in retaining enterprises. I believe that we are taking the right step forward but the proposal is uncompetitive. There is room for improvement.
I now turn to the Government’s health protection scheme under preparation. Lately, it is becoming a cause for concern to the insurance sector. Scheme details include operational technicalities are being drafted. Under original plan of the last Administration, HPS and private health insurance are two separate and compatible systems. The Government is supposed to provide a high-risk pool and no-claim bonus for HPS to help achieve universal coverage with improved attractiveness. Savings for future payment for post-retirement private health insurance would receive public subsidy. The latest thinking of the Government, however, is to merge HPS and private health insurance as a single system for regulation.
Frankly, if incentives were substantially trimmed, the revised HPS proposal would not meet public aspirations and become unattractive. Moreover, it would practically put private health insurance under Government oversight and seriously interrupt its ordinary course of business. In turn, private health insurance market would shrink leaving public medicine to absorb unsatisfied demand. I urge the Government to reconsider and revert to the original plan as the basis of renewed discussions on feasible proposals. If the Government were insistent on an impracticable plan, I would rather not have it.
Another issue for concern is policy-holders’ protection fund. The law is being drafted but the insurance sector still has reservations, in particular outstanding policies of underwriters in liquidation. They would be taken over by the Fund pending expiry. Admittedly, it is simple in solution. As policies issued by defunct underwriters might have hidden defects and even be fraudulent, the Fund would be taking up undue and substantial risk. In case the Fund were depleted by claims from these sunset policies, any increase in levy would be borne by decent companies in operation and in turn their consumers. It is grossly inequitable. I ask the Government to seriously consider the irony.
Independence of the Insurance Authority is our prime issue for concern. The Government is digesting views of the industry and public with a view to tabling the Bill during this session. Close dialogue would be maintained with the industry in the legislative process. As independence of the regulator has far-reaching implications, intermediaries and underwriters have made substantial submissions. Our particular concerns are industrial participation in the new Authority, legal status of intermediaries and underwriters, and introduction of tough penalties on intermediaries. I ask the Government to hold serious talks with the industry on various issues and resolve their concerns before tabling the Bill.
A further issue for concern is MPF. The MPF Authority is preparing a contingency plan of imposing ceiling on charges in case of market malfunction. Public consultations would be sought later this year. Actually, the Authority is encouraging automation, employee accounts consolidation, and simplification of fund types and choices, etc to help contain operating expenses. Studies by consultants show that these measures would effectively reduce costs and in turn charges. Therefore, the Government should not consider imposing any charge ceiling in haste but should allow these improvements to work their ways first. Charge ceiling should be measure of the last resort.
Lastly, I would like to touch on welfare. The Budget is allotting $56 billion for recurrent expenditure on welfare, an increase of 31 percent. There are new measures on care for the elderly, rehabilitation for the handicapped and helping the poor. Although resources so deployed are significant, I fully support.
Among the allotments is further injection of $15 billion to Community Care Fund for remedial services for the poor. Commission for Poverty is considering a new idea. The Fund would sponsor recipients of Comprehensive Social Security Assistance to open savings accounts with banks for accepting compensation on any deduction from the Assistance for wages earned. When the account balance reaches preset target, savings may be withdrawn. Such arrangement intends to encourage recipients to find jobs. Incidentally, the Commission and I both think alike. This proposal is similar to mine on better support to those who are self-reliant in livelihood. It is always my view that recipients would find jobs so long as they might keep every penny earned. They would be hard-working so long as efforts were equitably rewarded. This is human behavior. I ask the Government to consider new policies more from behavioral reality than bureaucratic rigidity. If so, popular support on would be forthcoming.