HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 511
OFFICIAL REPORT OF PROCEEDINGS
Wednesday, 23 February 1983
The Council met at half past two o’clock
PRESENT
HIS EXCELLENCY THE GOVERNOR (PRESIDENT)
SIR EDWARD YOUDE, G.C.M.G., M.B.E.
THE HONOURABLE THE CHIEF SECRETARY
SIR CHARLES PHILIP HADDON-CAVE, K.B.E., C.M.G., J.P.
THE HONOURABLE THE FINANCIAL SECRETARY
MR. JOHN HENRY BREMRIDGE, O.B.E.
THE HONOURABLE THE ATTORNEY GENERAL (Acting)
MR. JEREMY FELL MATHEWS
THE HONOURABLE THE SECRETARY FOR HOME AFFAIRS
MR. DENIS CAMPBELL BRAY, C.M.G., C.V.O., J.P.
THE HONOURABLE ROGERIO HYNDMAN LOBO, C.B.E., J.P.
THE HONOURABLE DAVID AKERS-JONES, C.M.G., J.P.
SECRETARY FOR DISTRICT ADMINISTRATION
THE HONOURABLE DAVID WYLIE MCDONALD, C.M.G., J.P.
SECRETARY FOR LANDS AND WORKS
DR. THE HONOURABLE HARRY FANG SIN-YANG, C.B.E., J.P.
THE HONOURABLE LO TAK-SHING, C.B.E., J.P.
THE HONOURABLE FRANCIS YUAN-HAO TIEN, O.B.E., J.P.
THE HONOURABLE KENNETH WALLIS JOSEPH TOPLEY, C.M.G., J.P. SECRETARY FOR EDUCATION AND MANPOWER
THE HONOURABLE ALEX WU SHU-CHIH, C.B.E., J.P.
THE REVD. THE HONOURABLE JOYCE MARY BENNETT, O.B.E., J.P. THE HONOURABLE CHEN SHOU-LUM, O.B.E., J.P.
THE HONOURABLE LYDIA DUNN, O.B.E., J.P.
DR. THE HONOURABLE HENRY HU HUNG-LICK, O.B.E., J.P.
THE REVD. THE HONOURABLE PATRICK TERENCE MCGOVERN, O.B.E., S.J., J.P.
THE HONOURABLE ALAN JAMES SCOTT, C.B.E., J.P.
SECRETARY FOR TRANSPORT
THE HONOURABLE PETER C. WONG, O.B.E., J.P.
THE HONOURABLE WONG LAM, O.B.E., J.P.
DR. THE HONOURABLE THONG KAH-LEONG, C.B.E., J.P.
DIRECTOR OF MEDICAL AND HEALTH SERVICES
THE HONOURABLE ERIC PETER HO, C.B.E., J.P.
SECRETARY FOR TRADE AND INDUSTRY
DR. THE HONOURABLE RAYSON LISUNG HUANG, C.B.E., J.P.
512 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
THE HONOURABLE CHARLES YEUNG SIU-CHO, O.B.E., J.P.
THE HONOURABLE JOHN MARTIN ROWLANDS, C.B.E., J.P.
SECRETARY FOR THE CIVIL SERVICE
THE HONOURABLE JAMES NEIL HENDERSON, O.B.E., J.P.
COMMISSIONER FOR LABOUR
THE HONOURABLE ALLEN LEE PENG-FEI, O.B.E., J.P.
THE HONOURABLE ANDREW SO KWOK-WING, J.P.
THE HONOURABLE GERALD PAUL NAZARETH, O.B.E., Q.C., J.P.
LAW DRAFTSMAN
THE HONOURABLE HU FA-KUANG, J.P.
THE HONOURABLE WONG PO-YAN, O.B.E., J.P.
THE HONOURABLE JOHN MORRISON RIDDELL-SWAN, O.B.E., J.P.
DIRECTOR OF AGRICULTURE AND FISHERIES
THE HONOURABLE DONALD LIAO POON-HUAI, C.B.E., J.P.
SECRETARY FOR HOUSING
THE HONOURABLE GRAHAM BARNES, J.P.
REGIONAL SECRETARY (HONG KONG AND KOWLOON), CITY AND NEW TERRITORIES ADMINISTRATION
THE HONOURABLE WILLIAM CHARLES LANGDON BROWN, O.B.E., J.P.
THE HONOURABLE CHAN KAM-CHUEN, J.P.
THE HONOURABLE JOHN JOSEPH SWAINE, O.B.E., Q.C., J.P.
THE HONOURABLE STEPHEN CHEONG KAM-CHUEN, J.P.
THE HONOURABLE CHEUNG YAN-LUNG, M.B.E., J.P.
THE HONOURABLE MRS. SELINA CHOW LIANG SHUK-YEE, J.P.
THE HONOURABLE IAN FRANCIS CLUNY MACPHERSON, O.B.E., J.P.
REGIONAL SECRETARY (NEW TERRITORIES), CITY AND NEW TERRITORIES ADMINISTRATION THE HONOURABLE MARIA TAM WAI-CHU, J.P.
DR. THE HONOURABLE HENRIETTA IP MAN-HING
THE HONOURABLE PIERS JACOBS, O.B.E., J.P.
SECRETARY FOR ECONOMIC SERVICES
THE HONOURABLE DAVID GREGORY JEAFFRESON, C.B.E., J.P.
SECRETARY FOR SECURITY
THE HONOURABLE GEOFFREY THOMAS BARNES, J.P.
SECRETARY FOR HEALTH AND WELFARE
THE HONOURABLE MICHAEL LEUNG MAN-KIN, J.P.
DIRECTOR OF EDUCATION (Acting)
ABSENT
DR. THE HONOURABLE HO KAM-FAI, O.B.E., J.P.
IN ATTENDANCE
CLERK OF COUNCILS
MR. ROBERT IAN WILLIAM UPTON
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 513 Papers
The following papers were laid pursuant to Standing Order 14(2):―
Subject L.N. No. Subsidiary Legislation:
Pneumoconiosis (Compensation) Ordinance.
Pneumoconiosis (Compensation) (Assessment of Levy) (Amendment) Regulations 1983 .......................................................................................... 32
Public Health and Urban Services Ordinance.
Public Health and Urban Services (Designation of Libraries) Order 1983 ... 33
Public Health and Urban Services Ordinance.
Public Health and Urban Services (Public Pleasure Grounds) (Amendment of Fourth Schedule) Order 1983 ................................................................... 34
Road Traffic Ordinance.
Road Traffic (Parking and Waiting) (Amendment) Regulations 1983.......... 36
Buildings Ordinance.
Building (Oil Storage Installations) (Amendment) Regulations 1983 .......... 37
Fixed Penalty (Traffic Contraventions) Ordinance.
Fixed Penalty (Traffic Contraventions) (Amendment) Regulations 1983..... 38
Public Health and Urban Services Ordinance.
Museums (New Territories) Regulations 1983 ............................................. 39
Public Health and Urban Services Ordinance.
Public Swimming Pool (Designation) Order 1983........................................ 40
Public Health and Urban Services Ordinance.
Public Health and Urban Services (Public Pleasure Grounds) (Amendment of Fourth Schedule) (No. 2) Order 1983....................................................... 41
Public Health and Urban Services Ordinance.
Designation of Museums (Hong Kong Museum of History) Order 1983 ..... 42
Road Traffic (Public Service Vehicles) (Amendment) Regulations 1983. Road Traffic (Public Service Vehicles) (Amendment) Regulations 1983 (Commencement) Notice 1983 ..................................................................... 43
514 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
Subject L.N. No.
Import and Export (General) Regulations.
Import and Export (General) Regulations (Amendment of First Schedule) Order 1983.................................................................................................... 44
Public Health and Urban Services Ordinance.
Public Health and Urban Services (Public Markets) (Designation and Amendment of Tenth Schedule) Order 1983 ................................................ 45
Public Health and Urban Services Ordinance.
Public Health and Urban Services (Civic Centres) (Amendment of Thirteenth Schedule) Order 1983.................................................................. 46
Public Health and Urban Services Ordinance.
Abattoirs (Amendment) By-laws 1983 ......................................................... 47
Public Health and Urban Services Ordinance.
Cremation and Gardens of Remembrance (Amendment) By-laws 1983 ...... 48
Public Health and Urban Services Ordinance.
Cremation and Gardens of Remembrance (Amendment) (No. 2) By-laws 1983.............................................................................................................. 49
Public Health and Urban Services Ordinance.
Public Cemeteries (Amendment) By-laws 1983 ........................................... 50
Public Health and Urban Services Ordinance.
Declaration of Markets in Urban Areas ........................................................ 51 Sessional Papers 1982-83:
No. 37―Hong Kong Examinations Authority―Balance Sheet as at 31 August 1981 and Statement of Income and Expenditure for the year ended 31 August 1981 together with Statement of Receipts and Payments for the year ended 31 August 1981 with Certificate of the Director of Audit.
No. 38―Supplementary Provisions approved by Urban Council during the third quarter of the financial year 1982-83.
No. 39―Li Po Chun Charitable Trust Fund―Annual Report for the period 1 September 1981 to 31 August 1982.
No. 40―Television Advisory Board Hong Kong―9th Report.
No. 41―Draft Estimates of Expenditure 1983-84.
No. 42―Draft Revenue Estimates 1983-84.
No. 43―Draft Supporting Financial Statements and Statistical Appendices from the Estimates of Revenue and draft Estimates of Expenditure 1983-84.
No. 44―Estimates of Revenue and Expenditure for the year ending 31 March 1984 Report of the Public Works Sub-Committee of Finance Committee for 1982.
No. 45―Report of the Establishment Sub-Committee of Finance Commitee for 1982- 83.
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 515
Government Business
First Reading of Bill
APPROPRIATION BILL 1983
Bill read the first time and ordered to be set down for second reading pursuant to Standing Order 41(3).
Second reading of bill
APPROPRIATION BILL 1983
THE FINANCIAL SECRETARY moved the second reading of:―‘A bill to apply a sum not exceeding $35,474,924,000 to the service of the financial year ending on 31 March 1984’.
He said:―
INDEX Paragraphs
Background 1 - 5 Preamble 6 - 17 1982 Economic Background 18 - 34
Monetary issues 27 - 34 The Public Sector 35 - 43 Revised Estimates 1982-83 44 - 51 Estimates 1983-84 52 - 79 Revenue Proposals 80 - 151
Liquor 92 - 94 Tobacco 95 - 96 Hydrocarbon oils 97 - 99 Driving licences 100 Vehicle licences 101 - 104 Buoy fees 105 Business Registration fees 106 Company Registration fees 107 - 108 Hotel Accommodation tax 109-111 Betting duty 112 - 115 Bank licences 116 - 118 Rates 119 - 127 Airport tax 128 - 129 Patents 131 - 133 Dependent parents 134 - 135 Separate taxation for married women 136 - 142 Tax bands 143 - 144
516 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
Paragraphs
Interest tax 145 Outcome 146 - 151 1983 Economic Prospects 152 - 163 Certificates of deposit 164 - 167 Summing up 168
Pages
Statistical Tables 555 Other Appendices 571 - 601
Sir,
Background
As generally was the experience elsewhere, 1982 presented difficult economic problems for Hong Kong, with no sign of the improvement in the latter part of the year which was expected. Firstly we were battered by what I believe will prove to have been the tail winds of the worst global recession since the 1930s. World trade anyway has declined substantially. As Hong Kong depends upon exports, we have thus inevitably suffered from the prolonged inability of our overseas markets to absorb more of our excellent products due to their own economic troubles, which have also perniciously led to the spread of protectionism.
2 It is always frustrating for all of us to be unable confidently to foretell the likely course of our economy without access to reliable advice on the likely shape of other bigger economies. It is a truism that for Hong Kong much depends on the pattern of growth in the U.S.A. But as their own economists and bankers offer no consensus, our economic forecasting inevitably remains more intuitive than scientific. We are not alone.
3 Secondly we have simultaneously experienced the terminal phases of a boom and bust cycle in property. I shall say more about this later(1), but clearly the rise in prices was as excessive as the inevitable subsequent fall, the effects of which have spread in the financial sector. This unfortunate if not uncharacteristic episode may at least promote concentration again on the manufacturing and other export oriented sectors. Certainly it underlines the paramountcy of market forces and the need for prudent planning rather than careless speculation in business.
4 Thirdly we have suffered from political uncertainty. This may be inevitable while our long-term future is under discussion. But we have a clear commitment
(1) Paragraph 22.
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 517
by the British and Chinese Governments, endorsed at the highest level, to the stability and prosperity of this Territory. That does not seem to me to be depressing. The uncertainty and the spate of commentaries and rumours which we have experienced in the last few months have nevertheless had an unsettling effect. Internal and external confidence have suffered, and the consequences have been felt in all sectors of the economy.
5 These three circumstances have not made easier the task of those in Government who work on the budget and of the vote controlling officers, who have faced responsibly the need for tight discipline while continuing with agreed programmes. The margin as you will know is narrow. To them all I extend my thanks. The budget is my own, though naturally it reflects Government policy; but its production and implementation depend on a competent and loyal civil service. I hope that the latter’s detractors will note my comment.
Preamble
6 It is scarcely surprising that 1982 having shown itself unhelpful to Hong Kong (a considerable understatement) there should be a groundswell of economic complaint―much directed at the Government. Some is fair. Some is not. The real estate problems and connected difficulties that face some financial institutions, some developers and I dare say many speculators, must, I believe, largely be left to their own timely management. Some profit from risk-taking. Others manifestly do not. I will not conveniently forget the outstanding contributions of good private sector development and the essential role that it will continue to play in our economy. But my overriding concern is with the interests of Hong Kong as a whole. Let me in this connection now formally thank many institutions headed by the note-issuing banks for their responsible approach to recent problems, however Hong Kong landed in them.
7 I wish to underline yet again the fortune of Hong Kong in facing by world standards relatively little unemployment and under-employment(2). Please accept that I am well aware of the difficulties faced by those without full employment and the necessity of adequate provision for public assistance. Fortune is arguably the wrong word anyway, for this comparatively favourable situation is the outcome of sensible and steady policies followed over many years. In particular it reflects our refusal to be stampeded into new and untried social initiatives or excessive public sector expenditure for reasons which if kind-hearted are often extremely short sighted and sometimes clearly self interested(3).
(2) 1982 Economic Background: Chapter 4. See also paragraph 25.
(3) ‘Everywhere politicians have been inclined to turn a blind eye to the long-term actuarial consequences of vote-winning social security gestures. The problems of supporting levels of public spending that looked acceptable in a period of economic growth begin to look daunting in a world of flat demand and financial upheaval.’ Extract from Financial Times Leader of 28.9.82.
518 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
8 Nor can it be overlooked that further real increase in new Government programmes will inevitably require additional tax revenue. As for example only about 270 000 now pay salaries tax and every 1% increase in the present top limit of 15% would yield only about $100 million per year, do those who protest against strictly controlled price increases in the public utilities realize that the alternative of subsidy means that they instead will be taxed? Or services will cease? Do they prefer this to payment by the actual users? I do not believe it.
9 Complaints about Government policies and criticisms of apparent meanness are plentiful in our free society, but as I have repeatedly said are rarely accompanied by any suggestions of how to get from the community the additional revenues usually involved. For there are no free lunches. Thus we have also had the usual calls from concerned men and women for higher spending by the Medical and Health Department, for more low cost housing, for social security and health insurance, for a replacement airport and an additional harbour crossing, for better roads and railways, for more schools and a third university, for cheaper water and transport and telephone services. Such grass roots stuff is valuable, indeed essential within commonsense limits. Government merits a degree of goading and no doubt does better as a result. My own prize for misplaced zeal goes to those who seek an end to what they call Government’s high land price policy. Apart from the minor fact that there has never been such a policy, to suggest that it exists at this particular point in time when the budget is in serious deficit because of plummetting land revenue and when the prices of some land are barely above formation costs involves a degree of opacity worthy of inclusion in the Guinness Book of Records. Figures in the 1982 Economic Background speak for themselves(4). It was the improved supply of Government land to the market resulting from deliberate planning that was a major factor in ending the escalation of property prices, the baleful effects of which were increasingly obvious. I am no supporter of high prices for anything―only fair prices as normally determined by the market and not arbitrarily by bureaucrats.
10 It must be repeated and repeated that while Hong Kong is no longer poor, it is not rich. We get no financial support or subsidy from outside. We can only have what we pay for: this applies both to private and public spending. Nearly all the protests which contain overtones of subsidy presuppose that someone else, for example the Government or the shareholders of public companies, should pay partly or wholly for the handouts. But Government funds are the people’s funds, which demand prudent handling; and no law― and we fortunately live under the rule of law―can compel investment from shareholders. We must always have an eye on long-term planning for the needs of the future. Moreover it is a temporary and self-defeating opiate to propose soaking the rich. There are, alas, not enough of them. While also various partisan bodies seek increased aid to industry, they certainly do not simultaneously call for increased profits tax. But whence is the money to come?
(4) 1982 E.B. 5.5 to 5.10:5.14:6.7.
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 519
11 We cannot anyway be led into temporary support of industries in distress. And how is temporary to be determined? Totally dependent on trade as we are, quite apart from obvious budgetary considerations it is not possible to keep the less efficient in being either by restricting overseas access to our own markets or by propping up their faltering access to overseas markets. If direct Government subsidy were to be given, it should logically go to bolster the efficient sectors of our economy―not to featherbed those in trouble. It is of course difficult in the public eye to maintain tough policies while yet demonstrating care for the unsuccessful. I shall persevere, for both firmness and compassion are essential.
12 Insofar as claims for generalized assistance to industry are concerned, we will consequently also continue to rely mainly (though not entirely) on the disciplines of the market place. We do not need to look hard to see the result of other approaches elsewhere. Nevertheless I reiterate my commitment to pronounced and growing Government support for the basic infrastructure that is needed to support our changing economy(5) and I will remain open to responsible suggestions for improvement. Increasing, well founded demands in these areas will continue to be a major concern of the Government. Nevertheless the maintenance and growth of such services still depend on the prior creation of wealth. Nothing is less calculated to promote Hong Kong’s long-term growth and stability than over-spending or wrong priorities or a mixture of both, and while we will continue steadily with already agreed programmes we will have to be frugal with regard to new ones.
13 I would like to illustrate what I mean by reference to the case for a replacement airport. Certainly Kai Tak is now badly situated, and the single runway cannot be duplicated. Thus by 1990 or thereabouts (there is argument about this) it will be desirable, if we can afford it, to have available an alternative airport capable of growth. But at 1982 prices the total cost postulated by an airport at Chek Lap Kok will be roughly $37 billion: this includes airport, roads and bridges, land resumption, and the inevitable construction of a nearby new town on Lantau. Clearly we cannot contemplate such expenditure in isolation until we can set overall priorities for the whole territory for the next ten years or so against the major sub regional studies which are now reaching conclusion. This should be possible by the end of this year. And we shall then consider new programmes. But even so, monetary and budgetary factors will continue to be crucial. While we will certainly continue to invest heavily for the future, we obviously cannot do so for all conceivable projects and we must get the planning right. It is irresponsible to believe that expenditure without wisdom portrays confidence. It does not. It shows only folly. Nothing makes me less confident in any government than evidence of
(5) e.g. vocational, technical and tertiary education; an intelligent approach to research funds; industrial investment promotion and training schemes; Government institutions designed to facilitate diversification; all the support that the Government can give in trade relations and trade facilitation; transport including road, rail, airport and harbour; land formation; telecommunications; production of public housing; oversight of markets; and not least promotion of wise monetary policies.
520 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
public expenditure running out of control. This is a guaranteed recipe for inflation and eventual unemployment. In any case there are real issues of priority that confront us. It is my opinion that if we forthwith decided to build a replacement airport at Chek Lap Kok― and the need for an immediate decision is not evident―it might be necessary for budgetary reasons to move towards reducing annual Government capital expenditure on other items by about $3 billion within about three years. As an example only, this could result in halving the low cost housing programme. We must now ask ourselves where the proper priorities lie, and what are the sensible alternatives.
14 The estimates have been laid before you. Let me draw your attention to the estimate of expenditure on Consolidated Account in 1983-84 of $5.7 billion on education, including no less than $1.3 billion on the two universities, the Baptist College and the Polytechnic. We are moving fast to establish a costly second polytechnic, and we have also just set up the new Vocational Training Council. The Public Works Programme excluding Housing Authority expenditure and land acquisition will require about $7.6 billion. All this expenditure, the importance and relevance of which is obvious, is infrastructural investment. It is an immense effort.
