Motion Debate on Appropriation Bill 2004

Madam President, the Liberal Party fully supports the maiden Budget delivered by the Financial Secretary (a former member of the Liberal Party) because, in addition to his status as a former member of the Liberal Party, his philosophy closely resembles that of the Liberal Party. Of course, I share the view that Hong Kong has been developing smoothly in many aspects after Secretary Henry TANG took office. He has been praised by many colleagues for his great luck. I do share this view too. However, it is most important that a great deal of work has been done by the Government over the past several years. Many initiatives proposed a couple of years ago, such as the "DIY tours", Individual Visit Scheme and CEPA, were not put into implementation until last year. Certainly, the people of Hong Kong have worked very hard too. In the wake of SARS, the entire community has made concerted efforts in stimulating and relaunching the economy. Thanks to the concerted efforts made by the Government, the business sector and wage earners in general, our economy has been recovering speedily.

Broadly speaking, Madam President, the Financial Secretary has in this Budget agreed to freeze most fees and charges relating to or affecting business operation and the livelihood of the people. Given today's economic conditions, this will produce a very positive impact in easing the pressure on the public. We surely hope the Government can continue doing this. I have also noticed that the financial position of the Government has greatly improved in the past few months. In fact, there has been a sharp rise in the number of tourists visiting Hong Kong under the Individual Visit Scheme, an arrangement backed by the Central Government. The increase in the number of travellers coming in DIY tours, as published in the past two days, is expected to bring us tens of billions of dollars in revenue next year, as well as creating a large number of jobs. In particular, the vacancies created at the grass-roots level have already provided the unemployed with a lot of job opportunities. I expect to see a substantial improvement in the economy next year.

Under such circumstances, what should be done to reduce expenditure or raise revenue in other areas if the Government's overall financial position has begun improving? The Liberal Party would like to make the following suggestions on expenditure reduction. Apparently, the Government's annual recurrent expenditure of more than $206 billion is largely associated with civil service pay and benefits. In this respect, an agreement, or the so-called "0-3-3 proposal", has been reached between the Chief Executive and civil service unions. The Liberal Party fully supports the agreement and we do not have any objection to civil service pay. Yet the Government has mentioned that a two-phase review of the allowances enjoyable by civil servants has been carried out. In particular, the overseas education allowance and housing allowances have been reviewed during the second phase of the exercise. However, the Government will still have to spend $4 billion annually. I hope the Government can adopt a pragmatic approach in granting allowances should there be a genuine need to do so. For instance, can the numerous items of allowance be slashed for they might no longer be applicable in 2004? The Liberal Party supports the Government to do as much as it can in this respect.

Furthermore, we share the view that the Government can do better in reducing expenditure, or curbing the so-called wastage among government departments. This point was raised by several Members earlier, and discussed in detail by Mr LAU Wong-fat and the Director of Audit. We certainly hope the Government can do as best as it possibly can in order to minimize wastage. Though this has nothing to do with civil service pay or benefits, there are a number of areas where wastage has been identified. We will agree so long as taxpayers' money can be saved and the resources thus recouped can be used to help the more needy people.

Madam President, another point I wish to raise concerns the two so-called revenue-raising measures endorsed and implemented by this Council last year. Insofar as the increase in profits tax is concerned, the Liberal Party will continue to support the Government to impose the 1.5% increase. On the second phase of increases in salaries tax, however, the Liberal Party suggests the Secretary to reconsider whether there is room for not effecting the second phase of increases in salaries tax this year. Madam President, our argument is, when this proposal was passed last year, the financial position of the territory, with a fiscal deficit of $78 billion, was far worse than it is now. In addition to raising profits tax, we felt that the majority of middle-class income earners should pay more in salaries tax. With the adjustments being effected in two phases, a tax revenue of approximately $3 billion is expected in each phase. Now that Hong Kong economy has turned the corner. we can see improvement in various trades and industries over the past few months, yet there is little prospect for the vast majority of wage earners, or the middle class, to receive a salary rise this year. They have yet to enjoy the fruit of the so-called economic recovery. If the withholding of the $3-billion additional tax increase is not going to impact enormously on the budget for the whole year, the Government should consider shelving the levy of the additional $3 billion to be imposed in the second phase.

