19 February 2006

Hong Kong ’ s economy is sailing on a benign spring tide, and there is good cause for optimism as we prepare to put our ship in order for the year ahead. In three days ’ time, when he delivers his budget speech, we will discover how prudent a captain we have in our Financial Secretary Henry Tang.

This is a budget for which Mr Tang can expect to command the full attention of the people of Hong Kong. Whereas last year, his speech was almost drowned out by the political upheaval of the chief executive succession, this year there are no clouds on the political horizon.

The prospect of electoral reform has been sunk by the December no-vote from the pan-democratic camp, leaving us free to concentrate on livelihood issues – and some of the most crucial of these issues could be addressed on Wednesday.

Our economy certainly appears to have the wind in its sails. Unemployment is falling, property prices are up, businesses are thriving, and the Heritage Foundation has again named Hong Kong as the world ’ s freest economy. Mr Tang ’ s job is to rock the boat as little as possible and make sure we stay on a steady course.

If we do, we can expect to see a balanced budget again this year, a full three years ahead of schedule. Fiscal reserves already amounted to more than 296 billion dollars at the end of last year, nearly 20 billion dollars more than the original estimate of 277 billion dollars.

We can be confident of ending this financial year with a budget surplus of 10 to 20 billion dollars, and some experts and accountants believe the balance may be even higher.

For this reason, the Liberal Party proposes that there should be no increase in existing taxes and also create no new taxes in Wednesday ’ s budget. We should not bring in a general sales tax, a major upheaval to our tax structure which would have a huge impact on both business and consumers.

Although we in the Liberal Party represent business interests, we are not asking to claw back corporate profits tax following its increase from 16 to 17.5 per cent. This is a tax on profits one made. It is part of our corporate responsibility of a company to pay this while the recovery gains pace. We should be prudent and not change it for the time being.

This is not the time, either, for handouts or unnecessarily generous tax cuts and that is not what we are asking for when we say it is time for a reduction in salaries tax. It is important to remember how two years ago, salaries tax was increased to help Hong Kong through a time of fiscal deficit. We have ridden out that storm and it is now time to bring the tax rate back down to its previous level.

Of our 6.8 million population, 3.4 million work, but only 1.1 million pay any salary tax. The so-called middle class, the top 300,000 of this 1.1 million, pay 80% of the salary tax collected by government.

This is not an act of charity or wanton generosity. It is an act of fairness and shrewd financial management. The middle classes were hardest hit by the increase in salary tax from 2003 onwards.

The middle classes could be further helped by an end to the seven year limit on tax deduction on home loan interest. The seven year limit makes no sense. We should rid ourselves of this irrational seven year itch and make the tax deduction period last for the duration of the mortgage.

Much has been made in recent weeks of the conflict between helping the underprivileged in society and reducing salaries tax to its previous levels for middle class. Opposition legislators have argued that taxes should not be reduced because this would leave the government unable to do more to help the disadvantaged in society.

This argument is based on a premise I do not accept – that we cannot reduce taxes and help the needy at the same time. With a surplus of 10 to 20 billion, there is no earthly reason why we should not be able to sensibly trim the tax burden on the middle classes, and at the same time take steps to share the fruits of the economic recovery with those who have so far missed out.

Much of what we hope to see Mr Tang do in Wednesday ’ s budget involves leaving Hong Kong ’ s economy to get on with the business of creating greater prosperity. We in the Liberal Party believe in small government – an administration which interferes as little as possible in the economy and allows companies and individuals the freedom to generate wealth and improve livelihoods.

We are not believers in big government or in the creation of unnecessary bureaucracy or red tape. It is for this reason that we would sound a note of caution about the increasing numbers of officials who appear to be getting involved in the business of monitoring our day to day lives.

Anti-smoking legislation and the crackdown on backyard poultry farms are both necessary steps, but Mr Tang and his colleagues must be mindful of the way the policies are pursued and avoid creating armies of civil servants simply to enforce those laws.

There is concern in the community about a drift towards greater “ officialdom ” and the development of a “ nanny state ” mentality, where there is a mistaken belief that every new law must be accompanied by battalion of civil servant enforcers.

A good law is one that is based upon common sense and which has the support of the community, not one that has to call in back-up from vast teams of officials. If laws are being flouted or misunderstood, education, explanation and persuasion are a vital means of offsetting the burdensome cost of enforcement.

The rounding up of poultry in the New Territories is a timely and necessary step, but let ’ s get the work done, get the message across and then leave it to our rural communities to monitor themselves. Likewise, when anti-smoking legislation comes into effect, let ’ s allow education and public support to carry the law into practice rather than have officials pounce every time someone steps out of line.

The success of Hong Kong is built upon the freedom of its economy and the industry and application of its people. The Financial Secretary has a golden opportunity in his budget this week to harness those qualities, cement those freedoms and steer us towards ever more ambitious horizons.