15 I must also point to the total estimated expenditure on social services as a whole of $16.6 billion. Expenditure of this size illustrates my earlier promise of no petty-minded meanness despite belt tightening. I am not insensitive to the gap that exists between the successful and the poor. My task is to narrow it by improving the lot of the poor, not by squeezing the rich.
16 This preamble outlines your Government’s consistent and steady policies, which will continue. They are as sound in bad times as in good. In our position we have no sensible alternative but to promote actual export not theoretical equity; solvency not soft heartedness; incentives not ideology―while still remaining compassionate and caring particularly in the case of individual inadequacies and suffering. This is no easy responsibility, and it would be foolish to pretend that the Government always gets the balance of priorities right. I do not. But I shall continue to do my best.
17 With this general background I now present my second budget, which I shall divide as before into three unequal main sections; what has been, the budget proper, and what 1983 might offer. The budgetary section itself will be sub-divided into the current state of the Government’s accounts, the estimates, and finally the several tax changes which are required. In support will be the accompanying cross-referenced 1982 Economic Background, 1983 Economic Prospects, and footnotes and appendices bound with the printed version of this speech.
1982 Economic Background
18 The economic problems of 1982 and their effects on Hong Kong are the subject of the 1982 Economic Background, which I hope Members will read in full. I wish to highlight some important points only.
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 521
19 Against the background of an unexpectedly poor fourth quarter even the sharply revised G.D.P. growth rate of 4% for the calendar year was not achieved. In fact the growth was only 2.4%(6). This thoroughly disappointing result illustrates yet again our dependence on exports and the parlous state of other economies whose performance is increasingly difficult to forecast. I apologize for giving earlier over-optimistic figures, but the difficulties of foretelling the economic future have never been so great. Deliberate pessimism is not generally a helpful alternative course.
20 The weak performance of our domestic exports is clear(7). They declined by 3% in real terms in 1982, as consumer demand in Hong Kong’s major export markets remained depressed with no sign of the long awaited turn-round. The delay in the recovery of the economies of these countries, in particular the United States, has become pronounced. For example G.N.P. for the O.E.C.D. countries as a whole declined by 0.5% in 1982, compared with a forecast growth rate of 1.8% made at the beginning of the year. Influenced by the world recession, our re-exports showed no growth in real terms(8) though this has to be set against the background of a very substantial expansion of the entrepot trade base over the last few years. Re-exports on average grew by about 30% per year in real terms during the four years 1978-81.
21 Because of the decline in export demand, economic growth in 1982 came largely from domestic demand, whose growth rate has also been slowing down rapidly. Private consumption expenditure was less buoyant and grew by only 2% in real terms, probably due to our poor export performance affecting incomes and to the unfavourable influence on wealth of a depressed stock market. Overall investment showed no change in real terms. The decline of 6% in expenditure on plant and machinery was largely offset by an increase of 10% in expenditure on building and construction. There was a substantial increase in public sector expenditure on capital works(9) as a result of the continuation of the Public Works Programme, the housing programme and the construction of the Island Line of the Mass Transit Railway.
22 Also significant was the continued depression of the property market(10). Affected by the economic recession and abundant supply, the latter owing more to speculation than to prudent planning, prices and rentals of property followed a declining trend during the year, with sharper falls in the second half. The successive reductions in the mortgage rate to 12% in November, together with the declining sale prices, have revived some interest in the trading of residential property in the lower end of the market. The property market was also given some encouragement in November and December when a number of banks and other financial institutions offered new 20-year mortgage schemes to potential owners of property.
(6) 1982 E.B. 1.2.
(7) 1982 E.B. 2.4.
(8) 1982 E.B. 2.17-2.20.
(9) Defined in this context to include expenditure by the M.T.R.C.
(10) 1982 E.B. 5.5 to 5.14.
522 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
23 The growth rate of the value of total exports, at 4%, was slightly faster than the growth rate of the value of imports, at 3%. There was thus a small narrowing of the visible trade gap(11). This probably contributed to the relative firmness of the Hong Kong dollar in the first half of the year, in terms of the trade weighted exchange rate index, which appreciated by about 4.4%. However, by the end of the year, political and other events had intervened and for the year as a whole the trade weighted exchange rate index showed a net depreciation of 6.8% and the Hong Kong dollar weakened against the US dollar by 12.7%.
24 The overall strength of the Hong Kong dollar during the first part of the year, coupled with the easing of inflation rates elsewhere in the world, had favourable effects on the domestic price level. Moreover, since total final demand (excluding re-exports) showed no growth and the gross domestic product grew by only 2.4% in real terms, the growth of demand for output in the economy was not so rapid as to exceed the ability of the economy to produce that output. Furthermore the underlying growth rate of the money supply as probably slowing down. Thus the rate of inflation, in terms of consumer prices, declined from 12% in the first half to 9% in the second half. Taking the year as a whole, the increase was 10.6% which represents a significant improvement over the corresponding increases of 16% in 1980 and of 15% in 1981. We would have done even better if the Hong Kong dollar had not weakened in the second half. As the rate of increase in consumer prices slowed down, real wages of most employees showed some increase, except for those in the manufacturing sector.
25 Reflecting the weak domestic export performance, employment in the manufacturing sector declined(12). It is important to note, however, that this decline was largely offset by an increase in employment in the tertiary services sectors with the result that the overall employment situation was fairly stable. The seasonally adjusted unemployment rate remained steady at about 3.5% in the first half of the year, and increased moderately to about 4% in the second half. Under-employment also increased to around 1.7% of the labour force. These figures are relatively low by both historical and international experience, though they are still clearly rising and I recognize that employees in the manufacturing sector have been more adversely affected than others. In addition to the relatively deflated internal cost/price structure, including wages and property prices, there are signs of the existence of some spare productive capacity. The growth rate of labour productivity has also slowed down to about 2%.
26 1982 was a year of adjustment for Hong Kong. The economy responded in various ways to the most severe world recession in fifty years. Moreover, domestic developments in recent years, such as the rapid expansion of credit, the sharp increases and subsequent even sharper falls in property prices, the fluctuations in interest and exchange rates and the growing importance of the
(11) From 11.7% in 1981 to 10.9% in 1982.
(12) 1982 E.B. 4.1.
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 523
tertiary services sectors, have brought about further adjustments. It should be borne in mind also that the 2.4% growth rate of the economy was achieved against the background of double-digit growth rates recorded successively for each year since 1976. We must not be unduly discouraged by one year’s disappointing performance, a performance still better than that of most larger economies―for example U.S.A., U.K. and Germany.
Monetary Issues
27 I turn now to monetary issues, which were of particular significance in 1982. The fall in property and land prices created persistent unease in the financial sector. Towards the end of the year a few registered deposit-taking companies experienced liquidity problems. There have been claims that further adjustments in 1982 under the three-tier system requiring registered D.T.C.’s to run down all their short-term deposits in two stages by the end of June this year exacerbated these problems, but I do not believe that this factor was critical. Moreover I am sure that when the adjustment is over and the dust is settled we shall end up with a structure which provides both better protection for depositors and a sounder banking system.
28 Despite our known problems, Hong Kong’s position as an international financial centre has remained strong. In fact foreign currency deposits increased by H.K. $69 billion in 1982, helped of course by the exemption from interest tax on such deposits introduced this time last year(13). Given the general background, this outcome is very satisfactory.
29 Part of the rapid increase in foreign currency deposits may be due to a proportion of Hong Kong’s export earnings being retained in foreign currencies, if not permanently at least for a longer period than in the past. Nevertheless Hong Kong dollar deposits also increased marginally in 1982(14). There are a number of reasons for this outcome. Anticipation of further adverse movements in the exchange rate is one, and the 10% interest tax on Hong Kong dollar deposits is another. I shall return to the subject of interest tax later.
30 It is arguable that the foreign exchange market has over-reacted to rumours about the future, notwithstanding sharp gyrations in exchange rates between major world currencies. The trade weighted exchange rate index for the Hong Kong dollar rose in line with the narrowing of the trade gap from 85.9 at the end of 1981 to 90.3 on 26 June, the highest level of the year. Subsequently it eased off as the prospects of an economic recovery in the United States in 1982 looked increasingly unlikely. It then fell sharply at the beginning of the fourth quarter of the year to 79.7 on 27 October, when the foreign exchange market was hit by anxieties about the political future of Hong Kong and when the U.S. dollar displayed general strength against other major currencies in world markets. Although the Hong Kong dollar has since the end of October recovered substantially againt the U.S. dollar, the trade weighted index has
(13) 1982 E.B. 3.5.
(14) From $134.4 billion to $135.4 billion.
524 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
remained low. With quite severe recession prevailing in our main export markets I accept that adjustments to maintain Hong Kong’s competitiveness will have to work through, inter alia, the exchange rate. But even so the sharpness of the October movement was clearly of an emotional nature.
31 The weakness of the Hong Kong dollar was also partly caused by understandable pressure to push interest rated down. Because of the differential between the rates of interest tax on Hong Kong dollar and foreign currency deposits, there is, at any given rate of interest, a 10% difference in net yield between Hong Kong dollar deposits and foreign currency deposits in favour of the latter. If there is also, as there has been from time to time, a gap of, say, two percentage points in the interest rate in favour of foreign currency deposits, there must be exchange rate implications. This is particularly so at a time when deposit rates are at relatively low levels. I fully appreciate that the lower cost of borrowing assists industry, but the need to contain inflation must also be weighed in the balance.
32 A related issue is whether there has been, as is often claimed, an outflow of money from Hong Kong. In fact statistics of the growth of total deposits (in all currencies) in Hong Kong in 1982 suggest that there was a substantial inflow of money into Hong Kong rather than an outflow, but of course investment by Hong Kong people abroad has continued― and possibly on a larger scale than before. I realize also that outflow could be taken to mean a shift out of Hong Kong dollars into foreign currencies, whether or not such foreign currencies remain in Hong Kong. However, for every seller of Hong Kong dollars there must be a buyer. Unless banks sell foreign currency from their own positions or enter into swap transactions, the size of the Hong Kong dollar pool cannot be materially reduced although its value can. But there is a limit on what banks will sell to their customers from their own positions; and they normally buy their customers’ foreign currency requirements from the market. Swap transactions are getting more popular, some no doubt designed to avoid interest tax. However when these transactions are unwound, the pool of Hong Kong dollars will be reinstated. So where is the outflow? And if the pool of Hong Kong dollars can only decline as a result of movements across the exchanges when banks sell from their foreign currency position to their customers, how is the outflow to be measured? Clearly when demand for foreign currency exceeds supply, the price of foreign currency will increase, which is what has happened in Hong Kong to a limited extent. In other words, the foreign exchange value of the pool of Hong Kong dollars, or the purchasing power of that pool in terms of goods priced in foreign currencies, has decreased.
33 To sum up, given the very special circumstances we were facing, developments in the monetary sector have been encouraging. The monetary aggregates, although difficult to interpret in view of the structural changes that have taken place, also appear to be behaving well. There was a marked slowing down during the year in the growth rate of loans and advances for use in Hong
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 525
Kong(15). Influenced by the inflow of foreign currency deposits, total M3 grew rapidly by 42%; but as Hong Kong dollar M3 grew by only 2%, I am generally satisfied that the money supply was behaving in a way helpful to the economy.
34 The budget speech cannot contain reference to every policy of Government with regard to economic, financial and monetary matters. It would yield the wrong impression, however, if I made no mention of my concern about the excesses that have come to light as a result of the collapse of the property market. The conduct of some directors or managers in control for example of a few deposit-taking institutions has clearly been open to severe criticism, and this criticism must extend also to some activities in other areas of the financial markets. While our economy depends mainly on market forces it is the Government’s responsibility to see that there exist adequate ground rules―enshrined if necessary in the law―to ensure that market forces operate fairly. I am therefore engaging in discussions with the Secretary for Monetary Affairs, the Secretary for Economic Services, the Commissioner of Banking and the Commissioner for Securities amongst others to ensure that legislation in Hong Kong in their areas of responsibility continues to provide an appropriate degree of protection for depositors and investors―and indeed for the whole community. This task raises difficult and contentious issues, because I do not propose to replace free market management with that of civil servants. Nor is perfection possible. I think, however, that all honest men will agree that where inadequacies have become apparent then there must be improvement. But this must be a steady process without sudden shocks. We all know anyway that freedom cannot mean licence.
The Public Sector
35 I share what I believe to be a consensus with Members of this Council that it is of maximum importance that public sector expenditure should be held in check. The growth rate in recent years has been high encouraged by buoyant revenues. But the scene has changed. I repeat what I said last year that in general terms we must get the growth rate in real terms in public sector expenditure on Consolidated Account down to the growth rate in G.D.P.―and in some years below, if budgetary requirements indicate.
36 In preparing internal guidelines in November 1982 for the 1983-84 budget, I had regard to our known expenditure at that point in time. I asked as a first step that the growth rate in public sector expenditure should be limited to about 10% in money terms. I accepted that there would be some subsequent leakage around the edges.
37 Within this limit, I expected adequate provision to be made to continue our main on going programmes with room being found for some real increases by reducing non essential expenditure in other areas. As a new departure I also required provision to be made for any possible salary adjustment and indeed for
(15) 1982 E.B. 3.9 to 3.12.
526 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
any price increases. In fact in 1982-83, despite no such provisions having been made but reflecting excellent controls, the revised estimate of total public sector expenditure exceeds the approved estimate by less than 1% even including last April’s salary adjustment. But the budgetary implications of a salary adjustment can be very significant, and in our present straightened situation I consider it necessary that the budgetted total expenditure should now formally impose a cash limit on total spending. I shall therefore expect the provision for any salary adjustment for 1983-84―if indeed any adjustment at all is agreed―to be found from within the additional commitments vote. This change in procedure will not weaken the absolute control of Executive Council and Finance Committee, nor will my own calculations be capable of external assessment. In brief I make no assumptions whatsoever, but I will insist on cash limits.
38 On the basis of the budget presented today, total public sector expenditure in 1983-84 is estimated at $42.5 billion(16), compared with the revised estimate for 1982-83 of $38 billion, an increase of 11.7% in money terms. I consider that the growth rate in public sector expenditure in real terms in 1983-84 will be about 3%. This is below the expected growth rate of the G.D.P., and a sharp slowing down from the previous year. Moreover there should be no extras for which subsequent provision needs to be made.
39 It is essential to look forward and not back. Hindsight is such an exact science. Nevertheless a longstanding problem occurs each year with the preparation of the budget. Because Budget Day is scheduled for the last Wednesday in February, and bcause of the need to meet the Printer’s reasonable deadline if the Draft Estimates of Expenditure and other supporting documents are to be printed in time, it is necessary for a cut-off date to be fixed in early December, after which it becomes increasingly difficult to make changes. Thus, the revised estimate is based on figures of expenditure largely determined after only seven months’ performance up to the end of October. To the extent that significant changes occur in the subsequent months of the financial year which were not foreseen, the revised estimate will be inaccurate.
40 In order better to meet this problem (which cannot be avoided altogether) I propose to examine the factors involved in deferring Budget Day in future to the last Wednesday in March. This, coupled with improved facilities for the Printer, should allow a later cut-off date to be fixed, say at the end of December, and so improve the accuracy of the forward planning process. In brief a more reliable base will be available.
41 As an example of the difficulties that now arise as Government budgets grow with the growth of Hong Kong, you will recall that last year the budget for 1982-83 envisaged a significant slowing down in the growth rate of public sector expenditure. On the basis of the revised estimate taken in November 1981 of
(16) This figure and those used throughout this speech in respect of the Consolidated Account have been adjusted for analytical reasons; the differences are explained in the Statistical Tables.
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 527
Consolidated Account expenditure for 1981-82, the budget for 1982-83 provided for a slowing down of the growth rate in real terms to 10.7% (excluding any civil service pay adjustment).
42 In the event, actual Consolidated Account expenditure in 1981-82 has proved considerably lower than the revised estimate then used, largely because the Housing Authority spent much less than expected(17). The actual growth rate of public sector expenditure in 1981-82 was therefore lower than our calculations were based on, and in consequence the 1982-83 budget made provision mathematically for a higher growth rate than intended, which I now expect to be about 17% in real terms (pay adjustment included). I find this outcome quite infuriating.
43 Being aware of the potential pitfall, in a footnote to last year’s Budget Speech(18) I did, however, stress that there must be problems if the base changed―that is to say, if the final outturn for 1981-82 was different from the revised estimate, which has turned out to be the case. We simply must improve on this for the future. Thus the idea of putting back budget day until the end of March, on which I shall be consulting Members. An alternative approach of zero based budgetting is attractive in theory but unattainable in practice.
Revised Estimates 1982-83
44 I will now bring you up to date on the present state of the Government’s accounts.
45 On General Revenue Account the budget for 1982-83 envisaged a surplus of $2.8 billion(19). The revised estimates of revenue and expenditure are $30.9 billion and $34.7 billion respectively. On the basis of these figures the outturn for the year will be a deficit of $3.8 billion(20).
(17) Over $1 billion.
(18) B.S., 1982, note 18.
(19) i.e. $2,782 million: the difference between estimated revenue of $38,305 million and estimated expenditure of $35,523 million.
(20) $ mn $ mn
Revised
Recurrent Account:
Original Approved
Revised Original Approved
Revenue 25,308 25,210 ― ― Expenditure 19,466 20,799 5,842 4,411
Capital Account:
Revenue 12,997 5,690 ― ― Expenditure 16,057 13,977 -3,060 -8,287
Overall surplus ― ― +2,782 -3,876
The revised estimates take account of a maximum of eight months’ performance. The final outcome may be somewhat different, and the final deficit could be rather higher.
528 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
46 The turn-round of $6.6 billion is accounted for by a shortfall in revenue of $7.4 billion and a reduction in expenditure of $747 million. It is made up of $1.4 billion on recurrent account and $5.2 billion on capital account.
47 On recurrent account revenue is expected to be only $98 million lower than the original estimate, but the revised estimate of expenditure(21) is $1.3 billion higher than the approved estimate entirely because of the unprovided 1982 civil service salary adjustment and its consequences for the salaries of staff in subvented organizations. Thus the surplus on recurrent account is expected to be $4.4 billion, or $1.4 billion lower than estimated.
48 On capital account revenue is expected to be $7.3 billion lower than the original estimate. This results entirely from the effect on the yield from land sales of the sharp decline in the property market and in particular our failure to acquire the return expected from a few major sites in Central(22). Every effort has been made in consequence to reduce expenditure on capital account(23), and the revised estimate is $2.1 billion lower than the approved estimate. The deficit
(21) Approved Estimates
Component 1982-83 ($ mn)
Revised Estimates 1982-83 ($ mn)
(1) Personal Emoluments 6,654 7,542 (2) Personnel Related Expenses
Pensions 607 730 Other 753 850 (3) Departmental Expenses 2,832 2,810 (4) Other Charges
Additional Commitments 600 ― Defence Costs Agreement 1,306 973 Other 2,114 2,525 (5) Subventions 4,600 5,369
Total Recurrent Expenditure 19,466 20,799 (22) B.S. 1982, note 42.
(23) Approved Estimates
Component 1982-83 ($ mn)
(1) Plant, Equipment and Works
Revised Estimates 1982-83 ($ mn)
Defence Costs Agreement 153 73 Other 943 718 (2) Other Non-Recurrent
Additional Commitments 700 ― Other 83 338 (3) Subventions 638 393 (4) Transfers to Funds
Capital Works Reserve Fund 11,000 10,500 Development Loan Fund 2,432 1,850 Emergency Relief Fund 4 ― Student Loan Fund 104 105 Total Capital Expenditure 16,057 13,977
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 529
on capital account is consequently now expected to be $8.3 billion or $5.2 billion higher than estimated.
49 With the transfer of the 1982-83 deficit to the General Revenue Balance, out fiscal reserves at the beginning of the financial year 1983-84 will be about $18.7 billion(24). They are lent to the Exchange Fund against interest bearing debt certificates. A description of the Exchange Fund is at Appendix E of the printed version of this speech. After allowing, on the basis of a gearing of three, $7.2 billion as cover for our formal contingent liabilities (which will be about $21.7 billion by 31 March 1987, the last year of the new forecast period)(25), we shall have at 1 April 1983 ‘free’ fiscal reserves of about $11.5 billion. This is clearly a conservative figure arrived at after equally conservative provision, which is unlikely to be required.
