APPROPRIATION BILL 2020
Resumption of debate on Second Reading which was moved on 26 February 2020
MR CHAN CHUN-YING (in Cantonese):
President, with regard to this year’s Budget, I am going to discuss from four perspectives.
The first perspective is about the internal factors and external shocks facing Hong Kong. Hong Kong’s economy has been suffering from the double blow of internal and external challenges since 2019, and has recorded the first negative growth in 10 years. On the external front, the global economic downturn and trade tensions between China and the United States continued to depress Hong Kong’s external demand, with export of goods and services falling sharply. However, unlike previous economic downturns, Hong Kong is also plagued by the internal factor of disturbances arising from the opposition to the proposed legislative amendments. The social unrest that lasted for six months has further damaged the economy of Hong Kong.
This year, while the old uncertainties are still clouding over the global economy, new uncertainties have arisen. In the midst of the China-United States trade tensions, the next round of trade negotiations should be more difficult. It is expected that this will disturb the global economy from time to time and curb the external demand of Hong Kong. Since the beginning of this year, the sudden outbreak of the novel coronavirus has taken a tsunami-like hit on Hong Kong’s economy. There has been a notable drop in the number of visitors to Hong Kong and a decline in the number of people going out. The retail, catering, hotel, transport and other related industries have been operating in severe adversity. The epidemic in Europe and the United States has intensified since March, dealing a heavy blow to their economic and financial conditions. The consequential effect will spread further to the rest of the world, making it difficult for Hong Kong to remain unaffected.
Recently, street violence has subsided but not yet fully stopped. At present, Hong Kong’s society is deeply divided with the business environment severely affected. These are not easy to recover. Worse still, Hong Kong’s internal deep-rooted conflicts are unlikely to be resolved in the short term, making it difficult for the Government to govern effectively and many policies cannot be implemented effectively. Hong Kong’s economy may still be under a difficult situation of facing both internal factors and external shocks for an extended period, and recovery will be very difficult.
For the second perspective, I would like to highlight the need for timely introduction of large-scale counter-cyclical relief measures. In the previous economic downturns, unemployment rate might rise sharply within six months. Now that the unemployment rate in Hong Kong has already risen from 2.8% in June last year to 4.2% in March this year, the alarm of unemployment has been sounded and is likely to aggravate swiftly within a short time. The SAR Government must step up its fiscal stimulus actions as quickly as possible to safeguarded people’s livelihood and employment.
In the face of the current economic winter and the challenge posed by the potential social unrest, the Financial Secretary has boldly and fearlessly introduced this Budget to “support enterprises, safeguard jobs, stimulate the economy, relieve people’s burden”. This is worth supporting. Four rounds of relief measures costing a total of $68 billion were introduced last year, and counter-cyclical relief measures of an even larger scale involving $120 billion was introduced this year. The forecast budget deficit was an all-time high of $139.1 billion back then. However, if the $19.5 billion recovered from the issuance of green bonds and the $22 billion returned by the Housing Reserve Fund are also included, the actual deficit would be close to $180 billion. This shows the determination of this Budget to ease the pressure of the economic downturn.
President, however, when facing the changes in the epidemic situation, Singapore has responded with much stronger effort. In late March, it has further provided an additional budget of $260 billion and introduced two rounds of relief measures to help enterprises, labour and families tide over the difficulties. The additional sum is equivalent to 11% of Singapore’s Gross Domestic Product (“GDP”), with its forecast budget deficit reaching $216.6 billion. When the effects of the epidemic become more serious, Singapore introduced the third round of economic support measures amounting to HK$27.4 billion in early April to provide subsidies to enterprises, so that all local employees can receive 75% of their wages in April. What is more, it called on employers to continue to pay wages, not to put their employees on no-pay leave or not to lay off employees. It seems that no one dares to take this global economic tsunami too lightly. On the other hand, in the United States, a US$2 trillion stimulus package, which is described as the largest ever in its modern history, was launched in late March. The package also includes cash payout in the hope of minimizing the damages to the economy.
The SAR Government launched two rounds of Anti-epidemic Fund in February and this month, totalling $167.5 billion, to support industries and members of the public affected by the epidemic and the Government’s anti-epidemic measures. If the $120 billion relief measures of the Budget is also included, the various relief measures implemented so far amounted to nearly $290 billion, which is equivalent to more than 10% of Hong Kong’s GDP last year. The Financial Secretary frankly admitted that the deficit would rise to $280 billion and might reach as high as $300 billion, which is a new record high. In my opinion, this is the kind of record that no one wants to break too often.