Why do I consider it not necessary to worry about the $3 billion this year? This is because the Financial Secretary projected in last October that this year's fiscal deficit would still top $78 billion. However, he has recently told us that there has been a substantial improvement in the overall economy. Moreover, he expected the deficit to be just $49 billion after all the accounts were settled in end March. In fact, the projected deficit has been reduced by $29 billion in half a year. Should this situation persist, I believe it will still be possible for the $29 billion difference to rise slightly when all the accounts are settled. The $3 billion will then become insignificant.

Another point I wish to raise is that we were relatively pessimistic about the property market last year for many negative assets and government sites remained unsold. Over the past several months, particularly January, February and March, however, the property market has become far more active than before. Previously, the Government was worried that no one would be interested in the "application list". However, we can see two days ago that K. Wah International indicated its willingness to bid for two sites at Ma On Shan and Sha Tin at a proposed price of $1.6 billion, compared to the combined revenue of $4.5 billion the 17 sites on the application list are expected to fetch. According to the market view, insofar as the 17 reserved sites are concerned, property developers will continue to make applications to the Government at reasonable prices and there is a great possibility for all the sites to be sold. Even if only eight or 10 of the 17 sites are eventually sold, the revenue will definitely far exceed $4.5 billion. Given this possibility, I hope the Secretary can reconsider the proposal of not effecting the second stage of increases in salaries tax. This must be done by the Government because it is stipulated in Article 74 of the Basic Law that taxation, involving public expenditure and government policies, must be introduced by the Government, and we are not allowed to do so. I hope there is scope for the Government to take the lead to do so.

The Government's recent issuance of bonds worth $20 billion is supported by the Liberal Party this year. We used to worry that the Government was just transferring money from its left pocket to the right through the issuance of bonds . nothing was done to help the matter for a debt of $20 billion would merely mean an additional $20 billion income for banks. However, the Government has made an undertaking that the issuance of the $20 billion worth of bonds will be used to finance infrastructure projects, not for recurrent expenditure. Given that the returns of infrastructure projects are stable and the investment is long-term, the Liberal Party considers the issuance of bonds worth supporting.

It has been noted that there have been increasing investment opportunities for the public recently. Let me cite the issuance of securitized bonds discussed in the past two days as an example. Expecting an annual return at of 2%, 3% and 4% for three-, five- or seven-year bonds respectively, many people in Hong Kong consider the bonds as an additional means of investment from the angle of savings or a means to earn reasonable interest income. Insofar as the Government is concerned, interest rates may raise in next few years and it will then be impossible for the Government to borrow money at low interest rates then. Given that interest rates are currently low in the international community, the Government can thus strive to raise longer-term loans of five, seven or 10 years. This will not only help the Government raise funds, but also enable taxpayers to save money. Therefore, the Liberal Party supports the issuance of bonds. As regards the question of whether the Government can make an undertaking of not to issue more bonds in the future, the Secretary's reply is in the negative, for the Government may consider issuing bonds again in the years to come. The Liberal Party's position is relatively open. the Government should examine whether there is a need to do so before making its decision. We will then look at the matter to see what should be done.