50 An assessment of our performance over the past five years 1978-79 to 1982-83 on the basis of four principles which we apply in the management of Hong Kong’s public finances is at Appendix A of the printed speech.
51 Against that background, I present the Draft Estimates of Expenditure, the Revenue Estimates, and my revenue proposals for 1983-84.
Estimates 1983-84
Draft Estimates of Expenditure
52 I said earlier that in preparing internal guidelines for the budget I set a limit to the growth rate in public sector expenditure of about 10% in money terms. This involved a limit to total expenditure, taking the General Revenue Account and the Capital Works Reserve Fund together, of about $36.5 billion.
53 The printed Draft Estimates provide for total expenditure of $35.5 billion; but this figure includes a transfer of $8 billion to the Capital Works Reserve Fund, whereas expenditure from the Fund is estimated at $9.3 billion. Again taking the General Revenue Account and the Capital Works Reserve Fund
(24) General Revenue Balance at 1 April 1982=$22,571 million minus assumed actual deficit of $3,876 million for 1982-83=$18,695 million, say, $18,700 million.
(25) At 31 March:
1982
($ mn)
1987 ($ mn)
Guarantees of M.T.R.C. debt 5,256 5,913 Export Credit Insurance Corporation: outstanding accounts 2,600 4,900 Home Ownership Scheme: guarantees to banks and d.t.c.’s. 2,223 9,407 Asian Development Bank: uncalled capital 731 731 Gold coins 284 530 H.K. Building and Loan Agency 230 230 H.K. Arts Centre: guarantee of bank loan 12 ― Demonetized currency notes 10 10
Total 11,346 21,721
530 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
together, total expenditure is estimated at $36.8 billion(26) or only very slightly in excess of the 10% limit I set.
54 On recurrent account, the provision sought of $23.8 billion represents an increase of $3 billion, or 14.5%, on the revised estimate for 1982-83(27).
55 Personal emoluments at $8.2 billion account for just under 37% of recurrent expenditure, compared with an average of nearly 38% over the past five years. This provision does not make allowance for any salary adjustment. If required the funds will have to be found from the additional commitments vote. The provision sought for this vote is $1.3 billion, which is for all unforeseen commitments not provided for in the Draft Estimates.
56 The approved establishment of civil service posts shown in the Draft Estimates is 144 503(28). This includes 6 665 new posts created during 1982-83, a substantial reduction on the 16 500 new posts for which provision was included in the 1982-83 Estimates. A conscious effort was made during the year to restrain the growth of the civil service establishment, and this restraint will continue in 1983-84. The Draft Estimates provide for an increase of 6 700 posts, or 4.6%. Our aim is to keep civil service growth overall to below 5%.
57 Personnel related expenses at $1.9 billion account for 8.6% of recurrent expenditure compared with an average of 5.8% over the past five years. This increase is due principally to home purchase allowances payable to civil servants
(26) Revised Estimates
1982-8
($ mn)
Draft
Estimates 1983-84 ($ mn)
Increase
General Revenue Account expenditure 34,776 35,475 2.0 less Transfer to Capital Works Reserve Fund 10,500 8,000 24,276 27,475 13.2
plus Capital Works Reserve Fund expenditure 8,940 9,295 4.0 33,216 36,770 10.7
(27) Draft Estimates
Historical ratio 1978-79 to
Component 1983-84 1982-83 ($ mn) (%) (%)
(1) Personal Emoluments 8,220 36.5 37.8 (2) Personnel Related Expenses 1,939 8.6 5.8 (3) Departmental Expenses 3,017
(4) Other Charges 3,669 29.7 30.5 (5) Subventions 5,663 25.2 25.9 22,508 100.0 100.0
Additional Commitments 1,300
Total Recurrent Expenditure 23,808
(28) Exclusive of 29 160 posts in the Urban Services and Housing Departments the personal emoluments of which are met by the Urban Council and the Housing Authority.
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 531
joining the home purchase scheme introduced in November 1981 and to an increase in the number of pensioners.
58 Departmental expenses and other charges at $6.7 billion account for about 30% of recurrent expenditure, which is about the same as the average proportion over the past five years.
59 Provision of $5.7 billion for subventions represents 25% of recurrent expenditure, compared with an average of 26% over the past five years.
60 On capital account, the provision sought is $11.7 billion(29). This includes $8 billion for transfer to the Capital Works Reserve Fund, but excludes expenditure of $9.3 billion which will be a charge on the Fund. Total capital expenditure from the General Revenue Account and the Capital Works Reserve Fund taken together is $13 billion, which represents an increase of $545 million or 4.4% on the revised estimate for 1982-83.
61 Provision of $1.8 billion is sought for transfer to the Development Loan Fund for on lending to the Housing Authority. For all other components of the capital account provision of $1.9 billion is sought, including $200 million for additional commitments.
Capital Works Reserve Fund
62 The provision of $8 billion sought for transfer to the Capital Works Reserve Fund(30), together with an estimated surplus of about $1.6 billion in the Fund at the end of 1982-83, are sufficient to cover estimated expenditure of $9.3 billion from the Fund during 1983-84 and to leave a small surplus at the end of the financial year.
(29) Revised Estimates Draft Estimates
Component 1982-83 ($ mn)
(1) Plant, Equipment and Works
1983-84 ($ mn)
Defence Costs Agreement 73 114 Other 718 793 (2) Other Non-Recurrent 338 149 (3) Subventions 393 544 (4) Transfers to Funds
Captial Works Reserve Fund 10,500 8,000 Development Loan Fund 1,850 1,750 Student Loan Fund 105 117 13,977 11,467
Additional commitments 200 Total Capital Expenditure 11,667
(30) This amount has not been calculated in accordance with the original guideline formula of 80% of estimated revenue from land sales ($1.0 billion) and 15% of estimated recurrent revenue ($3.9 billion) as this would not be sufficient to cover estimated expenditure from the Fund in 1983-84.
532 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
63 The estimated expenditure from the Fund in 1983-84 on the Public Works Programme is $7.6 billion, an increase of $355 million or 5% over the revised estimate for 1982-83. On land acquisition the estimated expenditure for 1983-84 is $1.7 billion, the same as the revised estimate for 1982-83.
64 The outstanding commitment (or overhang) in respect of projects in hand on 1 April 1982 was about $26 billion. This was increased by about $3.3 billion as a result of the injection of new projects during 1982-83, but reduced by roughly $8.9 billion in expenditure. During 1983-84 work is scheduled to start on new projects of a total value of about $4.6 billion. The overhang on 1 April 1983 will be about $25 billion. After allowing for the estimated expenditure during 1983-84 of $9.3 billion, the outstanding commitment at 1 April 1984 will be no less than $15.7 billion, but will certainly be much higher in fact as further new works are approved during the year.
65 Every effort has been made to accommodate in the programme of works for 1983-84 all land production and transport projects that are ready to proceed. The priority given to these and to public housing is reflected in the breakdown of expenditure on Consolidated Account. The estimated total expenditure on transport, roads, civil engineering, and land is $7 billion, which is 16.3% of total Consolidated Account expenditure, compared with $1.8 billion or 14.7% as recently as 1978-79.
66 The Special Committee on Land Supply continues to recommend targets for land production and to monitor the Administration in the achievement of those targets(31).
67 Government gross land production in 1983-84 is estimated to be 669 hectares as compared with 676 hectares in 1982-83(32). Over the three years of
(31) In the light of the present economic climate, the Special Committee on Land Supply has been paying particular attention to:
(a) setting targets for the supply of land for all categories of use (other than for public housing which has priority and for which the supply is geared to the Housing Authority’s requirements) on the basis of estimates of demand rather than on estimates of production of new land;
(b) reviewing current planning standards and the various options which would allow a greater degree of flexibility in the land sales programme to take account of the prevailing market conditions;
(c) monitoring the implementation of a computerized land inventory system as a means to increase the operational efficiency in managing the territory’s land resources; and
(d) monitoring a rolling programme for the release of formed Crown land sites which are currently used for temporary purposes for permanent development.
(32) Excluding ten hectares and 53 hectares respectively for land formed by/for the Industrial Estates Corporation. The gross figures for land production are, of course, inclusive of large areas appropriated for public housing, Government, institutional use, other community purposes, open space and roads.
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 533
the new forecast period 1984-85 to 1986-87 it is estimated to total 2 336 hectares(33).
Public Housing
68 Within the total Consolidated Account expenditure on housing in 1983-84, $3.7 billion will be spent on the actual construction of housing, including temporary housing areas. This is about the same as the revised estimate of expenditure for 1982-83, to some extent reflecting a lower Tender Price Index. These figures exclude the value of land used by the Housing Authority for rental housing and for flats built under the Home Ownership Scheme sold after early 1982(34).
(33) Production excluding
Production by/for
Year I.E.C. I.E.C. Total (Hectares) (Hectares) (Hectares)
1984-85 719 5 724 1985-86 943 ― 943 1986-87 674 ― 674 2 336 5 2 341
(34) 1982-83 Revised
Estimates
($ mn)
(1) Rental Housing Programme(*):
1983-84 Draft
Estimates ($ mn)
Drawings from Development Loan Fund(**) 2,170 2,000 Housing Authority’s own resources(***) 404 402 Public Works Department 7 9 Asian Development Bank Loans(****) 28 42
Total (1) 2,609 2,453 (2) Home Ownership Scheme(*****) 1,005 1,155 Total (1) + (2) 3,614 3,608 (3) Temporary Housing Areas 105 65 Total (1) + (2) + (3) 3,719 3,673
Notes:
(*) Not including the Housing Society.
(**) For housing and ancillary facilities, but nothing for land, because land is granted to the Housing Authority at nil premium, although the full market value of the land is entered in the Authority’s accounts as a Government contribution.
(***) Difference between rent income and running expenses plus premia from commercial lettings.
(****) See Memorandum Note on Head 134 Public Debt, and the Memorandum Note on A.D.B Loans of the Estimates.
(*****) Not including the Private Sector Participation Scheme and the Middle Income Housing Scheme. For the Home Owernship Scheme itself, the expenditure figures include $140 million and $157 million for 1982-83 and 1983-84 respectively being drawings by the Housing Authority from the Development Loan Fund for commercial facilities, but exclude the value of land in respect of domestic elements.
534 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
69 The Government’s policy is that the public housing programme should achieve a level of production of at least 35 000 flats a year for both rental and sale by the Housing Authority, with a substantial addition by the Housing Society (through the development of rental housing and the Urban Improvement Scheme) and the Private Sector Participation Scheme(35). The forecast of production in the four years 1983-84 to 1986-87 of 143 800 flats exceeds production in the previous four years by 4 314 flats. These production figures do not include 2 602 Housing Society flats and 17 826 Private Sector Participation Scheme and Middle Income Housing Programme flats expected to come on stream during the same four-year period, thus achieving an average completion rate of 41 000 a year or 164 228 flats in the next four years(36).
70 As regards the Home Ownership Scheme, 30 100 flats out of a total of about 42 100 flats in the first five phases will have been completed by the end of 1983-84. Work will be in hand on the balance and on a further 16 800 flats in Phases VI and VII.
71 The value of land is excluded from the calculation of the selling price of flats produced under the Home Ownership and Private Sector Participation Schemes and the Middle Income Housing Programme to keep them affordable by the target groups. However, the decline in property prices in recent months has cast doubts on the continuing need for a Middle Income Housing Programme as presently constituted, and the Government is reviewing the situation.
Revenue Estimates
72 The Revenue Estimates as printed anticipate total collections of $29.3 billion, comprising $25.7 billion in recurrent revenue and $3.6 billion in capital revenue.
73 Recurrent revenue at $25.7 billion is only $507 million higher than the revised estimate for 1982-83. I expect earnings and profits tax to yield $12
(35) See Appendix B, which gives details of expenditure in the main programme areas. (36) Production of Flats
H.A. Rental H.O.S.
P.S.P.S.
(incl. M.I.H.)
H.S. (rental
and U.I.S.) Total
1979-80 29 759 2 439 ― 947 33 145 1980-81 26 769 8 674 1 506 787 37 736 1981-82 31 346 4 399 ― 3 735 39 480 1982-83 27 900 8 200 760 447 37 307
1983-84 30 200 6 400 2 240 123 38 963 1984-85 29 600 6 500 1 086 737 37 923 1985-86 28 000 8 100 7 500 662 44 262 1986-87 30 000 5 000 7 000 1 080 43 080
147 668 164 228
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 535
billion, the same amount as the revised estimate for 1982-83(37). I am expecting small increases from indirect taxes, mainly from the yield from the General Rate, from duties and from motor vehicle taxes. At $5.6 billion, indirect taxes are estimated to be $306 million higher than the revised estimate. For all other recurrent revenue I am anticipating a yield of $8.1 billion, or only $236 million higher than the revised estimate. I expect revenue from our properties and investments to be $437 million lower than the revised estimate because of the decrease in the General Revenue Balance, but I expect all other components to yield $673 million more than the revised estimate, of which $304 million will come from fees and charges.
74 As regards fees and charges for the services provided by the Government, and in particular the public utility-type undertakings which it is intended should operate on a quasi commercial basis, it remains important to observe the non-subsidy principle, unless a positive policy decision is taken to subsidize. We have an on-going exercise to keep fees and charges up to date, which will continue during 1983-84. Where justified by rising costs, proposals for increases in fees and charges will be made during the year―the estimate of total recurrent revenue does not anticipate these increases.
75 The estimate of capital revenue at $3.6 billion reflects the current depressed state of the property market. For land transactions in 1983-84 I estimate revenue of $3 billion, compared with the revised estimate for 1982-83 of $4.6 billion and the actual revenue for 1981-82 of $9.7 billion.
76 The yield from land transactions has always been difficult to estimate with any degree of accuracy. In the present state of the property market it requires a crystal ball. My estimate of $3 billion is based upon an assessment of the prices likely to be realized from the individual lots making up the land sales programme for 1983-84(38). That is to say, a view has been taken of the premia likely to be realized. This view is of necessity highly subjective, and I bear in
(37) Actual 1981-82
($ mn)
Revised 1982-83 ($ mn)
Estimates 1983-84 ($ mn)
Profits tax 6,896 8,000 7,700 Salaries tax 1,688 2,225 2,535 Personal assessment 99 135 150 Interest tax 1,118 725 620 Property tax 766 935 980 Total 10,567 12,020 11,985
Profits tax:
Corporations 5,971 7,100 6,800 Other Businesses 925 900 900
(38) The estimate also includes instalments of premia payable to the Treasury in respect of commercial/residential and industrial lots sold in previous years. For sales in the New Territories, a provisional assessment has been made of the number of lots to be sold by auction and by Letters A/B tender, the revenue from the latter being particularly difficult to assess as it depends on the age of the Letters A/B offered by successful tenderers, and indeed on the future of the Letters A/B scheme.
536 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
mind that I was wrong last year. The 1983-84 land sales programme(39) comprises 96.7 hectares of land, on which the revenue from premia is estimated at $1.7 billion. The programme includes fourteen relatively large sites, the revenue from which is likely to be more than $550 million, provided that these sites are sold as scheduled and that the view taken of the premia likely to be realized turns out to be correct. In brief the margins of error are great.
77 The land sales programme does not, however, include five well-known, large and valuable sites. Some believe that the market may not be able to absorb them at acceptable prices in one year. It will, however, be a matter of judgment when each might best be offered for sale, remembering that our overall policy is to secure a fair market price. I am personally anxious to put them up for auction or tender as soon as it is sensible, for two reasons. Firstly it will demonstrate that Government does not have a high land price policy, although we regard land as a community birthright. Secondly those who wish to buy land now should be given every encouragement.
78 It remains important, however, that sensible starting prices are maintained in public auctions and that tenders at prices significantly lower than the run of the market as we see it should not be accepted. Land prices seem now to be stabilizing and will improve as confidence returns to the market. But it is a fact that poor planning by speculators has led to considerable oversupply of all types of property.
79 I expect revenue of $1 billion from private treaty grants and $270 million from modifications and re-grants. Much depends, however, on premia anticipated from sites to be granted to the Mass Transit Railway Corporation for joint development.
Revenue Proposals
80 I turn now to my revenue proposals. The difference between the estimates of revenue and expenditure on General Revenue Account for 1983-84, as printed, is $6.2 billion.
81 Failing new Government measures a large deficit thus confronts us. There can also be no certainty about when our economy will recover and thus bolster Government revenue. It is essential, therefore, to maintain a conservative approach. Some believe that demand and employment should be encouraged in
(39) Land sales being defined so as to include land disposed of by tender in exchange for Letters A/B, the lots themselves being either drawn from newly formed and serviced land or from areas released from other uses (e.g. open storage let on short-term tenancies). The programme envisages―
Industrial1
982-83 1983-84 (Hectares)
Non-industrial 1982-82 1983-84 (Hectares)
Total
1982-83 1983-84 (Hectares)
Urban areas 9.8 6.1 30.9 43.4 40.7 49.5 New Territories 8.6 13.2 71.0 34.0 79.6 47.2 18.4 19.3 101.9 77.4 120.3 96.7
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 537
recessions by counter cyclical increases in public sector expenditure. Others hold the more austere view that it is essential to ensure that expenditure more closely reflects revenue and to control growth of the money supply so as to avoid the dangers of inflation. All know that there is no consensus anywhere in the world. For my part I tend strongly towards the latter approach, though control of the growth of the money supply presents formidable difficulties in Hong Kong.
82 It seems certain that we shall face deficits for two years, i.e. 1982-83 and 1983-84. I cannot now forecast beyond this time span. If we look like continuing thereafter with deficits of a size which prudent use of the reserves plus a further slowdown in expenditure and increases in taxation cannot reasonably eliminate, I may later consider a moderate degree of Government borrowing. But it would have to be accompanied by a considerable excess of recurrent revenue over recurrent expenditure, and be justifiable as earmarked for profitable capital investment―and not just a general wet loosening of purse strings. In no circumstances can such a policy however creative be other than rigorously controlled.
83 It may be opportune this time next year to consider such an approach to prudent borrowing. I do not consider that it is yet necessary, for we can at this juncture balance two bad years with the fruits of the past good years. It is still not appreciated how recent has been the growth of Government capital revenue reflecting largely land sales at auction or by tender. Capital revenue from land premia did not exceed $2 billion until as recently as 1978-79. Thereafter there was rapid increase as the Government ensured that a proper share of the unprecedented escalation in land values was transferred to the public purse. Such returns have clearly been of a windfall nature. As a result of just a few unusual years, which seem unlikely to be repeated, our fiscal surpluses or reserves rose to $22 billion and our free reserves to $16 billion. Only a fool would risk running these down too low as a result of soft budgetary policies; but clearly before we need to consider outside borrowing, for which anyway present timing is inappropriate, it is possible and indeed sensible to make use of part of our windfall savings for two years anyway.
84 I emphasize the word part, for caution is essential. This approach also presupposes that we shall still resort to intelligent cost cutting and revenue raising, and that we always bear in mind that we cannot continue drawing down our surpluses. But in the short term only I intend to confront budgetary deficits by a balanced combination of use of fiscal reserves, increased taxation and more tightly restrained public sector expenditure. Clearly if the world economic scene does not improve in 1983 we shall need to restrain further our expenditure in 1984-85, but I do not believe that at present it is possible to foretell what will happen with any accuracy. For 1983-84 I have taken what seems to me a reasonably parsimonious approach to expenditure, while still maintaining existing programmes and admitting some new ones.
85 Given this background a potential deficit of $6.2 billion for 1983-84 is clearly intolerable. If repeated in one subsequent year our free fiscal reserves
538 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
would be gone. It is one thing to borrow when you still have money in the bank. It is another when you do not. Consequently there must be a division of the deficit between increased taxation and use of reserves; and I have decided this year to tap both sources approximately equally. We must be seen to help ourselves.
New Taxation
86 The question arises of how this additional taxation can best be raised. Even if unpopular it must be accepted as fair by the reasonable majority, who can see that there are no easy options. It has been exceptionally difficult to devise a balanced approach which will produce the required yield.
87 As employment and exports depend on the maintenance of investment and reinvestment, it is in my opinion inopportune now to increase the tax on the profitability of businesses. I believe that this view is widely accepted and I do not indeed propose any increase in profits tax.