With regard to the counter-cyclical measures in the Budget, such as reducing salaries tax and profits tax, paying one-month’s rent for public rental housing tenants and increasing various social assistance payments, they are nothing new. The most noteworthy measure is the direct cash handout of $10,000 to all Hong Kong citizens, but how people are going to pocket this sum of money has aroused grave concern.
Hong Kong had handed out “candies” twice before, i.e. handing out $6,000 in 2011 and handing out $4,000 by the Community Care Fund in 2018. As a modern smart city, Hong Kong should be able to make instant cash payments throughout the year. The Government should make good use of the existing database to hand out cash, with priority given to Comprehensive Social Security Assistance recipients and elderly people. I wish to say a few more words on this issue. Initially, the relevant departments used privacy as a shield to substantiate the difficulty in handing out cash. When there is a better way to address this issue, the relevant departments then voiced another difficulty last week, i.e. the capacity of the system. If money is first handed out to the two categories of people mentioned above, and then members of the public are encouraged to collect the money via electronic means, such as Faster Payment System, the majority of the payment process can be speeded up and members of the public can thus expeditiously pocket this sum of “contingency money”. Therefore, President, the design of the cash handout process is very important. The Government should draw on past experience, listen more to professional opinions, abandon the bureaucracy-led approach adopted by government departments, stop making up excuses for delayed actions and avoid making low-level mistakes again.
On the third perspective, I want to say that we should plan ahead to support the economy of Hong Kong to move forward. While relief measures are important, we should not forget to move forward in the midst of difficult times. The epidemic has far-reaching implications on the global economy, and the resilience of Hong Kong is now subject to a severe test. The society of Hong Kong is seemingly well-off with a very solid foundation, but if timely assistance is not provided during crisis, the financial ability of the general public and the middle class may thus be weakened, thereby weakening our strength in coping with economic fluctuations in the future.
The Financial Secretary is right to stress that Hong Kong’s core competitiveness has not changed, and the process of accelerating transformation and upgrading of the Mainland economy has helped in attracting foreign investment and opening up markets, thereby bringing more opportunities of participation for the local industrial and commercial sectors. In addition, Hong Kong is committed to becoming an international financial centre and a major business services hub in the region. In the future, Hong Kong is expected to gain tremendous development potential under the Belt and Road Initiative, the internationalization of Renminbi, the development of Guangdong-Hong Kong-Macao Greater Bay Area and the connectivity of financial markets between the Mainland and Hong Kong. However, in order to maintain the long-term sustainable development of Hong Kong’s economy, the above support alone does not seem sufficient, especially under the current situation. Many people in the business sector are worried that there is no new locomotives in the industrial sector to drive the recovery of the economy of Hong Kong.
In fact, the Budget itself has actively sought to find a way out of the economic quagmire, such as shoring up the funding size of enterprises, encouraging innovation and introducing measures from the perspective of re-industrialization, and at the same time continuing to take forward innovation and technology infrastructure projects so as to continue to develop the innovation and technology industry. I absolutely agree with this direction, especially because the epidemic has changed the future business practices in Hong Kong. Various industries are using, to a greater extent, technology to cope with the future, such as mobile office, video conferencing and online exhibitions. Furthermore, the present global outbreak of infectious diseases has once again made the public face up to the importance of public health. The use of science and technology to combat the epidemic may be a new business opportunity for Hong Kong in the future. Recent scientific research technologies in Hong Kong, such as the new multi-level bacteria-killing coating materials, the mobile body temperature detection robot, new face shields produced by using 3D-printing technology, etc., may open up new avenues for Hong Kong.
President, as regards the financial-related measures which I am most concerned about, while there were 24 paragraphs on such measures in last year’s Budget, the relevant paragraphs have been reduced by nearly half in this year’s Budget and the coverage is much narrower. Notwithstanding that, the measures are more specific and the areas of support include the securities market, green finance, retail bonds, public annuities, fixed-rate mortgages and wealth management. The relevant measures include waiving stamp duty on stock transfers by ETF market makers; issuing green bonds, iBond and silver bonds; lowering the threshold for annuities and establishing systems to attract private equity funds to develop in Hong Kong. There is no doubt that policy can bring new opportunities to the wealth management business in the financial sector, but according to the Global Financial Centres Index recently published by the Z/Yen Partners, a business think-tank of the United Kingdom, in collaboration with the China Development Institute in Shenzhen, the ranking of the world’s top 10 financial centres has changed dramatically. New York and London continued to occupy the world’s number one and number two positions, with Tokyo rising from the sixth place to the third place. Shanghai surpassed Hong Kong for the first time and rose from the fifth place to the fourth place, Singapore dropped to the fifth place and Hong Kong also dropped to the sixth place in the world for the first time, dropping three places. Hong Kong has fallen from the top three places and dropped to the sixth place. Regardless of the reasons, the fall warrants our vigilance and attention. Improvements and upgrading must be made, especially in respect of infrastructure and the level of financial development, so that Hong Kong can regain the top three position.