Madam President, regarding the Secretary's proposal of examining estate duty, Dr David LI mentioned it earlier in the debate and the Liberal Party also thinks that the Government should consider it. I have studied some data in this respect. Under the existing estate duty system in Hong Kong, estate duty is levied only when an estate is in excess of $7.5 million. As such, the vast majority of the general public in Hong Kong has not paid estate duty before. It was revealed that of the 13 000-odd cases assessed by the Inland Revenue Department (IRD) annually, only 400 cases or so were eventually required to pay estate duty. In fact, despite the enormous wastage of manpower and resources in assessing the need to charge estate duty, the IRD has managed to collect estate duty in 400 cases only. I have also noticed that people with more assets can lawfully be exempted from the payment of estate duty through making such financial arrangements as trust fund, and so on. In fact, the Government was not in a position to impose estate duty on many deceased assets-holders in Hong Kong. It was just that many of them might not have the means to commission experts to make lawful financial or estate duty arrangements for them. As a result, they were required to pay enormous sums in tax. In this respect, the Financial Secretary collected approximately $1.4 billion in 2002-03, and approximately $1.5 billion in 2003-04.

I have also noted that many other Southeast Asian countries have, by contrast, fully abolished estate duty over the past several years in order to attract foreign capital. For instance, the levy of estate duty has been completely scrapped in such neighbouring countries as Singapore, Malaysia, New Zealand and Australia. Such being the case, estate duty should perhaps be scrapped in Hong Kong too. In particular, many mainlanders have the means to invest in Hong Kong. Given that "one country, two systems" has brought Hong Kong and the Mainland even closer, many mainland investors have brought with them assets to Hong Kong, in addition to purchasing properties here. According to the information provided by the Government on the amount of investment declared in the applications for investment immigration, five investors have brought to Hong Kong more than $100 million in total. Scrapping the estate duty will attract more people to invest in Hong Kong and create better development opportunities for other industries.

Madam President, it will apparently run against the long-standing objective of the Liberal Party should we fail to talk about wine duty and motor vehicle duty in each year's Budget. Insofar as wine duty is concerned, I very much agree with Dr David LI that, despite our greatly improving tourism, opening a bottle of finer wine in a high-class hotel costs more than $1,000, which is most expensive by world standards. If Hong Kong is to turn itself into a popular tourist destination in the world and rival the rest of the world, we should not let people develop a habit of drinking inexpensive wine worth dozens of dollars. The levying of a hefty duty on a bottle of wine costing a few hundred dollars will affect the way many tourists look at Hong Kong. They will have the impression that goods in Hong Kong are very expensive. In short, they just find spending in Hong Kong much more expensive than many other countries when paying their bills, even not knowing whether it is because they have drunk many bottles of wine or the meal itself is very expensive. The Government should really think about this. Even if an exorbitant rate is to remain, can it be kept at a certain percentage, say 60% or 70%, so that the most expensive wine will cost no more than $500 or $1,000 a bottle? Conversely, it is now found that levying an exorbitant duty on wine will force the public either stop drinking wine or bring just one bottle into Hong Kong without breaking the law. The amount of tax thus collected is thus going to be small.

Madam President, on the first registration tax for motor vehicles, we spent a long period of time debating this issue last year. From the data published by the Government this year, we are happy to see that the Government has listened to our advice by capping the increase in first registration tax at 100% and scrapping the proposed increase at 150%. In the end, the Government has collected an additional $200 million instead of an expected $300 million. Should the tax remain at such a high level, will the overall power of Hong Kong people in car purchase be affected? Another point I wish to make is that taxation in the Mainland will lower to 60% as the World Trade Organization agreement will soon be fully honoured by China. As such, import tax in China will be reduced to 60% very soon too. However, Hong Kong is still levying an exorbitant rate of 105%, which is much higher than that in the Mainland. I hope the Government can examine such an unreasonable practice.

Lastly, Madam President, despite the Liberal Party's long-standing objection to the introduction of a sales tax, the Hong Kong General Chamber of Commerce (HKGCC) agrees that the Government should carry out a study in view of Hong Kong's extremely narrow tax base, though it has no intention to ask the Government to introduce a sales tax immediately. The HKGCC also considers that the measure should be implemented several years later after we have seen the economy fully recovered, wages increased and inflation appeared. Therefore, the HKGCC supports the Government to examine this issue.

With these remarks, Madam President, I support this year's Budget.