88 Insofar as salaries tax is concerned, an obvious way substantially to increase the yield is to reduce the allowances, which would also bring into the salaries tax net many of those who now pay nothing. But I am aware of the problems of the lower paid. Further, I believe strongly that the economic success of Hong Kong owes much to low direct taxation; I suspect that a change in this approach, even if necessary, might result in unforeseen effects; and finally I consider that while all benefit from low taxation, the fact that most workers can pocket their wages plus possible overtime without needing to pay any direct tax is one of Hong Kong’s most important spurs to productivity.
89 There is yet another factor. The ratio between direct and indirect taxation moved from 57:43 in 1977-78 to 64:36 in 1981-82 and to 69:31 in 1982-83. The drift indicates(40) that the balance between direct and indirect taxation has shifted against indirect taxation. This arises for clear reasons i.e. higher productivity of direct taxation plus the large surpluses accrued in recent years, which have made raising taxes unnecessary(41). In brief our tax system has become unbalanced, and there is a case on these grounds alone for increasing the level of indirect taxation.
90 This brings with it one other advantage. I believe that there are attractions in systems of taxation based on expenditure rather than income, and it seems to me as a generalization that those who choose to spend on such pursuits as drinking, smoking or owning motor cars can reasonably expect to be taxed more highly than those who do not. These taxes can be avoided. If you do not wish to pay them you do not need to (laughter). Admittedly not all my proposals carry this justification. Some are the creatures of necessity as we cast around for increased revenue without unacceptable side-effects or obvious drawbacks. But
(40) 1982 B.S., note 6 Appendix A.
(41) In the light of our policy of raising taxes normally for fiscal purposes only.
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 539 I propose to raise $3 billion in additional taxation almost entirely from indirect taxes.
91 I have eleven proposals for increasing revenue, which I estimate in 1983-84 will bring the necessary $3 billion. Four of the proposals come into effect today under Revenue Protection Orders which Your Excellency signed this morning, and are detailed in Appendix D to the printed version of my speech. The remaining seven will come into effect on 1 April 1983, or as soon as the necessary legislation has been enacted.
Dutiable Commodities
Liquor
92 My first proposal increases the duty rates on dutiable commodities. The duty rates on liquor were last revised in 1975, and since then the incidence of duty in retail prices has fallen to a point where, in many instances, it is half what it was at the last revision. I propose to restore the incidence by roughly doubling the duty rates, effective from this afternoon.
93 It is for the trade to determine their selling prices, but assuming that the increased duties are passed on to consumers in full, the increase in the retail price of a bottle of brandy may be $30, of whisky about $20, of table wine about $7 and of a can of beer 15 to 20 cents, all depending of course on the brand. The main duty rates should bring in an additional $300 million in 1983-84.
94 The present basis of levying duty on liquor per measure is open to criticism even though simple to enforce. There seems no reason in logic why purchasers of cheaper brands in a class of drinks should pay exactly the same duty per bottle as required for an expensive brand. I will therefore consider submitting new legislation later, which will propose changing the basis of levying duty on alcohol to an ad valorem rather than the present unitary system. It must be understood that at present this represents no commitment― except to a study.
Tobacco
95 The incidence of duty in retail prices for cigarettes has similarly declined since they were last revised in 1978. The price of cigarettes, cigars, alas (laughter) and tobacco in Hong Kong is still very low by world standards, and we clearly now need to raise additional revenue. I therefore propose not only to restore the incidence, but to look for even further revenue by increasing the current duty rates on tobacco by four times, effective from this afternoon.
96 Assuming that these increases are passed on to the consumer in full, the increase in the price of an average packet of 20 cigarettes may be about $1.50 for Hong Kong made brands and $2 to $2.50 for imported brands. I estimate that an additional $900 million in revenue should be obtained in 1983-84 as a result of these increases, even after allowing for reduced demand―no bad thing in itself (laughter).
540 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
Hydrocarbon Oils
97 The Dutiable Commodities Ordinance also provides for duties on hydrocarbon oils. The duty rates were revised only last May for transport policy reasons, whereas the last revision for fiscal reasons was made as long ago as 1976. Since 1976, and ignoring the increases of last May, the incidence of the duty in retail prices has declined. I propose to restore the incidence and then to add back the May increases. This means increasing the duty rate on motor spirit from $1.20 to $2 a litre.
98 The duty rate on diesel oil for road vehicles was not altered last May. To restore the original incidence, I propose to increase the duty rate from 35¢ to $1 a litre. These two increases are again effective from this afternoon.
99 In order to avoid imposing an additional burden on public transport users who tend to be the less well off, the increased duty rate will not apply to diesel oil used by enfranchised public buses. This will be achieved by introducing an arrangement whereby the increase of 65¢ a litre on diesel oil used on enfranchised public buses will be refunded. I estimate the net additional revenue yield in 1983-84 will be about $530 million.
Driving Licences
100 My second proposal increases with immediate effect the fees for provisional driving licences, annual driving licences and driving tests which were last revised as long ago as 1973. Costs have increased by at least three times since then, and I therefore propose that the fee for a provisional driving licence should be increased from $100 to $300 and that for an annual driving licence from $50 to $150. For a driving test I propose to double the fee, from $150 to $300, because failures at the first attempt are fairly common and tripling would fairly be regarded as excessive (laughter). The new fees should yield an additional $90 million in 1983-84.
Vehicle Licences
101 My third proposal increases, again from this afternoon, the licence fees for the annual registration of motor vehicles. These are tax-loaded, and the last revision of the tax-loading was carried out in 1979. But last May the licence fees for private cars and motor cycles were increased for transport policy reasons.
102 I propose that the 1979 fees should be adjusted upwards, ignoring the selective loading introduced last May, to restore the tax value, and that the May loading should then be added back to obtain the new fees. I calculate the 1979 fees need to be increased by about 80% which means, for example, that the licence fee for a small car of up to 1 500 c.c. will be increased from $1,800 to $2,300.
103 No loading was added last May to the fees for goods vehicles, taxis and private light buses. Their fees will thus be increased by roughly 80%.
104 The additional revenue yield from the increased fees for 1983-84 is estimated at $220 million.
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 541
Buoy Fees
105 My fourth proposal increases the fees levied on ships mooring at Government buoys, which were last revised in 1979 when they were set to recover costs and provide tax revenue. The ratio of cost recovery to tax loading was 25:75. To restore this ratio in the light of increased costs since 1979, I propose to increase the fee for a Class A buoy from $700 to $1,500 a day, and for a Class B buoy from $450 to $1,000 a day. These new fees will take effect from 1 April 1983 and should bring in an additional $20 million in 1983-84.
Business Registration Fee
106 My fifth proposal concerns business registration fees. An annual registration fee of $175 is presently payable by all persons carrying on business and by all companies registered under the Companies Ordinance. There are exemptions for small businesses whose monthly turnover does not exceed certain prescribed limits. The present fee of $175 was fixed in April 1979. Having regard to the fact that it is a tax loaded charge, there is clearly a case for an increase simply to take account of increased costs. Additionally, however, I have been influenced by the fact that for a variety of reasons many people who carry on business here make little or no other contribution to the exchequer(42). I believe, therefore, that there is a good case for a substantial percentage increase in business registration fees, or by any standards the charge is modest. Accordingly, I propose to double the rate of the annual business registration fee from its present level of $175 to $350 per annum. The increased fee will be effective from 1 April 1983 and is estimated to produce an additional $60 million a year.
Company Registration Fee
107 My sixth proposal increases the company registration fee charged under the Companies Ordinance. The fee is at present $300. As I am proposing that the business registration fee should be doubled to $350, I also propose that the company registration fee should be doubled to $600. The additional ad valorem charge of $4 for every $1,000 of share capital would also be increased, but only to $6.
108 The new fees will be effective from midnight tonight and should bring in additional revenue of about $90 million.
Hotel Accommodation Tax
109 My seventh proposal concerns the Hotel Accommodation Tax, which was introduced in 1966 and is levied on room charges. The present rate of tax is 4%, and the yield is for all practical purposes earmarked for payment of the majority of the annual subvention to the Hong Kong Tourist Association.
(42) There are those, for example, who pay little because our limited territorial source criterion excludes a substantial part of their profits from charge to tax; there are others who pay little because our generous personal allowances minimize their liability under the personal assessment arrangements. Others are able to reduce their basic liabilities via tax loss companies, and so on.
542 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
110 The hard working Hong Kong Tourist Association receives an annual grant from the Government calculated on the basis of the yield from the tax plus an additional amount made up from General Revenue equivalent to a tax yield of 2%. I am anxious that the tax should cover the total grant. I therefore propose to increase the rate of tax to 5%, thereby reducing the contribution from General Revenue to the equivalent of a tax yield of 1%, and further to eliminate this contribution over four years by a one-quarter percentage point reduction each year. Thus for 1983-84 the Association’s subvention will be equivalent to the tax at 5¾%, the tax itself producing 5% and General Revenue contributing ¾%. The total subvention should still provide the Association with an increase in money terms in 1983-84 in line with the guidelines I adopted for public sector expenditure.
111 The increased rate of tax of 5% will come into effect on 1 April 1983, and is estimated to yield an additional $15 million in 1983-84. I do not believe that this modest increase of say $4 per night will discourage the growing number of tourists who come to Hong Kong.
Betting Duty
112 An obvious source of increased revenue is the betting duty. In the current year, 1982- 83, Hong Kong’s punters are expected to hazard about $13 billion on horse race bets on the Jockey Club tote and on Mark VI lotteries, yielding to the exchequer in betting duty about $1.2 billion. The yield from this source, however, is in my opinion a relatively small contribution in the light of present circumstances(43). My eighth proposal therefore is to increase the betting duty from 1 April. In doing so, however, I have been conscious of the need not to drive punters into the arms of illegal bookmakers, avoidance of which is a major purpose of our policy on betting. My proposals are consequently structured so as to avoid this possibility.
113 The present rates of betting duty are 7½% of the amount of each ‘standard’ bet and 11% of the amount of each so-called ‘exotic’ bet made on the Jockey Club tote(44). The balance of the tote pool after deduction of betting duty is allocated as to 90% to punters by way of prize money and the remainder to the Jockey Club as commission. The proceeds of Mark VI lotteries are divided as to 25% duty, 15% to the Lotteries Fund and to the Jockey Club, of which a minimum of 5.75% goes to the Fund, and the balance of 60% to prize winners.
114 In setting new rates of duty, therefore, I have been at pains to ensure that the pool available for prizes is not diminished unduly. Accordingly, I propose―
firstly that the duty on standard bets be increased from 7½% to 8½%, but with a corresponding reduction in the level of commission to the Jockey Club―that is to say no reduction in the size of the prize money pool.
(43) Even though the Jockey Club itself makes considerable grants to community projects. (44) “Standard” bets are win, place, double and quinella bets: “exotic” bets are all other forms of bets.
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 543
secondly that the duty on exotic bets be increased from 11% to 13½%, with a reduction of 1% in the level of commission to the Jockey Club and a reduction of 1½% from the punters’ share. This will mean, in effect, that the pool of prize money will be diminished to a minor extent, from 80.1% of total bets placed to 78.6%(45).
thirdly that the duty on lotteries be increased by 2% from 25% to 27%, with a corresponding reduction of 2% in the level of the Jockey Club and Lotteries Fund share. The pool available to prize winners thus remains unchanged.
115 These proposed increases in betting duty are estimated to produce an additional $220 million in 1983-84, of which some $26 million will come from punters on exotic bets, $6.25 million from the reduced contribution to the Lotteries Fund and the considerable remainder by way of reducing the Jockey Club’s share.
Bank Licences
116 My ninth proposal is to increase the licence fees for banks. These were last revised in 1975 when they were given a royalty loading of four times the amount strictly required for cost recovery. The cost of supervision has doubled since then. However, I propose to increase the licence fees by 50% only. This means the annual fee for a licence will increase from $200,000 to $300,000, and for each local branch from $10,000 to $15,000.
117 There are equally compelling arguments for revising the fees for deposit-taking companies, but for obvious reasons I do not propose to do so at the present time. Increases will, however, be necessary sooner or later.
118 The new bank licence fees will take effect from 1 April 1983, and I estimate the additional revenue for 1983-84 at about $25 million.
Rates
119 My tenth proposal concerns the controversial subject of rates. The maintenance of a fair base on which to assess rates (and also property tax) has long presented difficult problems. Members will all understand that the base itself does not set the return, which depends on the rate of tax or poundage. Thus the course of the Inland Revenue (Amendment) Bill 1983(46) through this Council does not reflect any intention on my part to increase the yield from property tax, but only to make sure that it is assessed on a more obviously fair actual rental basis.
120 Similarly the Government’s announced intention to conduct an exercise to determine new rateable values for 1984-85 is not designed to increase the
(45) Because of the extremely high odds paid out on exotic bets by the Jockey Club there is little chance of a swing to illegal bookmakers.
(46) The Inland Revenue (Amendment) Bill 1983 will change the basis for property tax from an assessed valuation basis to an actual rental basis.
544 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
return from rates, but to ensure that the burden of the charge is equitably spread between different classes of ratepayers.
121 The existing General Rate percentages are 3½% in the urban areas and 11% in the New Territories. The Urban Council Rate in the urban areas is 8%. The present rateable values, to which these percentages are applied to determine the charge in rates, were established as long ago as 1976 and are now hopelessly out of date. As I have said, a revaluation exercise is being carried out, and new values will apply from 1 April 1984.
122 When these new rateable values have been determined the poundage will have to be adjusted. The estimate for 1983-84 of $777 million is less in money terms than it has been in each year since 1978-79.
123 I propose, therefore, with effect from 1 April 1983 to increase the General Rate percentage for the urban areas from 3½% to 5½%, making a total including the Urban Council Rate of 13½%. I propose to increase the General Rate for the New Territories from 11% to 13½% to bring it into line with the total for the urban areas.
124 For the urban areas this will mean a 17.4% increase in the rates payable by a ratepayer. The increase on average for a typical small tenement will be about $10 a month, and for a large flat about $100 a month. Even so, and however necessary I appreciate that this increase will affect many people at a difficult time.
125 I would nevertheless remind Members that in public housing estates the initial burden will be borne by the Housing Authority. I would also ask Members to note that rates payments are deemed to be part of rent for public assistance.
126 In certain areas of the New Territories rating is being phased in over a five year period. For these areas the percentage for 1983-84 would have been 9%. My proposal will bring this to 11%.
127 I estimate that the additional yield from the General Rate for 1983-84 will be about $300 million.
Airport Tax
128 I come to my eleventh and last proposal. A passenger services charge is levied on airlines at the rate of $20 for each adult passenger. I propose to abolish this charge, which the airlines in any case pass on to their passengers, and to introduce in its place a specific tax on departing passengers. I propose to set the tax initially at $100 for each passenger― children will continue to enjoy a concessionary rate.
129 New legislation will be required, and administrative arrangements with the airlines will have to be made for the collection of the tax. My intention is to introduce the necessary bill to this Council as soon as possible, so that the new tax will take effect as early as possible in the next financial year. Assuming ten
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 545
months’ yield from the tax, additional revenue for 1983-84 should be about $230 million.
130 Although the main thrust of my revenue proposals this year must necessarily be to increase taxes, they include two concessions and one reform.
Business Taxation
131 Last year I introduced measures which gave improved capital allowances in respect of expenditure incurred on the provision of plant and machinery and on the acquisition of industrial buildings(47). It has been represented that a further appropriate incentive could be provided by permitting deductions for profits tax purposes in respect of royalty payments for patents acquired with a view to upgrading existing technology(48). I agree.
132 My first tax concession is consequently that once and for all payments for the acquisition of patent rights for use in the production of profits chargeable to profits tax should become deductible expenditures. This treatment is not inconsistent with that already accorded to expenditure on scientific research, with which the acquisition of patents might be said to be similar.
133 A deduction will therefore be granted in the year in which the expenditure on acquisition is incurred. The new deduction will apply to both final profits tax assessments for 1982-83 and provisional profits tax assessments for 1983-84. The cost to the revenue of this proposal will be about $8 million in 1983-84 and $5 million in a ‘full’ year.
Personal Taxation
134 Dependent Parents. Last year, when introducing a proposal to increase the dependent parent allowance from $7,000 to $8,000 I undertook to give further thought to the important social question of persuading tax paying children to look after their ageing parents(49). I now propose to introduce a new additional dependent parent allowance of $2,000 in respect of each dependent parent actually living with the taxpayer throughout the year. Floating grannies will not be accepted (laughter). Thus the dependent parent allowances will total $10,000 for each qualified dependant.
135 The new additional allowance will apply to both final salaries tax assessments (and to personal assessments also) for 1982-83 and provisional salaries tax for 1983-84. The cost to the revenue in 1983-84, after allowing for
(47) 1982 B.S. paras. 81-83.
(48) In regard to patents generally, the present position under the law is that royalty payments for the use in Hong Kong of patent designs are deductible if, firstly, the patent is used in the course of producing profits chargeable to profits tax and, secondly, the royalty payments are calculated having regard to the extent of use of the patent; for example by reference to the quantum of production or sales of the product being manufactured under patent. Where, however, patent rights are acquired by way of a once and for all lump sum payment, such a payment is, on general principles, of a capital nature and nondeductible. Furthermore, because of the capital nature of these payments they, at present, enjoy no relief whatsoever; they are not deductible as expenses for profits tax purposes and they do not qualify for depreciation allowances under the capital allowances provisions.
(49) 1982 B.S., paragraph 94.
546 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
the two instalment system for the payment of provisional salaries tax, will be $16 million and $9.5 million in a full year at present levels of chargeable income. In estimate that some 20 000 taxpayers or approximately 70% of those who currently claim dependent parent allowances will benefit from the new additional allowance.
Separate Taxation for Married Women
136 I turn now to a reform measure involving the contentious question of separate taxation for married women. Last year I felt unable to recommend any fiscal changes relating to married women. I did, however undertake to look into the matter further(50). Since that time the subject of separate taxation has received considerable airing in the media; and I have received a number of representations. Some have been persuasive.
137 The question of how best to charge to tax income accruing to the family unit―and in particular whether the income of married women should receive special treatment―has been widely debated. Various methods have been adopted in other tax administrations, but none has received universal approval. A number of options and indeed a wide variety of permutations of those options are to be found elsewhere. All have their merits in the context of their own particular environments. None is necessarily right for Hong Kong(51).
(50) 1982 B.S., paras. 105-109.
(51) There are four basic routes that we might in theory take―
(a) Firstly, we might mandatorily adopt a system of separate taxation; that is to say a system which abandons the concept of the family as a unit of taxation and proceeds on the basis that each party to the marriage is to be treated as a single person, chargeable and accountable for the payment of his or her taxes without reference to marital status. Such a system would however―
(i) lead to inequity as between similar families with similar total incomes (unless, of course, the tax structure was radically changed to remove the tax advantages of separate taxation);
(ii) call in question the validity of continuing to grant child allowances and dependent parent allowances to persons whom the system would for all practical purposes otherwise regard as individuals rather than as members of a family unit;
(iii) give rise to an increased liability to tax for very many families―notably where the taxable income of one of the parties to a marriage is nil, or insufficient to absorb his or her personal allowances.
(b) Secondly, we might adopt a system of separate taxation by voluntary election. However, that would be to give some taxpayers the best of all worlds. The system is not unknown elsewhere, but is generally to be found in territories where marginal tax rates are very high indeed, bordering on the confiscatory. Furthermore, most of the inequities inherent in a mandatory system would also be present in an elective system; the more so, in the sense that only those who would gain a tax saving advantage would elect.
(c) Thirdly, we might adopt a system of separate assessment, that is to say a system whereby either one of the parties to a marriage, or each separately, or the parties jointly made returns of taxable income, from which is computed liability to tax based on their aggregate income. Thereafter, payment of tax is effected either in one sum on the joint incomes or, usually by election, by each party separately in the proportion that their respective income bears to their aggregate total income.
(d) Fourthly, we might stay with our present system, which for the purposes of salaries tax and personal assessment deems the income of a wife to be that of her husband; and for the purposes of the profits tax deems the wife to be one and the same person as her husband. These deeming provisions in the Inland Revenue Ordinance seem archaic and offensive to women, implying that they are second-class citizens, subservient to their spouses.