As for the last perspective, I would like to talk about how the Government should proactively take the initiative to control Hong Kong’s fiscal discipline. President, as many people understand it, Article 107 of the Basic Law states that, “The Hong Kong Special Administrative Region shall follow the principle of keeping the expenditure within the limits of revenues in drawing up its budget, and strive to achieve a fiscal balance, avoid deficits and keep the budget commensurate with the growth rate of its gross domestic product”. This provision is conceptual rather than specific, and does not prohibit counter-cyclical fiscal deficits so long as they can be offset against by fiscal surpluses during the cycle. Therefore, the use of fiscal surpluses to rescue the economy and people’s livelihood should not arouse much controversy. Singapore’s recent stimulus package, drawing on national reserves for the first time, is a case in point. Under extraordinary circumstances, it is acceptable for the SAR Government to have a huge fiscal deficit arising from its proactive fiscal policy. After all, the purpose of having fiscal reserves is to prepare for the rainy days, but the bottom line is that gradual adjustments should be made in the medium term so that fiscal balance can be achieved again when the economy gradually recovers. Furthermore, most of the relief measures introduced in the past year are not part of the Government’s recurrent expenditure items and members of the public should understand that some special arrangements cannot recur incessantly for many years. Therefore, such expenditure items may not be counted as long-term and sustainable financial commitment for the time being.
After a few rounds of relief measures, fiscal reserves have been reduced to only about $800 billion and some people began to worry that continued budget deficit will affect the rating of Hong Kong. Recently, Fitch downgraded Hong Kong’s credit rating but considered that the outlook was stable. In fact, Hong Kong has scored high in the macro-assessment model of the international rating agencies in the past. Fiscal reserves are just one of many quantitative parameters, and Hong Kong has all along maintained a solid economic base in other areas, including the Government’s low debt, sizeable net positive international investment position, long-term current account surplus, robust and reliable linked exchange rate system and relatively high per capita income. Although these parameters are facing challenges, it is expected that fiscal deficit alone will not seriously affect Hong Kong’s overall credit rating.
As fiscal deficit should definitely not become the norm, the Government should immediately begin to review the structure of public revenue and the sustainability of different relief measures. At present, about 70% of government revenue comes from profits tax, land premium, stamp duty and salaries tax, of which revenue relating to real estate is extremely volatile. It is necessary to open up new sources of income in the future, and reduce some one-off relief measures to ensure the continuity of public services after the economy has stabilized.
The Financial Secretary also revealed that the Organisation for Economic Co-operation and Development was studying the possible impact of the global adoption of low tax rule on Hong Kong. As a matter of fact, the Inland Revenue Ordinance has not been thoroughly reviewed for 44 years since 1976, and some of the provisions are outdated. In order to meet the international tax challenges, I hope that the Financial Secretary will expeditiously review the Inland Revenue Ordinance and policies, and carry out the necessary reform so as to maintain the attractiveness of Hong Kong’s tax system as well as its business environment and competitiveness.
President, in the face of the hardly hit industries and dire distress among the people, the relatively costly counter-cyclical measures in the Budget are definitely worthy of support. As a matter of fact, the amount is not particularly conspicuous when compared to the Anti-epidemic Fund. Therefore, it is hoped that upon the approval of the appropriation, the Financial Secretary can lead the financial team, with the help of other Policy Bureaux, to expeditiously implement all policy initiatives so that members of the public can benefit as early as possible. Considering that the negative impact of the epidemic has exceeded the expectation at the time the Budget was formulated, the Government has further introduced two rounds of the Anti-epidemic Fund. I hope that the Government will continue to monitor the progress and pace of recovery of Hong Kong’s economy, and launch the necessary relief and stimulus packages in a timely and decisive manner so that Hong Kong can successfully tide over the difficulties.
President, I so submit.