Motion Debate on Appropriation Bill 2003

Madam President, since 1988 when I had the chance to take part in the work of this Council, I have taken part in the Budget debate every year. My impression is that the difficulty in handling the Budget this year is unprecedented. Since the end of last year, the Financial Secretary has been consulting various sectors and different strata of society on compilation of this year's Budget.

Of course, since the publication of the Budget on 5 March, two events as mentioned by many Members have occurred, namely, the outbreak of war in Iraq around mid-March and the aggravation of the atypical pneumonia problem, which also occurred in mid-March. These events have made it no longer possible for us to adhere to our original views on the two parts pertaining to expenditure and revenue in the Budget framework published on 5 March and also put Members in a bind. Of course, we also noticed that from the angle of the Government, it already found the fiscal deficit to be very serious at the end of last year.

The Liberal Party supports the Government's proposal to achieve fiscal balance by 2006-07. In that case, we wish to ask whether the enormous fiscal deficit should be allowed to exist in the run-up. Should the deficit be allowed to stand at over $50 billion? Is it possible to reduce the deficit next year? Under such circumstances, what can be done to increase revenue and cut expenditure? If fact, the Government is already toiling over this, however, Madam President, our grave concern is the effect of the recent atypical pneumonia incident on the economy of Hong Kong as a whole. I share the concerns of those Members who have spoken before me. I think that, at present, it is still too early for an assessment of the effects of the atypical pneumonia incident on the economy of Hong Kong this year.

I think that the atypical pneumonia incident certainly will not have any long-term effect. Even if this matter cannot be resolved within a short time, its effects on us will only be limited to the current year. However, even though this is the case, how is the Financial Secretary going to handle the Budget this year? Before 5 March, it was impossible for him to foresee this incident, therefore it may now be necessary for him to reconsider the Budget drawn up before 5 March. If we put aside the part on expenditure, as far as the part concerning revenue is concerned, there are numerous hurdles in taking forward the relevant measures in whatever social stratum.

According to the Government's original proposal, there will still be a deficit of over $50 billion in this year's Budget. However, as we can see, the general atmosphere in town is gloomy and the impact of atypical pneumonia on industries at the forefront, such as the catering, retail and tourism industries, has been enormous. In the past two days, I have made enquiries on the overall occupancy rate of hotels in Hong Kong and the answer was around 30%. Compared with the figure at the beginning of the atypical pneumonia outbreak, the occupancy rate has fallen from between 80% and 90% to between 60% and 70%, and further to 30% now. Every hotel is suffering heavy losses. Mr Tommy CHEUNG has also pointed out that the drop in the turnover of restaurants cannot be described in terms of 10% or 20%, but to 10% or 20% of the original. Under these circumstances, how can restaurant owners keep their concerns going? How can they pay the wages of their employees and how can they pay the rent?

The initial view of the Liberal Party is that society as a whole should reassess this problem. Should employees, employers, property owners, banks and the Government examine if a reassessment can be conducted on this issue as soon as possible? What I mean is that, if employers have to give their employees leave or employees suffering from atypical pneumonia have been taking paid leave, employers will gradually find it difficult to go on this way. With the drop in business and employees absent from work, their income will not be enough to meet the rent. We do hope that employers can continue to pay wages to their employees, but can landlords reduce the rent payable by employers in small businesses? In this regard, the Liberal Party will examine this matter with big property owners with its utmost, however, with regard to individual property owners, there is nothing we can do and we can only hope that they will hold discussions with their tenants, that is, employers in small businesses. Of course, it is possible that property owners would say that they have their own difficulties too. They may have borrowed heavily from banks and have to pay a lot in interest. In that case, they should discuss with banks to see if their term of repayment can be extended and whether there is any room for a reduction in interest.

I believe the Financial Secretary will also think that the estimates made in the whole Budget may not be accurate now since business has declined so much and the profits made by companies will definitely drop substantially. Even though the profits tax is increased by 1.5%, the revenue as a whole will not be as much as projected in the Budget. This is also the case for salaries tax. If a lot of enterprises show signs of floundering, they will be forced to start laying off employees or to close down, so the income of wage earners in general, including that of the middle class, will also drop and no matter if the salaries tax reverts to the 1998 level in one or two years' time, all revenues from tax will miss their marks. I think the Financial Secretary will find himself walking a tight rope in these unusual times and if he wants to juggle between the livelihoods of various groups in the near future, then the fiscal deficit this year will even be greater.

Under the present circumstances, I believe many small and medium enterprises (SMEs) will voice even stronger objections to the 3,000-odd government fees and charges, in the hope that the Government will not raise them. Some may even request an extension of the $5,000 waiver on rates, sewage charges, water charges, and so on, offered last year. Such calls will definitely be heard again. In fact, the Government is also in a difficult position. Without its help, SMEs will close down and tax revenue will be lost; with the present deficit standing at over $50 billion, so if it offers help, and if we go on alleviating the public's hardship this way, an extra $5 billion or $10 billion may be required, and the deficit will rise to as high as $60 billion or $70 billion. How should the Government allocate funds in this Budget? What will the international ratings be? All of these considerations place the Government in a very difficult position.