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 547
138 I cannot regard separate taxation as suitable for this community. Whether mandatory or by way of election, it would be expensive. Updated estimates suggest that in the year of implementation the cost could be as much as $285 million in lost salaries tax and personal tax and perhaps $180 million in a full year. On grounds of cost alone, therefore, separate taxation is simply not possible. The burden would have to be transferred to others. Furthermore, though I am sympathetic to the women’s cause, my sympathy must not be allowed to overshadow wider considerations. The adoption of a system of completely separate taxation for husbands and wives would represent a radical departure from our traditional concept of the family unit as the fiscal unit of charge. Hong Kong remains essentially a Chinese community where filial piety and family unity are an integral part of our existence. It would be unfortunate indeed if, in our endeavours to remove an alleged affront to one arguably small sector of our society, we succeeded in giving greater offence to the community at large.
139 Nonetheless I do believe that we can and should meet fair criticisms. This can be achieved by, on the one hand, removing the offensive deeming provisions in the Ordinance, and on the other by going some way down the alternative route of separate elected assessment.
140 Accordingly, I propose that later this year amending legislation should be introduced, which will―
firstly replace those provisions which deem the income of a wife to be that ofher husband for the purposes of salaries tax and personal assessment, with new provisions which will require the aggregation of their incomes for the purposes of calculating total liability to tax;
secondly remove the provision which deems a wife to be one and the sameperson as her husband for the purposes of the profits tax (this will in fact do no more than regularize departmental practice, since profits tax returns submitted by wives who are proprietors of businesses are already accepted); and
thirdly continue to require the husband to render returns and to be primarilyresponsible for payment of salaries tax and personal tax, but provide that, following an election jointly made, husband and wife may render joint returns, each certifying the accuracy of their respective statements of income and the claims for allowances and expenses and each being responsible for the payment of his or her share of the total tax bill; each share being calculated by reference to their respective shares of the total income.
141 It will be apparent that these measures, if enacted, will meet the complaints that the present legislation is insulting to women in that it renders them second class citizens. This not surprisingly creates discord (laughter). They will therefore be accorded the legal personality which they seek. I am told that this has been a main preoccupation in seeking amendments to the Inland
548 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
Revenue Ordinance. I hope that this is the case, because it will also be apparent that these proposals will not give rate to any tax savings in individual cases; and will thus happily involve no loss to revenue (laughter).
142 Nevertheless I believe that the changes proposed are not merely cosmetic. It will take time to prepare the necessary amending legislation and to devise new forms, procedures and computer programmes to deal with those who decide to make the election. I propose accordingly that the amending legislation shall take effect from 1 April 1984. If that seems some way off to those who have been pressing for change, I would ask them to exercise further patience in the knowledge that I have today conceded the principle. And I must sound one caveat. One of my trusted Chinese women advisers has warned me that the proposal to permit an election for joint returns and separate payment may not find favour in Chinese families. I therefore intend to observe the course of the subsequent debate, and only if there is a clear consensus in favour with no major objections will I introduce amending legislation with regard to election.
Marginal Tax Rates
143 Before leaving the subject of personal taxation I should like to mention the structure of the tax bands, which are applied to salaries and personal assessment. This issue was raised by Dr. Rayson HUANG during last year’s budget debate(52).
144 It has been suggested that because the width of the bands themselves has not been changed for some considerable time, middle and lower income taxpayers are being pushed into higher tax brackets through the effects of inflation. Thus they suffer a reduction in after-tax take home pay and a loss of real purchasing power. I am satisfied, however, that this has not generally been the case. I do not want to prolong this speech on technical taxation matters. A full explanation is thus annexed to the printed version(53).
Interest Tax
145 I have been carefully monitoring the effects of the interest tax reliefs introduced in the last budget and about which Dr. Henry HU has spoken. The exemption of foreign currency deposits from interest tax has clearly been successful in enhancing Hong Kong’s position as an international financial centre, but not without side effects. The value of Hong Kong dollar
(52) These tax bands, which are contained in the Second Schedule to the Inland Revenue Ordinance, are set at $10,000 each and tax is charged on the first $40,000 of net chargeable income at rates of 5%, 10%, 15% and 20% for each $10,000 slice; thereafter, any balance of net chargeable income bears tax at the maximum rate of 25%. There is, however, an overriding provision that in no case is tax to be charged at more than the standard rate of
15% on total assessable income (less deductible outgoings and expenses, but without benefit of personal allowances). The Schedule was last amended with effect from the year of assessment 1978-79 when the previous maximum rate of 30% was removed.
(53) Appendix C.
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 549
denominated time, call and notice deposits with banks and dtc.’s has declined from about $73 billion at the end of February 1982 to $59 billion at the end of December 1982, but savings deposits, which are not subject to tax, have increased from $48.3 billion to $61.9 billion. Over the same period total Hong Kong dollar deposits increased marginally from $134.4 billion to $135.4 billion. These figures can be read as indicating that the retention of an interest tax charge, albeit lower than before, has restrained and growth of Hong Kong dollar deposits. But I am not yet persuaded that the benefits which would arise from a total removal of this tax would offset the loss of revenue that would be involved. The actual figure is $725 million in 1982-83, which may surprise you. For 1983-84 it is estimated that the abolition of this tax would result in a loss of revenue of about $620 million. This is clearly not a sum which can be foregone in present budgetary circumstances. I do not therefore intend to introduce any further changes for the time being.
Outcome
146 The net additional revenue which these proposals will bring in for 1983-84 is therefore about $3 billion. My estimate of total revenue for the General Revenue Account thus becomes $32.3 billion, and the deficit for the year is estimated at $3.2 billion(54).
147 As far as the balance of the fiscal system is concerned, the ratio of direct to indirect taxation will be 60:40, a significant improvement on the ratio of 69:31 in 1982-83(55).
148 As far as the budgetary guidelines are concerned, the results are satisfactory as the increased recurrent revenue will cover 78% of total
(54) $ mn $ mn Revenue:
Recurrent 28,693
Capital 3,577 32,270
Expenditure:
Recurrent 23,808
Capital 11,667 35,475
Surplus on recurrent account ― 4,885 Deficit on capital account ― ―8,090 Overall surplus ― ―3,205
(55) Ratio between direct and indirect taxes―60:40 Ratio between direct and indirect taxes taken together and all other recurrent revenue―70:30. (See Appendix A: these ratios are calculated on figures adjusted for analytical reasons; the differences are explained in the Statistical Tables).
550 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
expenditure, and the surplus on recurrent account will cover 38% of capital expenditure(56).
149 I said earlier that total public sector expenditure on Consolidated Account in 1983-84 is estimated at $42.5 billion. This is an increase in money terms of $4.4 billion, or 11.7%, over the revised estimate for 1982-83. In real terms, it represents an increase of about 3%, which I trust will be less than the growth rate of G.D.P.
150 Consequently the relative size of the public sector will remain just over 24% of G.D.P.
151 While we clearly must not relax in our efforts to ensure that the growth rate of public expenditure has due regard to the growth rate of the economy, and while we must not allow ourselves to be complacent regarding the size of the deficits for this year and next year, it is of interest to note that the estimated deficit on Consolidated Account next financial year is only 2.6% of the G.D.P.
The Economy in 1983
152 I turn now to my forecast of the economy for 1983. Details can be read in the ‘1983 Economic Prospects’ tabled today, which complements the ‘1982 Economic Background’. I propose to emphasize only a few important features.
153 I start by underlining again the difficulties of forecasting the economy of Hong Kong(57) given its small and exposed nature. There are current economic and political uncertainties which make 1983 an even more difficult year to forecast than usual.
154 In 1982 the Hong Kong economy generally adjusted well to the world recession. The rate of inflation slowed down, land and property prices fell―though arguably too far and too fast―and the unemployment rate rose only moderately. With a relatively deflated internal cost/price structure and some spare productive capacity(58), the economy is well placed to benefit from the
(56) Guideline Ratio 1983-84 Recurrent revenue
Total expenditure At least 77% 78% Recurrent expenditure
Recurrent revenue No more than 85% 83% Surplus on recurrent account
Capital expenditure At least 33% 38% Recurrent expenditure
Total expenditure No more than 65% 65% Capital revenue
Capital expenditure At least 20% 28%
(See Appendix A: these ratios are calculated on figures derived by combining the General Revenue Account with the Capital Works Reserve Fund and adjusted for analytical reasons; the differences are explained in the Statistical Tables).
(57) Paragraph 2.
(58) Paragraph 25.
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 551
revival in export demand as an economic recovery in Hong Kong’s main markets gets underway. There may however be a further rise in unemployment and underemployment before recovery sets in.
155 As was the case for 1982, views about economic prospects in 1983 for Hong Kong’s main export markets have been kaleidoscopic. There is as yet no consensus on the timing and the magnitude of the long-awaited recovery of the United States economy. Nevertheless a mild but growing recovery is generally expected to begin in 1983, with most of the growth occurring in the second half. For the year as a whole, I consider that the growth rate is likely to be 2.5%, although the poor last fourth quarter makes such predictions even more hazardous than usual. The economies of the United Kingdom and Germany are also expected to improve modestly. Further the O.E.C.D. expects that overall world trade of manufactured products will grow by about 2% in real terms in 1983 compared with a decline of 0.5% in 1982(59). These developments, if indeed they occur, will lead to a recovery in the growth rate of Hong Kong’s domestic exports.
156 But there are still potential bear traps around. For example, world economic recovery is not yet certain and the unprecedentedly high unemployment levels in Hong Kong’s main markets may lead them to adopt more protectionist policies, which could adversely affect Hong Kong’s ability to satisfy their demand for imports. Nor can allowance be made for possible disasters.
157 As regards the timing of the recovery in the demand for Hong Kong’s exports, because orders-on-hand and retained imports of raw materials and semi-manufactures have not yet shown clear signs of picking up, most seems likely to occur in the second half of the year.
158 Against this background, I expect the demand for Hong Kong’s domestic exports and re-exports to grow by 5% and 12% respectively in 1983, giving a forecast of 7% for total exports, all figures in real terms. Net exports of services I expect to grow at 2%. Commensurate with the gradual recovery in the growth rate of exports, I forecast private consumption expenditure to grow by 3% as a lagged reaction. I also forecast that gross domestic fixed capital formation and Government consumption expenditure will both grow by about 6%. These growth rates in the components of final demand imply a forecast growth rate of imports of goods of 7%.
159 Combining all these forecasts gives a growth rate of G.D.P. in 1983 of about 4% in real terms. This represents my best estimate for our economy on the basis of the evidence presently available. It may be regarded as disappointing; but my response is that should the world economy, and particularly the U.S. economy, pick up faster than I have assumed, 4% could well turn out to be conservative. The right time for optimism, however, is not now but at the mid-year review.
(59) 1983 E.P. 3.16.
552 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
160 Assuming that my forecasts are correct, we will have shifted back to export-led growth(60). Moreover, the growth rate of imports will be in line with the growth rate of total exports, so the visible trade gap will be much the same as in 1982. More importantly, because total final demand excluding re-exports will grow at the same rate as G.D.P., this should not create any pressure on the internal cost/price structure, particularly as there exists at present a margin of spare capacity. The public sector will command a slightly increased share of the economy’s resources (in national accounts terms), but the extent of the increase will be less than in 1982. The growth rate of overall investment (including building and construction as well as plant and machinery) will start to pick up again.
161 In terms of prices, the gradual recovery forecast for the world economy, the probable further decline in the price of oil and the relatively slow growth rate of the Hong Kong economy should combine to bring inflation down further in 1983. I expect the rate of increase of the consumer price index to fall from over 10% in 1982 to around 9% in 1983, even after allowing for my proposed increases in indirect taxation(61), and the G.D.P. deflator to increase by about 8%, after increasing by 12% in 1982.
162 Although a forecast growth rate of 4% in real terms for the G.D.P. is low by historical experience, it certainly represents an improvement over the growth rate achieved in 1982. With a forecast growth rate of 2% in the population, it implies a growth rate of per capita G.D.P. of just over 1% in real terms and 10% in money terms. Thus, per capita G.D.P. at current prices should be about $33,000.
163 The financial and related services sector provided an important source of economic growth in 1982. I expect this to continue in 1983. It is therefore necessary for the Government to ensure that the administrative framework within which this sector operates keeps pace with the developments in the sector itself.
Certificates of Deposit
164 One of the recommendations of the Advisory Committee on Diversification in 1979 concerned the development of the market for Hong Kong dollar certificates of deposit, it being implied that I might at some stage use my authority under the Banking Ordinance and the Deposit-taking Companies Ordinance to add these instruments to the list of specified liquid assets. The Government has now carried out a thorough review of this question. During the course of the review in which locally issued foreign currency C.D.s were also considered, many banks and dtc.’s involved in the C.D. market were consulted. I do not intend today to deal at length with the details of this subject, but I should like to mention just three points.
(60) 1983 E.P. 4.3.
(61) The proposed increases in indirect taxation can be expected to increase the various measures of consumer prices by about 1%.
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 553
165 Firstly, the value of local C.D.s in issue has been growing significantly since the Advisory Committee on Diversification reported. The secondary market has also been increasingly active, but it still lacks the maturity of its equivalent in major C.D. centres. Secondly, the Government welcomes the development of both the primary and the secondary markets, believing that C.D.s are a useful form of term funding for the issuers and that the development of this market is generally beneficial to Hong Kong’s financial sector. Thirdly, however, the paramount consideration when deciding whether to extend the list of specified liquid assets must be the prudential one. The events of recent months have underlined the importance of liquidity within the financial sector. They have also highlighted the need, if credibility and confidence in our regulation of this sector is to be sustained, to ensure that liquidity status be conferred only on assets of the highest liquidity quality.
166 Having considered the matter carefully, I have decided commencing on 1 April to make a very limited specification of local C.D.s as liquid assets. This move recognizes the growing maturity of the market without, I believe, threatening any significant diminution in the overall quality of the liquidity held by banks and dtc.’s. I do not, however, propose to give C.D.s super liquidity status(62). I intend to specify as liquid assets negotiable certificates of deposit issued in Hong Kong by licensed banks and licensed (but not registered) dtc.’s, denominated in Hong Kong dollars or in a foreign currency which is freely convertible into Hong Kong dollars, being within three years of final maturity, and being marketable in a manner satisfactory to the Commissioner of Banking and the Commissioner of Deposit-taking Companies. I also propose to provide that no individual bank or dtc. may count such assets within its statutory liquidity requirement to an extent greater than 2% of its deposit liabilities as defined for the calculation of the statutory ratio. The precise specification will shortly be gazetted.
167 I acknowledge that this decision will allow net liquidity to be created within the monetary sector, which is not possible at present. I am prepared to accept this on the moderate scale envisaged, but, by stating that the Commissioner has to be satisfied as to the marketability of the paper, I intend to ensure that no C.D.s deliberately issued for the purpose of creating statutory liquidity are successful in so doing. The Commissioner will usually be satisfied if an issue has, in the generally accepted manner, been marketed by a third party. In other circumstances he will require convincing as to the motive for the issue.
Summing Up
168 Sir, I will now briefly sum up what I have said this afternoon in language for all to understand. Hong Kong has faced last year and continues to face economic and financial problems of which most could not have been avoided and some possibly could. Nevertheless the Government will carry on calmly and
(62) They will, therefore, only be specified under section 18(6) (ec) and not under section 18(6) (db) of the Banking Ordinance. There will be associated implications for dtc.’s under section 24A(7) (ha) of the D.T.C. Ordinance.
554 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983
steadily with its long-term policies. These are designed simply to improve the standards of life of Hong Kong; and I emphasize that standards do not reflect materialistic values only. While dependent on the disciplines dictated by free market forces we will remain always sympathetic to the reasonable requirements of the disadvantaged and the poor. The Government cannot change the laws of economics, and it is prudent in hard times to tighten our belts. We can do so and still continue on our course because we have ensured that a fair part of the windfall revenues arising from the extraordinary escalation of real estate prices in the past five years has been saved up in public funds. The community thus has in hand fiscal reserves which are available for prudent use for a time to cover budget deficits. Such use of reserves must be counter balanced by additional indirect taxation designed to minimize the impact on the poor. Soon the economies of our trading partners should improve. So then will that of Hong Kong, and we shall return to more conservative budgetting. Nevertheless I do not see any renewed prospect of huge returns from land sales, though land prices will eventually rise when the present situation of gross oversupply in the property market eases. The scenario has in fact completely changed, and so must the budgetary pattern. Whether this change can be accommodated without resort to Government borrowing is presently an open question, to which I may be able to respond in my budget speech next year. In the meantime deficits for two years can clearly be afforded(63). With this background let us now show the world the mettle of the people of Hong Kong.
169 Sir, I move that the debate on this motion be adjourned.
(63) i.e. 1982-83 and 1983-84.
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 555 STATISTICAL TABLES
Pages
(1) Growth rates of Consolidated Account expenditure and the relative size of the public sector 1972-73 to 1983-84 556
(2) General Revenue Account 1973-74 to 1983-84 (including notes on the adjustments) 558
(3) Consolidated Account expenditure by main functions 1973-74 to 1983-84 562 (4) General Revenue by main sources 1973-74 to 1983-84 564
(5) General Revenue Account expenditure by main components 1973-74 to 1983-84 566
(6) Budgetary guidelines 1973-74 to 1983-84 568 (7) Balance of the fiscal system 1973-74 to 1983-84 570
556 HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 Table (1)
GROWTH RATES OF CONSOLIDATED ACCOUNT EXPENDITURE AND THE RELATIVE SIZE OF THE PUBLIC SECTOR 1972-73 TO 1983-84
(Adjusted for analytical purposes)
1972-73 1973-74 1974-75 1975-76 1976-77 1977-78
Consolidated Account
Expenditure, at
Current Prices ($ mn):
Recurrent 2,718.7 3,547.2 4,647.4 4,934.1 5,786.4 6,993.8 Capital 1,156.1 1,513.8 2,044.9 1,642.3 1,568.7 2,234.4 Total 3,874.8 5,061.0 6,692.3 6,576.4 7,355.1 9,168.2
Gross Domestic Product, at
Current Prices ($ mn) (*) 25,854.0 33,964.0 38,786.0 40,574.0 51,973.0 59,615.0 Relative Size of the
Public Sector (%) 15.0 15.0 17.3 16.2 14.2 15.4
Consolidated Account
Expenditure, at Constant
(1973) Prices ($ mn):
Recurrent 3,053.2 3,547.2 4,024.5 4,155.2 4,569.8 5,071.1 Capital 1,329.3 1,513.8 1,742.0 1,490.6 1,368.1 1,789.6 Total 4,364.5 5,061.0 5,766.5 5,645.8 5,937.9 6,860.7
Growth Rates of
Consolidated Account
Expenditure (%):
In money terms:
Recurrent 25.7 30.5 31.0 6.2 17.3 19.8 Capital 46.6 30.9 35.1 ―19.7 ―4.5 42.4 Total 31.3 30.6 32.2 ―1.7 11.8 24.7 In real terms:
Recurrent 9.9 16.2 13.5 3.2 10.0 11.0 Capital 30.5 13.9 15.1 ―14.4 ―8.2 31.8 Total 14.9 16.0 13.9 ―2.1 5.2 15.5
HONG KONG LEGISLATIVE COUNCIL ―23 February 1983 557
Table (1) Contd.
GROWTH RATES OF CONSOLIDATED ACCOUNT EXPENDITURE AND THE RELATIVE SIZE OF THE PUBLIC SECTOR 1972-73 TO 1983-84
(Adjusted for analytical purposes)
Revised
Estimate
1983-84
Consolidated Account
Expenditure, at
Current Prices ($ mn):
1978-79 1979-80 1980-81 1981-82
Estimate 1982-83
Recurrent 8,183.7 9,969.9 13,404.4 17,969.2 23,167.4 26,669.0 Capital 3,937.9 5,649.2 8,652.0 11,413.8 14,889.7 15,835.1 Total 12,121.6 15,619.1 22,056.4 29,383.0 38,057.1 42,504.1
Gross Domestic Product, at
Current Prices ($ mn) (*) 69,557.0 89,473.0 112,981.0 137,377.0 157,302.0 176,600.0 Relative Size of the
Public Sector (%) 17.4 17.5 19.5 21.4 24.2 24.1
Consolidated Account
Expenditure, at Constant
(1973) Prices ($ mn):
Recurrent 5,532.3 5,930.5 6,575.8 7,575.4 8,483.6 8,946.3 Capital 2,768.3 2,955.2 3,894.9 4,369.2 5,541.3 5,503.4 Total 8,300.6 8,885.7 10,470.7 11,944.6 14,024.9 14,449.7
Growth Rates of
Consolidated Account
Expenditure (%):
In money terms:
Recurrent 18.0 21.8 34.4 34.1 28.9 15.1 Capital 76.2 43.5 53.2 31.9 30.5 6.3 Total 32.2 28.9 41.2 33.2 29.5 11.7 In real terms:
Recurrent 9.1 7.2 10.9 15.2 12.0 5.5 Capital 54.7 6.8 31.8 12.2 26.8 ―0.7 Total 21.0 7.0 17.8 14.1 17.4 3.0
Notes: (*) Calendar year figures. The figure for 1981 is provisional, that for 1982 is preliminary and that for 1983 is a forecast.
