Motion Debate on "Effective utilization of fiscal surplus" (24 May 2006)

MR JAMES TIEN (in Cantonese): Madam President, the Government first projected a deficit of $15.4 billion for the last financial year, that is, the year 2005-06. However, when the Budget was released in February, the Government announced the elimination of the "double deficits", that is, in both the Operating and Consolidated Accounts, three years ahead of schedule and a surplus of $4.1 billion in the Consolidated Account. Moreover, when "the accounts were squared" in April, there was a surplus amounting to $14 billion, which was $9.9 billion more than the Revised Estimates. In fact, the Administration has "underestimated the account" for nine years in a row, giving us an impression of "crying wolf".

Madam President, I will not quote all the figures of the "underestimated account" in the nine consecutive years. I will just quote those of the recent four years. The year 2002-03 was the worst. The Government announced a deficit of $65.6 billion in the Revised Estimates in the following year, that is, in March. A deficit of $63.3 billion was finally recorded. Then, it was the year 2003-04. Excuse me, Madam President, the figures I just quoted were for the year 2001-02. In the year 2002-03, a deficit of $70.1 billion was reduced to $61.7 billion, with a difference of $8.4 billion. In the year 2003-04, a deficit of $49 billion was reduced to $40.1 billion, again with a difference of $8.9 billion from the estimates. In the year 2004-05, a surplus of $12 billion was lifted to $21.4 billion, with an increase of $9.4 billion. This year, a surplus of $4.1 billion was lifted to $14 billion, with an increase of $9.9 billion. Therefore, the practice of "underestimating the account" by the Government is not an isolated incident for a particular year. The crux of prudent management of finances lies in "prudence". However, "underestimating the account" for nine years in a row together with a huge amount of money involved have given Members an impression of the Government either "crying wolf" or actually having messed up all the figures.

Madam President, the Liberal Party has no particular opinion about the original motion moved by Mr KWONG Chi-kin. We just think that the original motion has not focused on reducing the burden of the middle class and has neglected the major direction of "returning wealth to the middle class". Apart from returning wealth to the people, other areas in which the surplus should be used can be subject to further consideration.

Madam President, on a radio programme on 19 May, the Chief Executive expressed the need to "spend on what should be spent" and "save for the rainy days" in the discussion on the management of the fiscal surplus. The Liberal Party has totally shared his view. We think that measures such as the reversion of the salaries tax rate to the 2002-03 level and the reduction of rates are exactly "spending on what should be spent". The tax burden of the middle class has increased along with the economic downturn in the past. It is time to give them "a break".

At present, the Inland Revenue Department has been "flooded" due to a total tax revenue amounting to $145 billion in 2005-06. Our tax revenue has soared to a record high in both the profits tax ($68.9 billion which represents an increase of 23% over the previous year) and the salaries tax ($37.5 billion which also represents an increase of 10% over 2004-05). The Liberal Party has proposed that the salaries tax rate be "reverted to the basic step", that is, to the 2002-03 level. After the tax increase, the taxpayers have paid an additional $6.8 billion each year. The Budget this year only proposed to lower the marginal rates of the second, third and top tax bands by 1%, which will cost the Government $1.5 billion in a year. This is just one "candy" given out by the Government. Therefore, even the salaries tax rate is reverted to the basic step, it will only cost the Government a further $5.3 billion. Although there is a salaries tax cut on the surface, strictly speaking, it is just a rebate to the taxpayers for their additional salaries tax paid over the past few years. This can realize the principle of "what is taken from the middle class is to be returned to the middle class". A debate on the reversion of the salaries tax rate to the 2002-03 level was held in the Legislative Council on 15 February this year. The motion was eventually passed by a unanimous vote of the different political parties/groupings.

As the Treasury now has "abundant cash in supply", the above consensus should be put into practice at an early date. The return of the extra tax revenue to the pocket of the middle class can, on the one hand, lessen their burden, stimulate internal spending, boost the market and increase employment opportunities, and on the other, further lower the unemployment rate from the present 5.1%. The Budget this year has given out two "candies", one of which I have mentioned earlier. The other one is the extension of the validity period for deduction of home loan interest from seven to 10 years. However, the extension of three years has actually given people an impression of "a half-baked cake". This is because the mortgage tenure in general is 20 to 25 years. The current extension of the validity period from seven to 10 years has offered them assistance for only half the period.

The Liberal Party holds that the entitlement period for home loan interest deduction should be extended to the full mortgage tenure to provide tax deduction throughout the whole mortgage tenure. This may give a great boost to the confidence of home buyers. In the end, the revenue from stamp duty generated may see a considerable increase instead.

The United States had another interest rate rise in the middle of this month. This has been the 16th consecutive interest rate rise since June 2004. Although the local major banks did not effect an immediate interest rate rise this time, the increase in interest rate for 13 times during the period to follow the move of the United States has resulted in a rise in mortgage rate ranging from 3% to 3.25%, which is just one percentage point short of the United States rate. Take a $2 million apartment with a 90% mortgage for a tenure of 20 years as an example. Before the interest rate rise, the monthly mortgage repayment was $9,538 and at present, it is $12,382, representing an increase of 30%. We think this increase has created a great burden for the middle class.

Moreover, the Liberal Party has also proposed the reduction of the rates percentage charge by 0.5% from the current 5% to 4.5%. To the Government, this is, in fact, little different from the proposal of the DAB to provide rates relief for one quarter of a year. Our survey reveals that the residential rental of the 50 major local housing estates has increased by 13% on average over the past year, and that of the Grade A offices has increased by 40% in general. However, the Government stated that the appreciation of rates was just 9.2%. Nevertheless, a reduction of the rates percentage charge by 0.5% from 5% to 4.5% will not lower the total rates revenue.

The salaries tax cut first proposed will cost the Government $1.5 billion a year. If the Government accedes to the wishes of the people on this occasion and reverts the salaries tax rate to the 2002-03 level prior to the tax increase, it will further cost the Government only around $5.5 billion in revenue, representing less than half of the present additional surplus of $14 billion.

As regards the deduction of home loan interest, its impact on the Government will also be minimal. It is because towards the end of the mortgage tenure, the amount of interest will be on the decrease. Given the present fiscal surplus of the Government, I think this proposal will not put a great pressure on the Treasury.

The Liberal Party never asks the Government to give out candies blindly. This is the one standpoint we have always shared with the Government. However, the middle class has contributed the largest share of the tax revenue while receiving the smallest share of the welfare assistance. And the middle class has always borne the brunt and become the target of a tax increase. Therefore, we maintain that if the "unexpected" surplus of $9.9 billion is to be put to effective use, the Government should first share it with the people ─ "the people" means the middle class ─ that is, first share it with the middle class. As we mentioned earlier in the resumed Second Reading debate of the Revenue Bill 2006, it is not possible to implement all measures of returning wealth to the people in this financial year. But we think all those measures should at least be put into practice in the Budget next year.

Madam President, Ms Miriam LAU will later on elaborate on the proposal of waiving the duty on diesel for one year in my amendment. Thank you, Madam President.