Madam Deputy, after discussing these problems, the Liberal Party cannot offer any particularly good advice to the Government. However, coming back to the fundamental issue of increasing revenue and cutting expenditure, the Liberal Party feels that the Government has not done enough in this regard in its Budget published on 5 March. Certainly, we understand that the Government has its own difficulties. It has reached the so-called "zero-three-three" agreement with civil service unions. It can be said that this is the farthest the Government can go in cutting expenditure. We wonder if there is any more room for the Government to step up its efforts? We hope the Government will continue to exert itself. Of course, making an effort means the Government has to continue to discuss with civil service unions. However, if no agreement can be reached with them, the Government still has to spend a very large sum of money each year. Therefore, if it is not possible to increase revenue, it will be undesirable for such a state of affairs to go on, particularly because, it is not possible now to assess the effects of the atypical pneumonia incident and the war in Iraq on Hong Kong's economy.

Regarding the bill on government revenue, its scrutiny and the final vote on it may have to be deferred to May or June, by which time hopefully the war in Iraq will have ended and the atypical pneumonia incident will have been resolved. Only under such circumstances can we calculate more specifically the economic losses suffered in these several months. If an assessment is conducted today, it will be as though none were conducted, since even if we say that the losses amount to a certain sum, the war may drag on for a few weeks or even a few months more, or the atypical pneumonia problem cannot be resolved within this week but has to stay for one or two more weeks, then how would the situation be like? As long as the atypical pneumonia problem is not solved, the number of patients will continue to rise, that is, the situation has not yet stabilized and it will be difficult for us to evaluate our losses. From the viewpoints of overseas visitors and business communities, unless the number of atypical pneumonia cases begins to decline steadily, otherwise no matter what the World Health Organization says and whether it issues any advisory or not, they are not going to come to Hong Kong. If most of the people in the business sector or most visitors do not come here, the impact on the economy of Hong Kong will definitely be severe.

Earlier, the seven parties have expressed some of their views on the atypical pneumonia incident. Since the Liberal Party has contributed views in this issue, it will of course lend its full support in the hope of making the Government take more decisive steps and proceed more boldly as far as possible when dealing with the atypical pneumonia problem, so that the people of Hong Kong will not unduly panic and they will be informed of what they want to know, for example, of the residential blocks in which people who have contracted atypical pneumonia live, their workplaces, and so on. With all this, people who are not affected can have greater peace of mind to go out and spend. If members of the public dare not go out and spend, and the vicious economic cycle is thus allowed to repeat itself on a protracted term, the situation will deteriorate very badly.

As to reducing expenditure, we hope the Government will reduce the establishment of the Civil Service by a further 10% in four years. We also think that if the voluntary retirement scheme turns out to be a success, all would be fine as a matter of course. However, in the event that the outcome of the second voluntary retirement scheme is not satisfactory, then I think the Government should examine whether layoffs are possible under the existing civil service framework. In fact, the government expenditure in this area already accounts for 70% of its recurrent expenditure and 23% of the GDP. Whatever we do, it will be difficult to balance the books. Moreover, in view of the present economic recession, we believe the GDP will decline. In that case, even if the 23% is reduced to 20%, the Government will still face a tremendous problem in respect of its expenditure.

In addition, many members of the Liberal Party consider that the fringe benefits and allowances granted by the Government may be outdated. Under the colonial political system of the former British Hong Kong Government, these allowances were necessary. However, if we examine the present allowances, such as the overseas education allowance, in 2001-02, over $390 million was spent and this year, the amount has to be increased to over $430 million. Is it still necessary to spend such a large sum on overseas education allowance? Can it be reduced in some measure? Another example is the expenditure on the purchase of air-conditioners and furniture for the Civil Service. In 2003, $1.12 billion is needed, whereas in 2002, over $900 million was spent, that is, an increase of $200 million. Another example is that, according to government information, various government departments spent over $340 million on work-related allowances last year. I wonder if the Government can examine the array of allowances, since to taxpayers, if the Government can reduce the expenditure in this area, it will have more funds at its disposal.

Concerning profits tax, the industrial and commercial sectors have so far maintained their support for this proposal and said that they will not request a reconsideration of the matter because of the war in Iraq or the atypical pneumonia problem. On the issue of tax levied on the middle class, I understand that the Government has made concessions. The original plan of the Government was to effect the increase in the profits tax levied on the commercial sector within a year. After listening to the views of many parties, the Government will effect the increase over two years. However, the atypical pneumonia incident has unfortunately dealt a severe blow to SMEs, as much as it has to the middle class. Is there still any room for the Government to make adjustments in this area? I call on the Government to give some consideration to this matter.

Madam Deputy, I think I had better not go into the issue of first registration tax for motor vehicles. I will leave it to other Members of the Liberal Party to express their views on this.

Another point raised by many Members is the issue of "those who have the means pay more". The Liberal Party supports this, but should everything be borne by those who have the means? If this is the case, then we cannot agree with it. At present, the industrial and commercial sectors are perhaps considered to be those who have the means, followed by people of the middle class, with members of the lower class coming next. We are of the view that among over 3.4 million wage earners, only over 1.1 million have to pay tax. If the former tax bands are restored, that is, the personal allowance is reduced from $108,000 to $100,000, the tax net will be cast wider. However, the additional amount of tax receivable is in fact small. Therefore, we agree with this point.

Another point has to do with government fees and charges. Of course we will have the opportunity to discuss them in detail in the future, but I only hope that the Financial Secretary will, in view of the two major issues mentioned by me, that is, the war in Iraq and the atypical pneumonia incident, reconsider these 3000 items of fees and charges that affect that people's livelihood, and examine if there is any room to review them further. Thank you, Madam Deputy.