23 February 1983 HONG KONG LEGISLATIVE COUNCIL ―
558
Table (2)
GENERAL REVENUE ACCOUNT 1973-74 TO 1983-84
(Adjusted for analytical purposes)
1975-76 1974-75 1973-74
($ mn) ($ mn) ($ mn)
Revenue:
5,843 5,156
4,550Recurrent
412
437 466
Capital
6,255 5,593
5,016Total
Expenditure:
4,450 4,175
3,231Recurrent
1,573 1,796
1,411Capital
6,023 5,971
4,642Total
1,393 981
1,319Surplus on recurrent account
1,161 1,359
945Deficit on capital account
232
378
―
374
Overall surplus/deficit
(Est
23 February 1983 HONG KONG LEGISLATIVE COUNCIL ―
Table (2) Contd.
GENERAL REVENUE ACCOUNT 1973-74 TO 1983-84
(Adjusted for analytical purposes)
1982-83
(Estimates) 1981-82 1980-81 1979-80 1978-79
($ mn) ($ mn) ($ mn) ($ mn) ($ mn)
Revenue:
25,308 24,014 18,951 13,473 10,146
Recurrent
12,518 9,480 11,236 3,323 2,296
Capital
37,826 33,494 30,187 16,796 12,442
Total
Expenditure:
19,466 16,295 11,919 8,865 7,308
Recurrent
16,034 10,500 7,756 4,956 3,648
Capital
35,500 26,795 19,675 13,821 10,956
Total
5,842
7,719 7,032 4,608 2,838
Surplus on recurrent account
3,516
1,020 +3,480 1,633 1,352
Deficit on capital account
2,326
6,699 10,512 2,975 1,486
Overall surplus/deficit
23 February 1983 HONG KONG LEGISLATIVE COUNCIL ―
560
Table (2) Contd.
General Notes on the Adjustments (a)
The Urban Council and Housing Authority were established on 1 April 1973. Between 1 April 1973continued to be responsible for certain expenditure (e.g. personal emoluments), reimbursements froAuthority being credited to General Revenue. These transactions were taken below-the-line with effecfor 1973-74 and 1974-75 have been adjusted to exclude them. Since 1 April 1975, Urban Councilexpenditure have not appeared in the Government’s accounts and so no adjustments are necessary for 1(1)
Adjustments have been made in respect of three types of transactions, namely: (2)
transactions, which could have been dealt with below-the-line, but which, in fact have been passedin accordance with the Government’s accounting principles or for some other reason (e.g. purchaseCorporation); (a)
drawdowns of loans and repayments of principal. These transactions have to be passed throaccordance with the Government’s accounting principles, but they affect the General Revenue Bal(b)
debits and credits in respect of transactions within the same financial year which it was decidedAccount not so much for accounting reasons but in order to define the Government’s total comTransit Railway Corporation paid for by contra-transfers to the Mass Transit Fund and land grantsfor from the Home Ownership Fund using funds transferred from General Revenue). (c)
Detailed Notes on the Adjustments (b)
Recurrent Expendit Capital Revenue Recurrent Revenue
Year
225(U.C. & H.A. －
225(U.C. & H.A.) －
1973-74
282 (U.C. & H.A.－
282(U.C. & H.A.) －
1974-75
264(Loans) －
1975-76
335(M.T.F.)
－
335(L.P., M.T.R.)
－
1976-77 1977-78
488(L.P., H.O.S.) －
27(Loans) －
23 February 1983 HONG KONG LEGISLATIVE COUNCIL ―
Table (2) (b) Detailed Notes on the Adjustments Contd.
Recurrent Expendit Capital Revenue Recurrent Revenue
Year
115(L.P., H.O.S.) －
1978-79
1979-80
80(L.P., H.O.S.) －
1980-81
23(S.C.S.A.) －
437(L.P., M.T.R.) －
1981-82
-18(C. & W.)
-332(L.P., H.O.S.)
-32(S.C.S.A.)
397(L.P., M.T.R.) －
1982-83
82(C. & W.) －
(Estimates)
0(L.P., M.T.R.) －
1982-83
82(C. & W.) －
(Revised Estimates)
1983-84
(Draft Estimates)
Land =
L.P., M.T.R.
Urban Council & Housing Authority =
U.C. & H.A.Legend:
Land =
L.P., H.O.S.
Debt repayment =
D.R.
Jubile =
J.S.C.
Mass Transit Fund =
M.T.F.
Specia =
S.C.S.A.
Home Ownership Fund for land premia =
H.O.F.
Cable and Wireless (Hong Kong Subsidiary) =
C. & W.
23 February 1983 HONG KONG LEGISLATIVE COUNCIL ―
562
Table (3)
CONSOLIDATED ACCOUNT EXPENDITURE BY MAIN FUNCTIONS 1973-74 TO 1983-84
(Adjusted for analytical purposes)
1975-76 1974-751973-74
(%)
($ mn) (%)
($ mn) (%)
($ mn)
13.0 858 13.2 885 13.1660
General Services (A)
Security Services (B)
1.6 105 1.6 106 1.9 97
Defence(1)
0.5
33 0.5
31 0.5
27
Immigration(2)
9.1 596 8.4 564 8.2 416
Law and Order(3)
11.2 734 10.5 701 10.6540
6.5
428 5.9 395 7.3368
Economic Services (C)
Community Services (D)
9.7
640 10.8 717 11.8 595
Transport(1)
Land and Civil (2)
Engineering
7.5
491 10.6 711 9.8 498
Water
(3)
8.4 551 9.2 618 8.6 435
Other(4)
25.6 1,682 30.6 2,046 30.21,528
Social Services (E)
19.2 1,263 17.0 1,136 19.8 1,001
Education(1)
8.6 565 8.3 560 9.0 456
Medical(2)
10.1 666 10.1 674 6.7
338
Housing(3)
5.5
359 4.1 275
3.0 154
Social Welfare(4)
0.3 21
0.3 20 0.3 16
Labour(5)
43.7 2,874 39.8 2,665 38.81,965
6,5766,692 5,061
Total Expenditure
23 February 1983 HONG KONG LEGISLATIVE COUNCIL ―
Table (3) Contd.
CONSOLIDATED ACCOUNT EXPENDITURE BY MAIN FUNCTIONS 1973-74 TO 1983-84
(Adjusted for analytical purposes)
1981-82 1980-81 1979-801978-79
($ mn) (%)
($ mn) (%)
($ mn) (%)
($ mn)
3,274 11.1 2,446 14.0 2,186 12.31,490
General Services (A)
Security Services (B)
1,498 7.2
1,591 4.1
642 4.8 587
Defence(1)
152 0.5
114
0.5
78 0.4 53
Immigration(2)
2,153 7.4
1,620 7.9
1,234 8.1
978
Law and Order(3)
3,803 15.1 3,325 12.5 1,954 13.31,618
1,396 4.4
966 5.2 811 6.1740
Economic Services (C)
Community Services (D)
2,554
Transport (1)
3,183 13.2 2,902 13.8 2,155 14.71,784
Land and Civil (2)
Engineering
1,263 3.2
708 3.0 464 3.3 394
Water
(3)
2,366 8.5
1,883 7.6
1,193 7.5
909
Other(4)
9,366 24.9 5,493 24.4 3,812 25.53,087
Social Services (E)
4,172 15.1 3,339 15.6 2,439 16.1 1,949
Education(1)
2,159 7.5
1,665 7.9
1,230 7.8
948
Medical(2)
3,895 17.5
3,855 15.5
2,423 14.1 1,704
Housing(3)
1,220 4.0
882 4.6 719 4.5
551
Social Welfare(4)
98 0.4 86 0.3 45
0.3 35
Labour(5)
11,544 44.5
9,827 43.9 6,856 42.85,187
29,383 22,057 15,619 12,122
Total Expenditure
23 February 1983 HONG KONG LEGISLATIVE COUNCIL ―
564
Table (4)
GENERAL REVENUE BY MAIN SOURCES 1973-74 TO 1983-84
(Adjusted for analytical purposes)
1974-751973-74
($ mn)($ mn)
Recurrent Account:
DIRECT TAXES
2,1441,680
Earnings and profits tax
INDIRECT TAXES
473442
Duties
408369
General rates
Internal revenue:
9662
Bets and sweeps tax
4
4Entertainment tax
6
6Hotel accommodation tax
303463
Stamp duties
3246
Motor vehicle taxes
47
39Royalties and concessions
1,6431,439
OTHER REVENUE
5,1564,550
Total Recurrent
Capital Account:
DIRECT TAXES
42
50Estate duty
INDIRECT TAXES
―
85 Taxi concessions
OTHER REVENUE
287318
Land Sales
10813
Others
437466
Total Capital
5,5935,016
Total Revenue
23 February 1983 HONG KONG LEGISLATIVE COUNCIL ―
Table (4) Contd.
GENERAL REVENUE BY MAIN SOURCES 1973-74 TO 1983-84
(Adjusted for analytical purposes)
1981-82 1980-81 1979-801978-79
($ mn) ($ mn) ($ mn)($ mn)
Recurrent Account:
DIRECT TAXES
10,567 7,965 5,724 4,115
Earnings and profits tax
INDIRECT TAXES
937 917 883 830
Duties
1,051 986
890 807
General rates
Internal revenue:
998 823 658 509
Bets and sweeps tax
57 45 37 29
Entertainment tax
52 42 33 24
Hotel accommodation tax
2,168 2,052 934
762Stamp duties
484 423 360 259
Motor vehicle taxes
200 131 101 88
Royalties and concessions
7,500 5,567 3,853 2,723
OTHER REVENUE
24,014 18,951 13,473 10,146
Total Recurrent
Capital Account:
DIRECT TAXES
316 251 200 128
Estate duty
INDIRECT TAXES
208 288 266 250
Taxi concessions
OTHER REVENUE
8,908 10,690 2,845 1,893
Land Sales
48 7
12 25
Others
9,480 11,236 3,323 2,296
Total Capital
33,494 30,187 16,796 12,442
Total Revenue
23 February 1983 HONG KONG LEGISLATIVE COUNCIL ―
566
Table (5)
GENERAL REVENUE ACCOUNT EXPENDITURE BY MAIN COMPONENTS 1973-74 TO 1983-84
(Adjusted for analytical purposes)
1975 1974-751973-74
($ ($ mn) ($ mn)
Recurrent Account:
1,
1,674 1,336
Personal Emoluments
190 155
Personnel Related Expenses
1,
1,243 839
Departmental Expenses
Other Charges
Subventions:
627557
Education
159115
Medical
187159
U.P.G.C.
9570
Other
―
―
Additional Commitments
4,
4,175 3,231
Total Recurrent
Capital Account:
153 163
Plant, Equipment and Works
Other Non-Recurrent
Subventions:
5855
Education
1019
Medical
3726
U.P.G.C.
―
―
Other
Transfers to Funds:
1,
1,518 1,148
C.W.R.F./P.W.N.R.
20―
D.L.F.
―
―
H.O.F.
―
―
Other
―
―
Additional Commitments
1,
1,796 1,411
Total Capital
6,
5,971 4,642
Total Expenditure
23 February 1983 HONG KONG LEGISLATIVE COUNCIL ―
Table (5) Contd.
GENERAL REVENUE ACCOUNT EXPENDITURE BY MAIN COMPONENTS 1973-74 TO 1983-84
(Adjusted for analytical purposes)
1981-8 1980-81 1979-801978-79
($ m ($ mn) ($ mn) ($ mn)
Recurrent Account:
6,02 4,671 3,517 2,892
Personal Emoluments
81 591 446 361
Personnel Related Expenses
2,42Departmental Expenses
3,04 3,444 2,547 2,125
Other Charges
Subventions:
2,25 1,872 1,391 1,125
Education
58 447 320273
Medical
72 580 411 348
U.P.G.C.
42 314 233184
Other
―
―
―
Additional Commitments
16,29 11,919 8,865 7,308
Total Recurrent
Capital Account:
54Plant, Equipment and Works
47 1,336 453
357Other Non-Recurrent
Subventions:
12 90
71 36
Education
4
30 2211
Medical
14 237 13565
U.P.G.C.
3
3
1
1Other
Transfers to Funds:
6,93 3,792 3,092 2,274
C.W.R.F./P.W.N.R.*
2,11 2,231 1,000620
D.L.F.
―
―
284 H.O.F.
6
37182―
Other
―
―
―
Additional Commitments
10,50 7,756 4,956 3,648
Total Capital
26,79 19,675 13,821 10,956
Total Expenditure
Up to 1981-82 Public Works Non-Recurrent Expenditure was charged to the G.R.A. From 1982-83 onwards Public Works Non-Recurrent expenditure is onwards therefore show transfers to the C.W.R.F. and not Public Works Non-Recurrent expenditure.*
23 February 1983
1975-76
6,023 =97
5,843
5,843 =76
4,450
1,573 =89
1,393
6,023 =74
4,450
412
1,573 =26
HONG KONG LEGISLATIVE COUNCIL ―
BUDGETARY GUIDELINES 1973-74 TO 1983-84 ($ MILLION AND %)
1974-751973-74
5,971 =86
5,156
4,642 =98
5,156 =81
4,175
4,550 =71
981
1,796 =55 1,411 =93
5,971 =70
4,175
4,642 =70
437
1,796 =24 1,411 =33
Table (6)
(Adjusted for analytical purposes)
4,550Recurrent Revenue
Total Expenditure
3,231Recurrent Expenditure
Recurrent Revenue
Surplus on
1,319Recurrent Account
Capital Expenditure
3,231Recurrent Expenditure
Total Expenditure
466Capital Revenue
Capital Expenditure
568
(1)
(2)
(3)
(4)
(5)
23 February 1983 HONG KONG LEGISLATIVE COUNCIL ―
BUDGETARY GUIDELINES 1973-74 TO 1983-84 ($ MILLION AND %)
1981-82 1980-81 1979-801978-79
26,795 =90 24,014
19,675 =96 18,951
13,821 =97 13,473
10,956 =93 10,146
=68
16,295
=63
11,919
=66
8,865
=72
7,308
24,014 18,951 13,473 10,146
=74
7,719
=91
7,032
=93
4,608
=78
2,838
10,500 7,756 4,956 3,648
=61
16,295
=64
11,919
=64
8,865
=67
7,308
26,795 19,675 13,821 10,956
=90
9,480
=145
11,236
=67
3,323
=63
2,296
10,500 7,756 4,956 3,648
Combining General Revenue Account and Capital Works Reserve Fund expenditure after 1981-82.
Table (6) Contd.
(Adjusted for analytical purposes)
Recurrent Revenue
Total Expenditure
(1)
Recurrent Expenditure
(2)
Recurrent Revenue
Surplus on
Recurrent Account
(3)
Capital Expenditure
Recurrent Expenditure
(4)
Total Expenditure
Capital Revenue
(5)
Capital Expenditure
*
23 February 1983 HONG KONG LEGISLATIVE COUNCIL ―
BALANCE OF THE FISCAL SYSTEM 1973-74 TO 1983-84
1975-76 1974-751973-74
56:44 61:3954:46
68:32 68:3268:32
1981-82 1980-81 1979-801978-79
64:36 60:40 60:4055:45
69:31 71:29 71:2973:27
570
Table (7)
Direct taxes
Indirect taxes
Direct and indirect taxes
All other recurrent revenue
Direct taxes
Indirect taxes
Direct and indirect taxes
All other recurrent revenue
HONG KONG LEGISLATIVE COUNCIL―23 February 1983 571 APPENDIX A
ASSESSMENT OF PERFORMANCE
The first of the principles we apply in the management of our public finances is that the growth rate of public sector expenditure should have regard to the growth rate of the economy. The public sector may be defined with reference to the Consolidated Account, which gives all expenditure financed from public funds irrespective of who incurs the expenditure(1).
2 The average annual growth rate of expenditure on Consolidated Account in real terms for the five years 1978-79 to 1982-83 was 15.4%, and of G.D.P. it was 9.5%(2). The growth rate of expenditure on Consolidated Account fell from 21% in 1978-79 to 7% in 1979-80, but accelerated again to 17.8% the subsequent year. The 1982-83 Budget envisaged a growth rate of 10.7% but, because the growth rate in 1981-82 turned out to be considerably lower than had been expected (14.1% instead of 21.8%), the revised growth rate for 1982- 83 is higher, at 17.4%. However the revised growth rate for the two years 1980-81 to 1982- 83 of 34%, or an average annual growth rate of 15.7%, is still slightly less than anticipated in the 1982-83 budget (34.8%, or an average annual growth rate of 16.1%).
3 This tendency for the growth rate of expenditure on Consolidated Account in real terms to exceed the growth rate of G.D.P. is a matter for continued concern. The relative size of the public sector increased steadily from 17.4% in 1978-79 to 24.2% in 1982-83.
(1) The Consolidated Account comprises expenditure by the Urban Council and the Housing Authority, expenditure financed by certain statutory funds (Capital Works Reserve Fund, Development Loan Fund, Home Ownership Fund, Lotteries Fund and Student Loan Fund), expenditure on public works projects financed with loans from the Asian Development Bank and all expenditure charged to the General Revenue Account. So expenditure by institutions in the private or quasi-private sector is included to the extent of their subventions. The activities of Government departments which are partly financed by charges raised on a commercial basis are also included (e.g. Airport, Waterworks). But not included is expenditure by those organizations, including even statutory organizations, in which the Government has only an equity position, such as the Mass Transit Railway Corporation.
(2) Growth rates in real terms: Year C.A. expenditure G.D.P. (%) (%)
1978-79/1978 21.0 10.3 1979-80/1979 7.0 12.8 1980-81/1980 17.8 11.7 1981-82/1981 14.1 10.9 1982-83/1982 17.4 2.4 average rate p.a. 15.4 9.5
572 HONG KONG LEGISLATIVE COUNCIL―23 February 1983
4 The second principle is that the pattern of public sector expenditure should reflect the Government’s conscious view as to priorities. Between 1978-79 and 1982-83 the pattern changed accordingly, with the proportion of total expenditure absorbed by community services(3) increasing from 25.5% to 30.4% as greater emphasis was placed on such services as transport, civil engineering and land production. Though the social services group(4) decreased slightly from 42.8% to 40.2%, within it expenditure on housing increased slightly from 14.1% in 1978-79 to 14.2% in 1982-83. The proportion of total expenditure absorbed by all other services(5) decreased as a result from 31.7% to 29.4%, but these percentages illustrate only the share of total expenditure―in absolute cash terms, expenditure on all services increased substantially.
5 The third principle is that a certain balance should prevail between direct and indirect taxation, and between direct and indirect taxation taken together and all other recurrent revenue, and that our tax system as such should meet certain defined requirements(6).
6 The ratio between direct and indirect taxes moved from 55:45 in 1978-79 to 69:31 in 1982-83. There will always be a tendency for earnings and profits taxes to increase in relative importance, as they are related to the growth rate of the economy in money terms while yields from indirect taxes are more closely related to the growth rate of the economy in real terms. This reflects fiscal drag and fiscal boost. But these ratios indicate very clearly that there is now considerable room for a relative shift to higher yields from indirect taxes.
7 The ratio between direct and indirect taxes taken together and all other recurrent revenue moved from 73:27 in 1978-79 to 69:31 in 1982-83 as steps were taken to ensure that fees and charges were generally kept up to date.
(3) Transport, land and civil engineering, environmental protection, water, public safety, recreation, culture and amenities.
(4) Education, medical, housing, social welfare, and labour.
(5) General services
Administration, support, public relations, revenue collection and financial control and unallocable expenses.
Security services
Defence, immigration, law and order.
