FS uses maiden Budget to explain objectives and approach of public finance
The Financial Secretary, Mr Paul Chan, has used his maiden Budget today (February 22) to explain his objectives regarding public finance.
Mr Chan said there should be three objectives: first, proactively develop the economy and improve people's livelihood; second, invest continuously for the future and make Hong Kong an even more liveable city; and third, make good use of financial resources to build a fair and just society where people from all walks of life can share the fruits of economic advancement.
On developing the economy and improving livelihood, Mr Chan said the Government must strengthen the competitiveness of, and explore new markets for, the pillar industries.
The Government should also help industries over which Hong Kong has advantages as well as emerging industries and identify growth opportunities so the economy can prosper in a sustained and diversified manner.
"As long as all industries can continue to grow and flourish, young people will have better job opportunities, greater upward mobility as well as a platform to realise their dreams," he said.
"Only by giving the younger generation hope for the future can our city remain vibrant, joyful and positive."
Mr Chan said government resources should primarily be used to improve people's livelihood and cater for those in need.
On investing for the future and enhancing liveability, the Financial Secretary said Hong Kong should create capacity for both development and the environment, and enhance competitiveness, so that the economy and society can develop in a sustained manner and the living environment can keep improving.
He said the Government has kept investing in infrastructure, including land production and the expansion of the air, sea and land transport networks, to support social and economic development.
He said annual spending on capital works projects had increased significantly from $62.4 billion in 2012-13 to $86.8 billion in 2017-18.
"Other than improving people's quality of life and enhancing our business environment, these projects have created tens of thousands of jobs for the construction industry, transport industry and other trades," he said.
Mr Chan said that in the face of stiff competition and a new economic landscape arising from technological development, Hong Kong must continue to invest heavily in nurturing talent for a knowledge-based economy and promote diversified and high value-added economic development.
This included significant efforts by the current-term Government to promote innovation and technology (I&T), including $18 billion in funding for universities and industry to conduct research and development activities and to support start-ups.
He said the Government would continue to invest substantially to protect and enhance the environment and strive to further improve air quality, water quality, green and blue assets and waste management, as well as step up efforts to combat climate change and conserve nature, to make Hong Kong an even more liveable city.
On upholding social justice and sharing the fruits of success, Mr Chan said poverty alleviation, care for the elderly and support for the disadvantaged are at the top of the current-term Government's agenda.
"We aim to render assistance to people in need through our social security system, while at the same time striving to encourage and support people capable of working to achieve self-reliance through employment. The goal is to alleviate intergenerational poverty and enhance upward social mobility, thereby promoting a caring and inclusive society," he said.
The Financial Secretary also explained his thinking on the use of surpluses, the level of fiscal reserves and tax policy.
He said Hong Kong has a narrow tax base, and the Government's revenue sources are concentrated. Nevertheless, as a small and open economy, Hong Kong is particularly susceptible to global economic fluctuations, which are beyond the Government's control. Should there be any abrupt deterioration or fluctuation in the external economic environment, government revenue would be directly affected.
"Government revenue may fluctuate with the ups and downs of the economic cycle," he said. "Government expenditure, however, is far more rigid and public services cannot be trimmed or suspended arbitrarily.
"In considering how our annual surplus is to be deployed, we should take into account the source and nature of the surplus, alongside the prevailing economic situation and external environment, the future needs of society and the expectations of the community, so as to ensure optimal allocation of resources."
On fiscal reserves, the Financial Secretary said the two objectives were to maintain healthy public finances and strengthen resilience to withstand economic fluctuations. In assessing whether the level of fiscal reserves is appropriate, considerations should include the Government's prevailing recurrent funding requirements and the medium- to long-term financial implications upon full implementation of policy initiatives.
"Our position as an international financial centre is crucial to both Hong Kong and our country. The cornerstone of financial stability is confidence. A sound financial management philosophy and a strong fiscal position of the Government are vital for maintaining international confidence in Hong Kong," he said.
"A single financial crisis has exposed the excessive budget deficits in many advanced economies in Europe and the US. A domino effect was triggered off, bringing down the international ratings of all these economies, and giving them a hard blow to their economies and financial systems. With these examples, Hong Kong must reflect on our own position seriously."
The Financial Secretary considers that the Government should spend only when necessary and make good use of the reserves to benefit the society. At the same time, the Government must maintain strict fiscal discipline and ensure that its expenditure growth will be broadly in line with affordability.
"We must also maintain adequate fiscal reserves to support socio-economic development, deal with emergencies and cope with the challenges posed by a rapidly ageing population."
On tax policy, Mr Chan said Hong Kong had a low and simple tax regime but the global competitive environment is fast-changing. Many economies were using tax concessions to compete for investment and promote the development of targeted industries. Some countries were adjusting their taxation structure.
"As a responsible government, we have to cope with the huge expenditure needs under different economic scenarios. We cannot propose a tax cut which erodes our revenue base. Neither can we adjust our tax rates frequently as this would affect the predictability of our tax regime and dent investor confidence," he said.
The Government will set up a tax policy unit in the Financial Services and the Treasury Bureau to comprehensively examine tax issues from a macro perspective.
He said that on the one hand Hong Kong will seek to align its tax practices with international standards and actively study ways to foster the development of pillar industries, industries over which it has advantages and emerging industries through tax measures including enhanced deductions for I&T expenditure, so as to ensure that Hong Kong remains competitive and can create wealth. On the other hand, the Government will enhance the tax regime and explore broadening the tax base and increasing revenue, so as to ensure that adequate resources are available to support the sustainable development of society.
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