Appropriation Bill 2024
President, before the delivery of the Budget, the people’s concerns mainly focused on the following aspects. Given the intricate and complex geopolitics and high interest rates, how can the Hong Kong economy defy the odds and strengthen the momentum of recovery? With increasing downward pressure on the local property and stock markets, what measures will the Government adopt to boost the real estate and capital markets and enhance market confidence? As the fiscal deficit has been continuously high in Hong Kong over the past few years and many large-scale infrastructure projects will be gradually launched in the next few years, how will the Government maintain sound and stable public finances?
The new Budget delivered by Secretary Paul CHAN has adopted “Advance with Confidence. Seize Opportunities. Strive for High-quality Development” as the theme. Emphasis is put on accelerating economic growth, promoting diversified development of financial services as well as the upgrading and transformation of industries. The means to achieve these goals include measures to economize on spending to maintain sustained, solid public finances. The Budget has responded positively to the public concerns in the several aspects that I mentioned above. It has put forward a series of measures to promote economic development in Hong Kong and meet the challenges in public finances. The strategic direction is correct and the corresponding measures are appropriate. Personally I very much support this Budget.
President, for a long time, the various types of revenue related to real estate have constituted the major sources of government revenue, with the proceeds from land sales alone contributing to an average of nearly 20% of government revenue in the past decade. However, due to a very weak market, the revenue from land premium last year was only $19.4 billion, showing a significant shortfall of $65.6 billion compared to the original estimate of $85 billion. Besides, the property and stock markets were quiet, and the revenue from stamp duty was only $50 billion, which was $35 billion less than the original estimate of $85 billion. President, these two sources of revenue alone were reduced by $100 billion. This is why last year’s deficit has to be revised upwards significantly from the original estimate of $54.4 billion to $101.6 billion, not to mention that the Government has issued bonds, and if the proceeds from bond issuance are excluded, the actual deficit will even exceed $170 billion.
According to the estimates, the fiscal reserves of Hong Kong will fall from over $1,000 billion a few years ago to only some $730 billion at the end of March this year, and given an estimated deficit of $48.1 billion for the new year, the fiscal reserves will drop to some $680 billion next year. Therefore, the Budget announced that the public finance policy in Hong Kong is to “adopt a fiscal consolidation strategy to narrow our fiscal deficit progressively towards achieving the goal of restoring fiscal balance”. This is in stark contrast with the fiscal policy stance of “moderately liberal” last year and that of “expansionary” in the year before last. I personally consider this a necessary and appropriate adjustment.
Given the importance of the real estate market, the Government has responded positively to the appeals made by Members and various sectors of the community by announcing the immediate cancellation of all demand-side management measures for residential properties. Although the cancellation of the “harsh measures” is not the most important factor affecting property prices, I believe it is conducive to the healthy development of the property market and to stabilizing confidence in the market.
The Government has since 2010 introduced several rounds of demand-side management measures to curb short-term speculation activities at the time and suppress non-local investment demand to deal with the overheated property market back then. Years after the introduction of the “harsh measures”, the basic landscape of the local property market has actually undergone fundamental changes. With the launch of the Northern Metropolis and Kau Yi Chau Artificial Islands projects, the Government will regain a dominant role in land supply in the future and change the general expectation of a perpetual shortage of housing supply. According to the statistics of the Rating and Valuation Department, the private domestic price index in Hong Kong was 302.5 as of February, down from a record high of 398.1 in September 2021. Property prices have fallen by a cumulative 24% over the past three years.
The “harsh measures” have all along been criticized for slowing down the turnover of flats in the market which has, in effect, reduced the supply of flats in the secondary market. I believe that the cancellation of all “harsh measures” will encourage the public to consider replacing their flats to improve their living environment and this will, in turn, increase transactions and revitalize the market. However, the performance of the property market is affected not only by policy factors but also by the basic factor of supply and demand, employment income, interest rates, etc. According to the statistics of the Housing Bureau, the supply of first-hand private residential flats for the coming three to four years will be 109 000 units, which is the highest number on record. Therefore, even if the cancellation of the “harsh measure” can help boost transactions, it is still difficult to drive a complete turnaround in property prices shortly and revive speculation.
In parallel, the Hong Kong Monetary Authority has relaxed the countercyclical prudential measures for property mortgage loans and adjusted upward the loan-to-value ratios for residential and non-residential properties. Besides, the Financial Secretary has accepted my suggestion and abolished all stress tests, so that potential homebuyers can take out loans of a higher amount from banks to fulfil their home ownership aspirations.