Economic services
Food supply, aviation and shipping, trade and industry and posts and telecommunications. (6) The requirements are―
(a) to help generate sufficient recurrent revenue to finance a major proportion of a given level of total expenditure and to maintain fiscal reserves at a satisfactory level;
(b) that the tax system is as neutral as possible as regards the internal cost/price structure, the supply of human effort and private investment decisions;
(c) that the laws governing the tax system are adapted from time to time to make them compatible with changing commercial practices;
(d) that each and every levy is simple and easy (and therefore inexpensive) to administer for both the Government and the taxpayer, and does not encourage evasion;
(e) that the tax system is equitable as between different classes of taxpayers or potential taxpayers and between different income groups; and
(f) that, exceptionally, the tax system is capable of being used to achieve non-fiscal objectives when necessary.
HONG KONG LEGISLATIVE COUNCIL―23 February 1983 573
8 The fourth principle is that certain guidelines(7) should be borne in mind in preparing the annual estimates of revenue and expenditure so as to ensure the financing of the capital account. In 1978-79 recurrent expenditure absorbed 72% of recurrent revenue, leaving a sufficient surplus to meet 78% of capital expenditure in that year. The surplus on recurrent account improved until 1981-82 when recurrent expenditure only absorbed 68% of recurrent revenue. This satisfactory trend was, however, reversed sharply in 1982-83 and the revised estimates indicate that recurrent expenditure will absorb as much as 83% of recurrent revenue. Despite the improving trend between 1978-79 and 1981-82, the share of capital expenditure met from the surplus on recurrent account fell from 78% in 1978-79 to 74% in 1981-82. This was because capital expenditure increased by 2.9 times over the same period. Fortunately capital revenue continued to produce high yields up until 1981-82 which more than covered the excess. The relative failure of capital revenue in 1982-83 coupled with further growth in capital expenditure and a reversal in the trend towards larger recurrent account surpluses have combined to produce a large budget deficit. This fact further underlines the importance of the guidelines and in particular guideline (1) which has been breached in 1982-83.
(7) The guidelines are―
Guideline Ratio 1982-83 Recurrent revenue
Total expenditureAt least 77% 76%
Recurrent expenditure
Recurrent revenueNo more than 85% 83%
Surplus on recurrent account
Capital expenditure At least 33% 36%
Recurrent expenditure
Total expenditureNo more than 65% 63%
Capital revenue
Capital expenditure At least 20% 45%
574 HONG KONG LEGISLATIVE COUNCIL―23 February 1983 APPENDIX B
EXPENDITURE IN THE MAIN PROGRAMME AREAS
A. PUBLIC HOUSING
Public housing is defined here as domestic flats built for renting under the Housing Authority’s housing programme and for sale under the Government’s Home Ownership Scheme (including ancillary commercial facilities), and flatted factory units produced by the Housing Authority on behalf of the Government. All public housing is built by the Housing Department except for a residual amount which is being completed by the Public Works Department for the Housing Authority.
Objectives of the public housing programme
2 The objectives of the Housing Authority’s rental public housing programme are to rehouse low-income families living in unsatisfactory private accommodation, families transferred from the older over-crowded public housing estates, persons rendered homeless as a result of natural disasters and persons cleared to make land available for development. The aim of the Government’s Home Ownership Scheme is to enable families whose income is below a specified limit to purchase their own accommodation at a price they can reasonably be expected to afford.
Production of flats
3 By the end of 1982-83, the Housing Authority’s stock of domestic accommodation will amount to 492 000 flats, with almost 28 000 flats having been completed in 1982-83. By the same date, about 23 700 flats will have been constructed under the Home Ownership Scheme. In order to meet future demand, the Government’s aim is to sustain a level of production of at least 35 000 flats a year (made up of flats for renting by the Housing Authority and flats for sale under the Home Ownership Scheme) under a five year programme which is rolled forward annually. The following table shows production for the four years ending 1982-83, and a forecast for the four years commencing 1983-84:
Year
Housing Authority’s rental housing
programme
Home
Ownership
Scheme Total
(flats) (flats) (flats)
1979-80 (actual) 29 759 2 439 32 198 1980-81 (actual) 26 769 8 674 35 443 1981-82 (actual) 31 346 4 399 35 745 1982-83 (estimated) 27 900 (*) 8 200 36 100 1983-84 (estimated) 30 200 6 400 36 600 1984-85 (estimated) 29 600 6 500 36 100 1985-86 (estimated) 28 000 8 100 36 100 1986-87 (estimated) 30 000 5 000 35 000
Note: (*) Including 630 flats produced by the Public Works Department.
HONG KONG LEGISLATIVE COUNCIL―23 February 1983 575
Financing of the rental housing programme
4 The Housing Authority’s rental housing programme is financed largely by interest-free loans to the Authority from the Development Loan Fund which are repayable over 40 years. However, within the Housing Authority’s accounts, a notional interest of 5% per annum on the reducing balance of the loans is shown in order to demonstrate more accurately Government’s contribution towards the provision of public housing. Land is provided free of charge, but its value is shown in the Housing Authority’s accounts as a Government contribution. The Housing Authority’s rental housing programme is also financed by loans from the Asian Development Bank to the Government. In 1982-83, total expenditure incurred by the Housing Authority on the construction of flats is estimated to amount to $2,845 million, of which $2,170 million is financed by loans from the Development Loan Fund. In 1983-84, the Housing Authority’s budget provides for capital expenditure amounting to $3,005 million, of which $2,000 million will be drawn from the Development Loan Fund. Forecast drawings from the Development Loan Fund for the four years 1983-84 to 1986-87 are estimated to be as follows:
Total
1983-84
1983-84 1984-85 1985-86 1986-87
to 1986-87
($ mn) ($ mn) ($ mn) ($ mn) ($ mn)
Estimated drawings
from the
Development
Loan Fund(*) 2,000 2,060 1,830 1,600 7,490
Note: (*) These estimates include provision for expenditure on contracts relating to production post 1986-87.
Financing of the Home Ownership Scheme
5 The construction of flats under the Home Ownership Scheme is financed through the Home Ownership Fund which derives its income from appropriations from General Revenue and from proceeds from the sale of flats. No land premium is payable in respect of flats to be sold from early 1982 onwards. In 1982-83, total expenditure on the construction of flats and transfers from the rental programme is estimated to amount to $865 million and proceeds from the sale of flats are estimated to be $1,105 million. For 1983-84, total estimated expenditure amounts to $998 million and proceeds from the sale of flats are estimated to be $1,601 million.
6 Commercial and car-parking facilities associated with the Home Ownership Scheme are constructed by the Housing Authority by means of loans from the Development Loan Fund. Loans are repayable over 20 years (with a grace period up to three years) at an interest rate of 8% per annum on the reducing loan balance. Land premium is payable in respect of commercial facilities. Loans to the Housing Authority for this purpose in 1982- 83 amount to $140 million, and in 1983-84 they are estimated to amount to $157 million.
576 HONG KONG LEGISLATIVE COUNCIL―23 February 1983
Flatted factory programme
7 The aim of the Government’s flatted factory programme, which is undertaken by the Housing Authority, is to provide small factory units for eligible industrial undertakings cleared from land required for development. The construction costs are financed by means of loans to the Housing Authority from the Development Loan Fund. Loans are repayable over 20 years (with a grace period up to three years) at an interest rate of 8% per annum on the reducing loan balance. No land premium is payable in respect of flatted factories. By the end of 1982-83, the Housing Authority’s stock of flatted factory accommodation will amount to 17 000 units. Loans to the Housing Authority to meet expenditure on this programme in 1982-83 amount to $70 million. In 1983-84, the Housing Authority estimates its requirements from the Development Loan Fund will amount to $107 million.
Summary of estimated expenditure, 1982-83 and 1983-84
8 The revised estimate for 1982-83 and the estimate for 1983-84 of expenditure on public housing and related facilities, excluding the Housing Authority’s own resources, is $3,272 million and $3,315 million respectively:
1982-83 (Revised Estimates)
1983-84 (Draft
Estimates)
($ mn) ($ mn)
(a) Housing Authority’s rental housing programme
(excluding land costs)
(i) Flats produced by the Housing Department and
financed by loans from the Development Loan
Fund 2,170 2,000
(ii) Flats produced by the Housing Department and
financed by loans from the Asian Development
Bank 28 42
(iii) Flats produced by the Public Works Department
and financed from General Revenue 7 9
(b) Government’s Home Ownership Scheme
(i) Flats produced by the Housing Department and
financed by the Home Ownership Fund (excluding
land costs in respect of flats to be sold from early
1982 onwards) 865 998
(ii) Commercial and car parking facilities constructed
by the Housing Department for the Housing
Authority and financed by loans from the
Development Loan Fund (including land costs) 140 157
HONG KONG LEGISLATIVE COUNCIL―23 February 1983 577
1982-83 (Revised Estimates)
1983-84 (Draft
Estimates)
($ mn) ($ mn)
(c) Government’s flatted factory
programme (excluding land costs)
Flatted factory units produced by the Housing
Department and financed by loans from the
Development Loan Fund 70 107 3,280 3,313
B. NEW TOWNS AND RURAL NEW TERRITORIES DEVELOPMENT
9 The prime purpose of the new towns at Tsuen Wan, Sha Tin, Tuen Mun, Tai Po and Fanling, Yuen Long and Junk Bay is to provide housing for the growing and generally over-crowded population of Hong Kong complete with employment opportunities and all the related infrastructure and supporting services.
Ultimate aim, target dates and achievements
10 Since the purpose is basically to provide housing, the best yardsticks for the measurement of progress are population growth and serviced land production. The following tables indicate achievements to date, together with expected achievements in 1983-84 in relation to the latest final design populations and serviced land areas:
(1)
New Town/
development area
Tsuen Wan, Kwai Chung and
Population on full
development
Expected
population at 31
March 1983
Expected Increase in 1983-84
Expected population at 31 March 1984 as a percentage of
full development (%)
Tsing Yi 959 000 681 000 12 000 (693 000) 72 Sha Tin 833 000 240 000 91 000 (331 000) 40 Tuen Mun 512 000 190 000 61 000 (251 000) 49 Tai Po 237 000 91 000 6 000 (97 000) 41 Fanling/Shek Wu Hui 223 000 67 000 19 000 (86 000) 39 Yuen Long 142 000 54 000 1 000 (55 000) 39 Junk Bay 333 000 9 000 ― (9 000) 3 Sai Kung 14 000 9 000 ― (9 000) 64 Other rural townships 91 000 47 000 6 000 (53 000) 58 Total 3 344 000 1 388 000 196 000 (1 584 000) 47
578 HONG KONG LEGISLATIVE COUNCIL―23 February 1983
(2)
Estimated
hectares
Expected hectares produced at 31
New Town
development area
Tsuen Wan, Kwai Chung and
Hectares
on full
development
produced at 31
March 1983
Expected Production in 1983-84
March 1984 as a percentage of full development
(%)
Tsing Yi 1 665 1 143 100 (1 243) 75 Sha Tin 1 221 620 147 (767) 63 Tuen Mun 991 638 39 (677) 68 Tai Po 699 223 5 (228) 33 Fanling/Shek Wu Hui 378 109 25 (134) 35 Yuen Long 85 39 19 (58) 68 Junk Bay 313 18 10 (28) 9 Sai Kung 49 30 3 (33) 67 Other rural townships 137 27 7 (34) 25
Total 5 538 2 847 355 (3 202) 58
Allocation in 1983-84
11 Expenditure envisaged for 1983-84 from the Capital Works Reserve Fund includes $5,638 million for the continuing development of the new towns and rural New Territories, of which $1,577 million is for land acquisition.
12 Whilst the main thrust continues to be in the direction of land production for housing, increased emphasis will continue to be placed on the production of community facilities to cater for the needs of the growing populations of the new towns. The following tables illustrate how the allocation in 1983-84 for the development of the new towns and rural New Territories is broken down:
(1)
Public housing
Temporary
housing
areas Schools
Hospitals And
clinics
Recrea tional
facilities
Other
public
buildings Total
($ mn) ($ mn) ($ mn) ($ mn) ($ mn) ($ mn) ($ mn)
Tsuen Wan, 5.7 69.6 0.2 58.8 59.8 194.1
Kwai Chung and Tsing Yi
(0.1) (37.5) (0.3) (22.7) (46.9) (107.5)
Sha Tin ― 52.6 156.0 97.9 79.2 385.7 (58.9) (116.1) (38.0) (50.0) (263.0)
Tuen Mun 0.1 57.2 54.9 72.5 49.4 234.1 (3.2) (52.8) (39.3) (32.9) (36.4) (164.6)
Tai Po/ ― 61.3 5.2 2.6 23.8 92.9 Fanling (31.7) (1.6) (1.9) (15.8) (51.0) Yuen Long ― 15.1 1.0 7.0 28.3 51.4
Rural
Townships
(14.6) (0.1) (20.4) (7.0) (42.1)
Junk Bay ― 1.5 ― 1.5 29.8 32.8 Sai Kung (―) (―) (2.8) (9.4) (12.2) Miscel- 3.6 (*) 65.0 (**) 68.6 laneous (3.9) (105.0) (108.9)
Total 9.4 65.0 257.3 217.3 240.3 270.3 1,059.6 (7.2) (105.0) (195.5) (157.4) (118.7) (165.5) (749.3)
Note: Revised estimates for 1982-83 shown in brackets.
(*) Urban housing.
(**) Temporary housing areas will be built in the new towns and other areas where suitable sites are available.
HONG KONG LEGISLATIVE COUNCIL―23 February 1983 579
(2)
Site
Formatio,
Drainage &
other
Sewage Disposal
engineer ing works
Rubbish disposal
Roads & highways
Water works
Miscel
laneous Total
($ mn) ($ mn) ($ mn) ($ mn) ($ mn) ($ mn) ($ mn)
Tsuen Wan, 1.6 322.9 23.0 311.0 22.5 681.0
Kwai Chung and Tsing Yi
(1.4) (210.6) (16.4) (261.8) (19.8) (510.0)
Sha Tin 139.3 241.1 6.8 132.8 39.2 559.2 (108.3) (241.5) (4.6) (213.1) (34.9) (602.4)
Tuen Mun 12.8 443.4 13.1 11.7 23.0 504.4 (6.0) (320.5) (5.0) (66.5) (16.5) (414.5)
Tai Po/ 78.0 291.4 4.6 337.4 57.8 769.2 Fanling (91.0) (202.6) (2.1) (296.6) (20.8) (613.1) Yuen Long/ 14.0 119.2 7.5 109.7 3.1 253.5
Rural New Territories
(34.0) (149.3) (2.9) (79.5) (9.4) (275.1)
Junk Bay/ 2.2 225.9 ― 15.5 2.2 245.8 Sai Kung (―) (62.8) (0.4) (46.0) (0.2) (109.4) Miscel- 8.4 (*) 8.4 (*) laneous (7.2) (7.2) Total 247.9 1,643.9 55.0 918.1 147.8 8.4 3,021.1 (240.7) (1,187.3) (31.4) (963.5) (101.6) (7.2) (2,531.7)
Note: Revised estimates for 1982-83 shown in brackets.
(*) Miscellaneous allocation of $8.4 million ($7.2 million) is for investigations and minor works. C. MAIN INFRASTRUCTURE FACILITIES
(a) Highways
13 The aim of road development in Hong Kong is to provide a highways network that will permit the free and rapid movement of vehicular traffic to and from any part of the territory with safety and economy. To this end, eight main trunk routes have been identified and a large number of projects have either been started or are being planned to improve these routes.
14 A description of these main routes and the planned improvements to them under projects in the Public Works Programme is as follows:
Route 1: from Aberdeen through the new Aberdeen Tunnel and via the Canal Road flyover to the Cross Harbour Tunnel, and then to Wo Hop Shek via Princess Margaret Road, Waterloo Road, the Lion Rock Tunnel, Road T1 through Sha Tin and the Sha Tin to North Tai Po coastal road. The total estimated cost of improvements to this route is $2,751 million. Expenditure to 31 March 1983 is expected to amount to $1,311 million, mainly on the Aberdeen Tunnel ($481 million), the Sha Tin to North Tai Po coastal trunk road ($363 million), N.T. trunk road improvements― Lam Kam Road to Wo Hop Shek ($72 million) and the Wong Nei Chung
580 HONG KONG LEGISLATIVE COUNCIL―23 February 1983
Gap Road/Stubbs Road flyover ($97 million) which, although not strictly part of Route 1, nevertheless has an effect on it. Allocation of $408 million in 1983-84 is mainly for the Sha Tin to North Tai Po coastal trunk road ($214 million), Sha Tin Area 14 and Trunk Road T1 ($62 million) and N.T. trunk road improvements― Lam Kam Road to Wo Hop Shek ($36 million). Allocation of $6 million for the Aberdeen Tunnel is for the finishing stages of the project, which is nearly completed.
Route 2: from the Cross Harbour Tunnel westwards via Tsuen Wan and Tuen Mun to Yuen Long and Fanling. The route follows Gascoigne Road and Tong Mi Road initially, and then proceeds along the coast through Yau Ma Tei, Sham Shui Po and Lai Chi Kok (the West Kowloon Corridor) to join the Tsuen Wan by-pass. It then continues via the by-pass, the Tuen Mun Highway and the Castle Peak Road to Tuen Mun and Yuen Long. From Yuen Long, Route 2 continues via Au Tau and Mai Po to join Route 1 at the southern end of the Fanling by-pass. The total estimated cost of improvements to this route is $2,902 million. Expenditure to 31 March 1983 is expected to amount to $1,145 million, mainly on the Tuen Mun Highway ($509 million), the West Kowloon Corridor ($188 million), the Tsuen Wan by-pass ($387 million) and the Yuen Long to Au Tau dual carriageway ($38 million). Allocation of $362 million in 1983-84 is mainly for Fanling development package 3, engineering works ($40 million), the Tsuen Wan by-pass ($201 million), Yuen Long to Au Tau dual carriageway ($9 million), N.T. circular road improvements, Au Tau to Fan Kam ($35 million) and the West Kowloon Corridor ($51 million). Allocation of $12 million is for completion of the Tuen Mun Highway.
Route 3: from the Cross Harbour Tunnel via Wuhu interchange and Chatham Road to the Airport Tunnel and then across Kowloon Bay reclamation to Lei Yue Mun via the Kwun Tong Road. The total estimated cost of improvements to this route is $575 million. Expenditure to 31 March 1983 is expected to amount to $499 million, mainly for the Airport Tunnel and its approaches ($429 million). The tunnel is already completed. Allocation of $39 million in 1983-84 is mainly for the Airport Tunnel Road and its approaches ($27 million).
Route 4: from Lai Chi Kok via Ching Cheung and Lung Cheung Roads, past the southern entrance to the Lion Rock Tunnel to join the Kwun Tong Road at Ping Shek and then to join Route 3 at Ngau Tau Kok. The total estimated cost of improvements to this route is $247 million. Expenditure to 31 March 1983 is expected to amount to $113 million. Allocation of $49 million in 1983-84 is mainly for the elevated road from Ngau Tau Kok Road to Kowloon Bay ($46 million).
Route 5: this is a proposed route from Sha Tin to Tsuen Wan for which a feasibility study has just been completed. Detailed planning is due to start in 1983-84 with expenditure during the year of about $10 million.
HONG KONG LEGISLATIVE COUNCIL―23 February 1983 581
Route 6: from the interchange north of Mei Foo Sun Chuen via the Castle Peak Road through Tsuen Wan to join Route 2 at the eastern end of the Tuen Mun highway. The total estimated cost of improvements to this route is $234 million. Expenditure to 31 March 1983 is expected to amount to $117 million, mainly in respect of the Tai Wo Tsuen interchange on Castle Peak Road ($35 million) and the Castle Peak Road/Texaco Road grade separated intersection ($39 million), both of which have now been completed. Expenditure of Route 6 projects in 1983-84 is estimated at $46 million.
Route 7: from Aberdeen westwards on reclamation via Kellett Bay, Telegraph Bay and Sandy Bay to join Connaught Road at the western reclamation, and then via Connaught Road, Harcourt Road and Gloucester Road to Victoria Park. The total estimated cost of improvements to this route is $2,077 million. Expenditure to 31 March 1983 in respect of this route is expected to amount to $51 million, almost entirely for the widening of Connaught Road Central which has now been completed. Allocation of $6 million in 1983-84 is mainly for the investigation and detailed design of the elevated road along Connaught Road ($5 million).
