Motion Debate on "Reducing the salaries tax"

(15 February 2006)

MR JAMES TIEN (in Cantonese): Deputy President, the Liberal Party supports the motion moved by Mr SIN Chung-kai of the Democratic Party on reducing the salaries tax. As a matter of fact, the amendment proposed by me seeks only to state clearly on the basis of his motion, to which level the salaries tax should be reduced.

Deputy President, we still recall that a few years ago owing to the SARS problem, fiscal deficits in the Government became very serious. Then in the year 2003-04, the Government began to increase profits tax and salaries tax. The business sector knows that profits tax is payable only when a company has made money. So in the demands presented this time, there is nothing on slashing the profits tax. But the case is not the same with the salaries tax. Everyone who is employed will have to pay rents, electricity tariffs, school fees for the children, and so on. In my opinion, I think the middle-class people have actually paid a lot during this couple of years and they are leading a difficult life. So as government finances have improved somewhat, the Government should consider reducing the salaries tax.

Maybe we can look at the fiscal position of the Government now. According to initial estimates, the Government still says that during these few years, our fiscal deficits would remain very serious. It appears that the deficits would only be eliminated by 2008-09, that is, there will only be a balanced budget in that year. In fact, the situation has greatly improved during the past two years. The economic growth rate for last year, that is, 2004, was 8.2%, that of 2003 was 3.1% and the estimated annual growth rate for 2005 would be 7%. Accounts for the financial year 2005-06 will soon be settled. Like the year 2003-04, fiscal reserves for 2005-06 were not as bad as we had thought.

In 2003-04, the fiscal reserves stood at $264.4 billion and $287.2 billion for 2004-05. According to government estimates, the fiscal reserves for 2005-06 would be $276.7 billion. But as of end 2005, we had $295.9 billion already. In other words, as of today, when accounts are settled for the financial year of 2005-06, we would have at least $20 billion more than estimated. In such circumstances, we think that the Government should be able to do something.

Deputy President, the second point I wish to make is, as worked out by many accountants and tax institutions, the Treasury would register a substantial surplus in the region of $10 billion to $25 billion. The figure comes from forecasts made by organizations like The Australian Society of Certified Practising Accountants, The Taxation Institute of Hong Kong, The Association of Chartered Certified Accountants, and so on. We think that even if their forecasts are not very accurate, the deficits should vanish in 2005-06. There will be more than one month's time, that is, until the end of March, before the accounts for this year are settled. We believe the Government will register a surplus of $10 billion to $25 billion in the books this year. This is what we can expect.

Against such a background, what can the Government do to help the people? Of course we know that for the grassroots people, the Commission on Poverty (CoP) will come up with some recommendations such as those on Comprehensive Social Security Assistance (CSSA) payments. CSSA payments were slashed because of deflation, but now as there is inflation, we think that payments should be increased because of inflation. For the middle-class people, we want to ask, "what did the Government do for them during the years 2002-03, 2003-04 and 2004-05?" For example, with respect to basic personal allowance, it was reduced from $108,000 to $104,000, then further to $100,000.

This is just like raising the tax rate for the highest marginal tax band from 17.5% to 18.5%, then to 20%. The marginal tax band dropped from $35,000 in 2002-03 to $32,500 in 2003-04, then further to $30,000 in 2004-05. This has made the middle-class people pay more tax. As for the standard tax rate, it was raised from 15% to 15.5%, then to 16%. In our opinion, as government finances have improved, the tax rates should be reduced. Even if the Government does this, it is not cutting the tax for the middle class as a benevolent act. If this is done now, the Government is only calling a halt to the hike in tax rates which has begun. In our amendment, there is no demand on the Government to make a rebate of the tax it collected during the past two years. What we are asking is only to revert the tax rates to the 2002-03 level starting from next year.

Besides, I would like to mention that the unemployment rate has dropped drastically from 8.6% at the peak of the SARS outbreak to 5.3% now. I agree that the Government should do something for the 180 000 people who are unemployed. However, we can also notice that most of the grassroots and the unemployed have not paid any salaries tax, so no rebate in salaries tax can be made out to them. This said, we still hold the view which we raised at the initial debate on this. Secretary Frederick MA was there as well. With respect to the CSSA system which aimed at helping the grassroots, various departments and community organizations should continue to provide the assistance they need. We would also support all the recommendations made by the Financial Secretary in the CoP.

With respect to this suggestion, the Liberal Party conducted an opinion survey from 10 to 14 February in which about 1 500 people were interviewed. About 65% of the interviewees thought that given the financial situation of the Government now, there would be room for a tax cut. And of half of this, that is, of the 65% of interviewees, thought that the tax that should best be cut was salaries tax. Then about 30% of the interviewees hoped that government rates could be lowered. So it can be seen that the people understand that for those who have paid more tax previously, there should be a tax cut. Among the respondents to the survey, many did not have to pay any taxes. However, they thought that a tax rebate should first be made out to those who had paid salaries tax at an increased rate before.

Deputy President, at last I would like to talk about the amendments. As I have said at the beginning of the speech that we would support the original motion proposed by Mr SIN Chung-kai, we would also support the amendments to be moved by Mr CHAN Kam-lam and Mr WONG Kwok-hing respectively. As for the amendment proposed by Dr Fernando CHEUNG, the Liberal Party thinks that the last sentence in his amendment is not acceptable. It says, "the Government should consider reducing the salaries tax only after implementing the above initiatives." So we are really sorry about this. We also think that what Dr CHEUNG has proposed in items (a) to (f) are what the Government should do. If his amendment is not what it is now but it is a call for these to be done at the same time, then we would support it.

However, he is suggesting that the Government should consider reducing the salaries tax only after implementing the above six initiatives. This view is not acceptable to us. Miss TAM Heung-man's amendment states: "provided that the Government's overall income and expenditure position improves, the fiscal reserves increase and ……is not affected." Our view is that this situation already exists now and this precondition is no longer required. Then she wants to add "by widening the tax bands and adjusting some of the allowances". My view is that this is not as clear as the way we put it. We are saying that what was increased in the past should be reverted to their original pre-increase level. This is simple enough. We cannot agree to a proposal that is in effect putting forward a new idea, saying that an increase was made with a certain group of people in mind and now it is time that a cut should be made. Then a new way of calculation is proposed to effect the cut. If this approach is really to be adopted, I think there would have to be consultations and studies. Therefore, with respect to the amendment from Miss TAM Heung-man, the Liberal Party would abstain from voting. Thank you, Deputy President.