I am equally pleased that the Budget has the longest and most extensive coverage on contents relating to the financial industry since I took office as a Member of this Council, proposing a number of measures with the aim to enhance Hong Kong’s competitiveness as an international financial hub, so that the financial sector can continue to be a main engine driving the development of the Hong Kong economy.
The Government will extend the Green and Sustainable Finance Grant Scheme for three years to 2027, expand the scope of subsidies and formulate sustainability disclosure standards, which I believe will be conducive to strengthening Hong Kong’s international advantage in this respect. Moreover, the Government has proposed to expand the scope of e-CNY pilot testing in Hong Kong, study the use cases of the e-HKD Pilot Programme, and launch Phase 1 of the Project mBridge this year. With the support of the traditional financial services, I believe that these new policies can reduce the cost of transactions in Hong Kong and enhance the service efficiency of the financial industry. This is also a general trend of global finance.
In response to the advocacies of the Budget, the China Securities Regulatory Commission made an announcement just last week about five measures to further expand the mutual access between the capital markets of the Mainland and Hong Kong, which include encouraging leading enterprises of industries in the Mainland to list in Hong Kong, expanding the eligible product scope of equity exchange-traded funds (ETFs), including real estate investment trusts (REITs) under Stock Connect, etc. All these measures are conducive to attracting more capital inflows into the capital markets of the two places and more importantly, they have demonstrated the country’s unwavering support for enhancing Hong Kong’s status as an international financial centre. Under the negative impact of global geopolitical tensions, possible delays in interest rate cut in the United States, etc., the global financial market outlook is quite bleak. These enhancement measures, if implemented expeditiously, can bolster and give a boost to the stock market in Hong Kong.
President, in order to plug the gap in our finances, and as many Members have mentioned, the Government generally has only three options: raising revenue, cutting expenditure or borrowing. It is absolutely a tall task to increase revenue in the course of economic recovery and so, cutting down expenditure vigorously is a wise choice. Apart from reducing government expenditure, the Government said that it would take into account the public finance position when taking forward the Kau Yi Chau Artificial Islands project. At the press conference, the Secretary also added that the implementation timetable for this project would be slightly behind that of the Northern Metropolis and that the reclamation timetable would also be deferred. In the meantime, he also announced a review of the priorities and urgency of capital works as well as two transport subsidy schemes. These measures, which aim to control significant expenditures, have earnestly addressed the people’s concerns, and I believe that the public will be happy to see them. Having said that, the Government’s final decision will undoubtedly become the focus of heated debate in the community. I hope the Government can come up with better proposals then.
Cutting expenditure aside, the Government also plans to expand the issuance size of bonds by issuing bonds of about $95 billion to $135 billion per annum in the next five years. The funds raised will be invested into the Northern Metropolis and other infrastructure projects. The ratio of government debt to the local GDP (gross domestic product) will be in the range of about 9% to 13%. This ratio, which is obviously much lower than an average of 110% in other advanced economies, is still at a healthy level. Bonds are a suitable financing option for large-scale infrastructure projects such as the Northern Metropolis which will take longer years to generate economic benefits.
However, the Subcommittee relating to the Loans Ordinance has just completed its deliberation on the Government’s proposal to expand the size of bond issuances. Members are more concerned about the Administration’s intention to earmark a certain portion of the issuances for investment by Mandatory Provident Fund Schemes, but they call for a reduction in the management fees and administration expenses. They also suggest that the Government, when issuing bonds, should consider giving priority to local fund managers so as to support the development of the relevant industries in Hong Kong. The United States Federal Reserve expects rate cuts to commence soon, so the Government should seize the opportunity to issue bonds and reduce future interest burdens.
On increasing revenue, apart from adjusting the fees and charges of public services, another new measure in the Budget is the proposal to implement a two-tiered standard rates regime for salaries tax and tax under personal assessment. The portion of the net income exceeding $5 million will be subject to the increased standard rate of 16%. This reflects the Government’s wish to increase revenue appropriately in line with the so-called “affordable users pay” principle. Under the current economic environment, the Government really does not have much room to increase revenue. If the Government rashly increases the types of taxes or adjusts upward the tax rates across the board, this may create a negative impact on consumer spending or investment. Fine-tuning the existing tax rates may perhaps be a middle-of-the-road compromise with minor repercussions.
President, while governments worldwide are gradually streamlining their tax regimes, lowering corporate tax rates and putting greater emphasis on the introduction of indirect taxes, the Budget has not responded to the question of whether studies will be conducted to broaden the tax base, and this is regrettable. Personally I very much hope that the Government will formulate an appropriate action plan on taxation as soon as possible to respond positively to future economic changes.
With these remarks, I support the Appropriation Bill 2024. Thank you, President.