Route 8: from Victoria Park to Chai Wan via the Hong Kong Island Eastern Corridor which is at present under construction. The total estimated cost of improvements to this route is $1,686 million. Expenditure to 31 March 1983 is expected to amount to $628 million, almost entirely in respect of the Hong Kong Island Eastern Corridor. Allocation of $427 million in 1983-84 is mainly for the Hong Kong Island Eastern Corridor.
15 In addition to improvements to the main routes, expenditure is envisaged in 1983-84 of $451 million for secondary routes, miscellaneous minor roadworks and roads within new town layouts. The area traffic control system which is designed to increase the capacity of existing roads by improving traffic flow is already operating successfully in West Kowloon and is being extended to cover East Kowloon and the northern part of Hong Kong Island.
16 Annual expenditure on roadworks is shown in the following table:
1978-79 1979-80 1980-81 1981-82
1982-83 (Revised Estimates)
1983-84 (Draft
Estimates)
($ mn) ($ mn) ($ mn) ($ mn) ($ mn) ($ mn)
Hong Kong 149 206 328 327 571 587 Kowloon 91 127 128 175 221 256 New Territories 265 263 352 689 964 918 Total 505 596 808 1,191 1,756 1,761
582 HONG KONG LEGISLATIVE COUNCIL―23 February 1983
(b) Kowloon-Canton Railway
17 The programme for the modernization and electrification of the Kowloon-Canton Railway which began in October 1975 is expected to cost $3,100 million. The programme includes double tracking, electrification, electronic signalling, refurbishment and modernization of existing stations, the provision of new stations and of interchange facilities with the Mass Transit Railway at Kowloon Tong Station and with buses and other public transport services at other stations.
18 The electrified service to Sha Tin commenced operation in May 1982. Work on double tracking is substantially complete and reballasting is still in progress. Installation of the signalling system will follow the completion of reballasting works.
19 When all the works have been completed, the railway will be dual tracked and fully fenced from Hung Hom to Lo Wu. Passenger services will be provided by air-conditioned electric trains travelling at between 80 and 100 kilometres per hour providing a 4 minute service during peak hours between Sha Tin and Hung Hom and a 15 minute service beyond Sha Tin. Freight traffic and through train services to Guangzhou are also expected to increase significantly.
20 Nearly all the main contracts for the modernization and electrification programme have now been awarded. Total expenditure incurred up to the end of 1982-83 is expected to amount to $2,312 million, of which $732 million is expected to be spent in 1982-83. The estimate of expenditure in 1983-84 is $412 million.
21 Electrified services will be operated up to the new Tai Po Market Station in May 1983 and will be extended to Lo Wu by July of the same year.
22 Railway operations were taken over by the recently incorporated Kowloon-Canton Railway Corporation on 1 February 1983, and with effect from the same date all the existing assets of the railway were vested in the Corporation. The modernization and electrification programme will be completed at Government expense, and the completed works will then also be handed over to the Corporation.
(c) Mass Transit Railway
23 The M.T.R. Tsuen Wan Extension was opened in May 1982, approximately six months ahead of the original programme. The final construction cost is estimated to be $3,900 million which is well within the original budget of $4,085 million. Together with the Modified Initial System, the railway is now carrying about 1.2 million passengers per day.
24 In December 1982, the Government agreed to the construction of the Island Line by the Mass Transit Railway Corporation. The length of this extension of the railway will be 25 kilometres compared with the length of the Modified Initial System and Tsuen Wan Extension of 15.6 kilometres and 10.5
HONG KONG LEGISLATIVE COUNCIL―23 February 1983 583
kilometres respectively. The Island Line will run from Sheung Wan in the west to Chai Wan in the east. There will be a total of 14 stations of which 12 will be underground. The section from Admiralty to Chai Wan is scheduled to open in mid 1985 with the remaining section opening in 1986.
25 At the end of December 1982, nearly all the major civil engineering and most of the electrical and mechanical engineering contracts on the Island Line had been let. The total construction cost of the project was estimated to be $7,700 million at 1980 prices and the budget cost for completion, i.e. including cost escalation, is estimated at $10,500 million.
(d) Waterworks
26 Design for the reception and distribution system to handle the increased supply of water from China is well in hand and construction of part of the system is in progress. This is a very large project which will ultimately cost in the order of $1,600 million, and allocation for works on Stages I and II accounts for a major portion of expenditure on waterworks in 1983-84.
27 The remaining work for receiving additional water from the East River is nearing completion.
28 Work on improvements to urban water supply systems, including those for Ap Lei Chau, Chai Wan and Shouson Hill on Hong Kong Island, and Beacon Hill, Ho Man Tin, Lam Tin and Kowloon Bay in Kowloon, is progressing well. In the New Territories, new water supply systems are being constructed for various rural townships including Yuen Long, Sai Kung, Cheung Chau, Tai Po, Sheung Shui and Fanling. Work on provision of a water supply for Lamma Island will be substantially completed in 1983 and that for South Lantau is in hand.
29 Expenditure in 1983-84 on waterworks is estimated at $807 million from the Capital Works Reserve Fund. The following table gives the breakdown of this allocation, the total cost of the projects involved and estimated expenditure to 31 March 1983:
Description of projects
Total
estimated cost of
projects
Estimated expenditure to 31
March 1983
Allocation In
1983-84
Percentage Complete as at 31
March 1983
($ mn) ($ mn) ($ mn) (%)
On-going projects
(i) Projects of a territory-wide nature 4,410 3,276 467.7 74 (ii) Urban improvements―
Hong Kong 304 135 95.8 44 Kowloon 179 108 45.6 61 (iii) New Territories projects 884 519 167.0 59 New projects to start in 1983-84 320 ― 31.1 ―
Total 6,097 4,038 807.2 66
584 HONG KONG LEGISLATIVE COUNCIL―23 February 1983 D. SOCIAL SERVICES
(a) Education
30 The education programme comprises pre-primary, primary and secondary education, including special schools and classes for handicapped children, the technical institutes, the Colleges of Education, the two universities and the Polytechnic and certain courses at two post-secondary colleges.
Primary
31 The Draft Estimates include provision of $1,587 million for Government and aided primary schools compared with the revised estimate for 1982-83 of $1,537 million.
32 Free and universal primary schooling has been available since 1971 and there is a surplus of places in some primary schools in older parts of the urban area. Notwithstanding this surplus, it is the Government’s policy that no child should have to travel an unreasonable distance to attend primary school and 11 new primary schools are expected to be completed in 1983-84 in conjunction with the development of public housing estates in the new towns, and other developing areas.
Secondary
33 The policy for the development of secondary education in the public sector was first laid down in a White Paper published in 1974. A subsequent White Paper, published in 1978, set out the policy objectives on the development of senior secondary and tertiary education.
34 From September 1980, subsidized places in Forms I to III of secondary schools have been available to meet the full demand at this level―this being the main objective of the 1974 White Paper on education.
35 It is the Government’s aim to increase during the 1980s the number of places in schools, technical institutes and adult education centres to meet the full demand from Form III leavers who are suitable for the kind of courses provided. In pursuit of this objective, expenditure is envisaged in 1983-84 of $1,889 million on secondary schools and technical institutes compared with the revised estimate for 1982-83 of $1,742 million.
36 In September 1982, there were 56 460 subsidized Form IV places in secondary schools. By September 1983, the number of such places will increase to 58 050. At the five technical intitutes, the number of full-time places on craft and diploma courses will increase from just under 3 800 in October 1982 to 4 700 in September 1983 and the number of part-time day courses are planned to increase from just under 10 600 to 13 800. Some Ordinary Diploma and Ordinary Certificate courses were transferred from the Polytechnic to the institutes in 1981 and 1982. This process of transfer, which will continue in 1983-84 is in line with a recommendation in the 1978 White Paper to enable the Polytechnic to concentrate a greater proportion of its work at the Higher Diploma and Higher Certificate levels.
HONG KONG LEGISLATIVE COUNCIL―23 February 1983 585
Qualificative improvements
37 A number of major improvements in standards of education and child care recommended by the White Paper on Primary Education and Pre-primary Services were introduced in September 1982 including―
(a) a scheme of fee assistance for needy children attending kindergartens and child-care centres; and
(b) additional teachers in primary schools to alter the teacher to class ratio from 1.1 to one to 1.2 to one and increase the number of senior teachers.
38 A system of controlling Primary One admission will be introduced with effect from September 1983, under which the permitted age of entry into Primary One will be lowered to five years and eight months and the maximum class size reduced from 45 to 40 pupils, and to 35 pupils for schools adopting the activity approach.
39 The Draft Estimates include provision of $18 million in capital subventions for building and equipping new primary school buildings, and a further $120 million will be spent under the Public Works Programme for the construction of 32 primary schools.
40 The general expansion in the number of secondary school places is combined with developments to improve the overall standard of secondary education by a progressive increase in the number of places in fully aided schools. This was achieved, in part, in September 1982 by completion of the phased conversion of 57 private non-profit-making schools into fully aided schools.
41 The Government is also engaged in a major secondary school building programme which will produce some 39 new schools over the next three to four years. The Draft Estimates include provision of $133 million under the Public Works Programme expenditure for the construction of 22 secondary schools. In addition provision of $98 million in capital subventions to sponsoring organizations is included for building and equipping new school buildings.
42 In order to allow schools to concentrate more staff resources in the areas of remedial teaching of English and Chinese, two additional graduate teachers were provided in September 1982. It is planned that one further graduate teacher will be provided in September 1983 and two further non graduate teachers as and when trained non-graduate teachers are available. The estimated expenditure on these developments in 1983-84 is $68 million.
43 To train sufficient non-graduate teachers for the various approved developments two annexes were opened in the teacher training colleges in September 1982 and the enrolment of students will be increased from 2 480 to 3 073 full time equivalents in September 1983. A new Institute of Language in Education started operation in September 1982 and provided refresher courses for some 200 language teachers in the first year of operation. The number of teachers attending courses will rise annually by 200 until 1986-87 when places for 1 000 teachers will be provided.
586 HONG KONG LEGISLATIVE COUNCIL―23 February 1983
Post-secondary and tertiary level
44 During 1982-83 assistance to the Baptist College continued to be provided under the scheme of assistance for post-secondary colleges recommended by the 1978 White Paper. It has however been agreed in principle that advising on the development and funding of the Baptist College should in future be undertaken by the University and Polytechnic Grants Committee (U.P.G.C.) and this is planned to commence from the 1983-84 academic year. The estimate of expenditure of $27 million on the post-secondary colleges in 1983-84 does not provide for any grant recommendation from the U.P.G.C. for the Baptist College for the 1983-84 academic year. Since September 1982 grants and loans to students of the Baptist College on Post-Form VI courses have been brought into the student finance scheme administered by the secretariat of the U.P.G.C.
45 The Draft Estimates provide $1,225 million for expenditure in connection with university and Polytechnic education. This compares with the revised estimate for 1982-83 of $1,142 million. The U.P.G.C.’s recommendations for grants in the triennium which commenced in mid-1981 take account of an increase in the annual student growth rate at the universities from 3% to 4%. They also provide for the commencement in September 1983 of degree course at the Polytechnic in Social Work, Electronic Engineering, Computing Studies, Applied Science and Mathematics and Mechanical Engineering, and for the enrolment of some 480 part-time students for degree courses at the Chinese University.
46 These grant levels include expenses in connection with the development of a medical school at The Chinese University of Hong Kong and the dental school at the University of Hong Kong, for which earmarked grants of $71 million and $57 million have been provided respectively. In September 1982 the medical school had its second intake of 80 students, while the dental school’s fourth intake of students in September 1983 will bring the student numbers to planned capacity.
47 $211 million has been provided in capital expenditure for the universities and Polytechnic in 1983-84 to enable completion of major building projects, and development of new projects.
48 Schemes of financial assistance for students at the post-secondary and tertiary level provide for grants and loans to students at the universities, Polytechnic and post-advanced level students at the Baptist College, and loans to students at the Colleges of Education, Lingnan and Shue Yan Colleges. In addition a scheme of assistance provides loans for full time students on first degree or Higher National Diploma courses in the United Kingdom. The estimated gross expenditure on grants and loans in 1983-84 is $205 million compared with the revised estimate for 1982-83 or $185 million.
49 A new Technical Education and Industrial Training Department was formed on 1 April 1982. It administers grants to the Vocational Training Council (V.T.C.) which advises the Government on technical education and
HONG KONG LEGISLATIVE COUNCIL―23 February 1983 587
industrial training and is responsible for operating technical institutes and industrial training centres. $12 million is provided for the expansion of two technical institutes in the Capital Works Reserve Fund. On completion these will be transferred to the V.T.C. The department is also responsible for promoting apprenticeship training and vocational training for the disabled.
50 The total estimate for the education programme in 1983-84, compared with the revised estimate for 1982-83 is as follows:
1982-83 1983-84
(Revised (Draft
Estimates) Estimates)
($ mn) ($ mn)
Education Department 517.0 611.5 Education Subventions 3,125.0 3,289.6 Technical education and industrial training 146.0 146.2 U.P.G.C. 1,142.0 1,225.2 Capital works (Public Works Programme) 231.5 279.6 5,161.5 5,552.1
(b) Medical and Health
51 The main objectives of the Government’s medical policy are the prevention and control of communicable diseases, the promotion of personal health and the treatment of the sick and injured (including, where necessary, their rehabilitation). Responsibility for the medical social service was transferred from Medical and Health Department to the Social Welfare Department.
52 The expansion of medical services in accordance with the aims set out in the 1974 White Paper, the Further Development of Medical and Health Services in Hong Kong, is monitored annually by the Medical Development Advisory Committee (M.D.A.C.). Progress in implementing the White Paper’s main proposals are summarized as follows―
(a) Medical and health services to be organized on a regional basis
The process of regionalization has been continued by the provision of additional staff to strengthen the regional offices for Hong Kong, Kowloon and the New Territories. In 1983 the existing New Territories region will be split into two regions with the existing New Territories regional office serving East New Territories and a new regional office for the West New Territories. To develop further the integration of government and subvented medical services by enabling subvented hospitals to assume a greater role in the treatment of acute hospital cases, development programmes are under way in the Caritas, Pok Oi and Yan Chai Hospitals and the Ruttonjee Sanatorium, for which capital subventions of $54 million in 1983-84 have been provided.
588 HONG KONG LEGISLATIVE COUNCIL―23 February 1983
(b) Each region to be served with the appropriate general and specialist facilities In addition to the construction of general and specialist hospitals, sixteen new clinics and polyclinics are presently included in the Public Works Programme. The following projects are due for completion in 1983-84―
Target
completion date
Kowloon East Polyclinic Mid-1983 Sai Ying Pun Jockey Club Clinic―improvements
to building services installations Mid-1983 To Kwa Wan Clinic September 1983
(c) The ratio of 5.5 hospital beds per 1 000 population should be regarded as a desirable standard for long term planning
The formula for determining the need for hospital beds is constantly being refined by the M.D.A.C. in terms of the actual number of beds required, rather than a crude bed: population ratio. By the end of 1982-83, there will be some 22 100 beds in government, subvented and private hospitals. The Draft Estimates provide for the establishment of some 1 500 additional beds which, together with the existing supply, will meet approximately 80% of the estimated requirement. In addition to $150 million for the completion of the Prince of Wales Hospital with its related polyclinic and staff quarters, a further $40 million will be spent in 1983-84 for a new hospital project in Tuen Mun.
(d) School dental service
This aim of this service is to provide dental health education and conservation treatment to primary school children. Two school dental clinics are currently in operation at the MacLehose Dental Centre and at Argyle Street providing treatment for children in Primary 1 to 3. Six other clinics are planned to extend the service progressively to cover all primary school children.
53 The Draft Estimates provide for expenditure by the Medical and Health Department in 1983-84 of $1,771.6 million compared with the revised estimate for 1982-83 of $1,613 million, and for expenditure on medical subventions of $915.2 million compared with the revised estimate for 1982-83 of $780 million.
54 The total estimate for the medical and health programme in 1983-84 compared with the revised estimate for 1982-83 is as follows―
1982-83 1983-84
(Revised (Draft
Estimates) Estimates)
($ mn) ($ mn)
Medical and Health Department 1,613.0 1,771.6 Medical subventions 780.0 915.2 Capital works 201.5 357.0 2,594.5 3,043.8
HONG KONG LEGISLATIVE COUNCIL―23 February 1983 589
(c) Social Welfare
55 Social welfare services include social security (mainly public assistance and special needs allowances), services for offenders, family welfare, services for the elderly, community building, personal social work among young people, and rehabilitation.
56 The planning of social welfare development is reviewed and updated annually and takes account of new policies outlined in White Papers such as Social Welfare into the 1980s and Integrating the Disabled into the Community―a United Effort. A brief outline of aims is as follows:
Social security―to meet the basic and particular needs of the recognized vulnerable groups in the community who are in need of financial or material assistance, by a balanced system of social security schemes.
Services for offenders―to give effect to the directions of the courts on the treatment of offenders by social work methods through probation supervision, residential training, and aftercare Services, with the aim of re- integrating them into the community.
Family welfare―to enable individuals and family members to prevent personal and family problems and to deal with them when they arise, with a view to preserving and strengthening the family as a unit, and to meet those needs which cannot be met from within the family.
Services for the elderly―to promote the well-being of people who have passed their 60th birthday by providing services that will enable them to retain their self respect and, where necessary, to provide residential care suited to their varying needs.
Community building―to promote social relationships, to develop a sense of self reliance and social responsibility and cohesion within the community, and to encourage the participation of the people themselves in solving community problems and improving the quality of community life.
Personal social work among young people―to prevent anti-social and delinguent behaviour in young people from six to 24 years of age.
Rehabilitation ― to provide such comprehensive rehabilitation services as are necessary to enable disabled persons to develop their physical, mental and social capabilities to the fullest extent which their disabilities permit.
Progress
57 Progress in the main activity areas can be seen from the following tables:
Activity
area Service 1977-78 1980-81 1981-82 1982-83 1983-84 Social security Public assistance (caseload) 48 157 47 000 46 200 48 300 48 500 Special needs allowances
(caseload) 152 884 175 300 185 300 213 200 218 000 Services for Correctional institutions
offenders (number of places) 550 586 586 586 586
590 HONG KONG LEGISLATIVE COUNCIL―23 February 1983
Activity
area Service 1977-78 1980-81 1981-82 1982-83 1983-84
Family we Counselling
lfare services (caseload) 15 050 22 526 25 000 26 000 26 900 Day care centres
(number of places) 9 550 11 006 11 296 13 766 16 500
Services for Homes for the aged
the elderly (number of places) 2 750 3 235 3 730 4 235 4 630 Hostels (number of places) 650 930 1140 1350 2150 Care and attention homes
(number of places) 233 375 375 500 1280
Community Community and
building youth offices 15 17 19 19 19 Community centres,
estate community centres
and community halls 33 41 45 53 58
Personal social School social work
work among (number of student
young people guidance officers) ― 96 218 215 215 Outreaching social work
(number of teams) ― 18 18 18 18
Rehabilitation Special child care centres
(number of places) 149 347 420 500 660 Residential care for the
disabled (number of places) 1 659 2 127 2 308 2 525 3 475
58 The public assistance scheme is designed to bring the income of a family, or of a single person in certain circumstances, up to a level where essential needs such as food and clothing can be met. The cost of accommodation is covered separately by a rental allowance, the maximum rates of which were in creased in June 1981 to 200% and 150% of the highest public housing rent for singleton- households and families respectively. The public assistance caseload, which fell steadily from around 55 500 in 1976 to around 44 700 in 1980, rose by the end of 1982 to around 50 100. Only some 4.8% of the present caseload is in respect of persons unemployed or earning a low income.
59 The basic rates for public assistance and the special needs allowances (disability and old age) were increased by 29% in June 1982. The Draft Estimates include provision of $403 million for public assistance (compared with $309 million in 1982-83) and $658.8 million for special needs allowances (compared with $468 million in 1982-83). Included in this latter figure is $8.8 million for a non-means-tested death grant which will be introduced in 1983-84. This will be payable to the dependent survivors of persons who die in employment if the deceased are not covered by the terms of the Employment Ordinance or if the survivors are not in receipt of any other form of compensation or ex-gratia assistance.
60 A large proportion of recurrent expenditure will continue to be channelled through social welfare subventions to voluntary agencies. In October 1981 a revised subvention system was approved under which the social services and facilities provided by organizations and trusts will be classified as Category I or Category II depending on their nature. Services in Category I receive