Briefing by the Financial Secretary on Hong Kong’s latest overall economic situation
Macroeconomic conditions and measures to stimulate the economy
Mr Jeffrey LAM, Mr CHAN Chun-ying, Mr WONG Ting-kwong, Dr Fernando CHEUNG and the Chairman expressed concern that the considerable uncertainties associated with the economic policies of the new administration of the United States (“US”) might significantly affect the economic situations in Asia, the Mainland and Hong Kong. They enquired about measures the Administration would take to counteract the possible negative impacts.
Mr CHAN called on the Administration to implement concrete measures to stimulate domestic demand, support the tourism industry and the import and export industry, as well as strengthen Hong Kong’s existing pillar industries
FS(atg) shared members’ views that the economic policies of the new US administration could have significant impacts on the global economy. The Government would closely monitor the relevant developments in the US and would implement measures when necessary, such as introducing relief measures for relevant industries, to maintain the stability of the local economy and financial system. He added that Hong Kong would continue to implement policies supporting free trade, explore new export markets, and strengthen economic ties with other economies.
As regards the measures to maintain macroeconomic stability, FS(atg) remarked that the Hong Kong economy had undergone a challenging year in 2016. In response, the Government had taken a number of measures to stimulate the local economy and support relevant industries which were effective in maintaining the unemployment rate at low level throughout 2016. Looking ahead, the Government would continue assisting local companies, helping local industries, promoting the development of innovation technology, and strengthening Hong Kong’s pillar industries. Regarding support for the tourism sector, FS(atg) remarked that the Government would step up efforts to attract non-Mainland visitors, implement relevant one-off relief measures for the tourism industry, and improve tourism infrastructure as well as develop new tourist attractions in the long run.
On members’ concern about possible adverse impact on Hong Kong arising from changes in the US tax regime, FS(atg) advised that Hong Kong’s simple tax regime, with relatively low tax rates and adopting a territorial source principle, was a cornerstone of Hong Kong’s economic success. The Government had been closely monitoring developments in the tax regimes of other jurisdictions including the US. It was observed that a number of jurisdictions had been introducing tax incentives in boosting their economies, as such measures would likely affect Hong Kong’s economy.
2017-2018 Budget Consultation
Tax related issues
Mr CHAN Chun-ying enquired whether the Administration would consider introducing new tax items, such as tax on vacant residential properties.
FS(atg) advised that in assessing whether a new tax item should be introduced, the Government would examine the underlying policy objectives and cost-effectiveness of the tax item concerned. While the Government welcomed views from Members on the issue, given the substantial impact of introducing new taxes on Hong Kong’s simple tax regime, the Government would have to be extremely prudent in considering any such proposals.
2017-2018 Budget Consultation
Assisting local industries and promoting their development
Mr CHAN Chun-ying opined that the Government should increase expenditure on capital investment which would be conducive to Hong Kong’s long-term economic development. He further remarked that the amount of unfunded liabilities and outstanding commitments of the Government might have been over estimated, and this might have unnecessarily increased the concern about long-term fiscal pressure on the Government.
FS(atg) took note of Members’ views and suggestions, and said that he would discuss the views and suggestions with the relevant B/Ds. He also remarked that the Government was aware of the difficulties facing the tourism industry and would consider the need to formulate relevant support measures. In this regards, he appealed to Members for supporting the proposed expansion of the Hong Kong Disneyland, which would be conducive to the long-term development of local tourism.
Future Fund
Mr CHAN Chun-ying enquired about the expected rate of return of FF.
FS(atg) advised that the fiscal reserves used to be placed with the Exchange Fund (“EF”) for investment. FF was established in 1 January 2016 with an “initial endowment” of $219.7 billion notionally held against the Land Fund. FF remained an integral part of the fiscal reserves and was being placed with EF for investment. It would be difficult to predict the rate of return of FF at this stage and the purpose of establishing FF was for longer-term investments with a view to securing higher returns for the fiscal reserves. For disclosure purpose, the balance of FF and its rate of return would be included in the annual financial statement of EF and in Government’s annual accounts to be tabled before the Legislative Council.
Proposed amendments to the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance to enhance the regulation of certain designated non-financial businesses and professions, and the Companies Ordinance to enhance transparency of the beneficial ownership of companies
Proposed amendments to the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance
Mr CHAN Chun-ying asked whether there would be a target on the number of prosecutions against non-compliance with the proposed new regulatory requirements for meeting the relevant standards of FATF when the latter conducted the mutual evaluation on Hong Kong in 2018/2019. He pointed out that while non-compliance of financial institutions (“FIs”) with the customer due diligence (“CDD”) and record-keeping requirements of AMLO was a criminal offence, under the Administration’s present proposal, no criminal sanctions would be imposed on the four designated non-financial business and professions (“DNFBP”), namely solicitors, accountants, real estate agents and trust or company service providers (“TCSP”), for their non-compliance with the requirements. He queried the different treatment for FIs and the four sectors, and asked whether the proposal was in line with recommendations of FATF.
DS/FS(1) responded that the Government would not set any target on the number of prosecutions to be made nor was there any such requirement by FATF. She advised that in conducting the mutual evaluation on the anti-money laundering and counter-terrorist financing regimes of member jurisdictions, FATF would examine the effectiveness of the regimes in combating money laundering and terrorist financing activities, and whether the jurisdictions had applied proportionate and dissuasive sanctions (whether criminal, civil or administrative) to deal with various non-compliances. Regarding the proposed penalty for non-compliance by the four sectors, DS/FS(1) said that FATF did not oblige member jurisdictions to impose criminal sanctions for non-compliance by DNFBP. It should be noted that the risks that might be faced by the four sectors in respect of transactions relating to the handling of clients’ money should not be as high as those faced by FIs. Having regard to the inherent risks concerning the four sectors vis-à-vis FIs, the Government did not intend to propose criminal sanctions for non-compliances by these sectors.
Briefing on the work of the Financial Services Development Council
The role of the Financial Services Development Council
Given that FSDC was not a statutory body and did not have executive power to implement its recommendations, Mr CHAN Chun-ying enquired how FSDC would ensure that the Government and the regulators would take forward its recommendations in a timely manner. He considered that FSDC should conduct annual audits with a view to monitoring the implementation of its recommendations.
C/FSDC advised that FSDC did closely monitor the progress of the Government in taking forward the various recommendations in FSDC’s reports and track the progress of each of its reports in FSDC’s annual reports in order to keep the public informed.