HONG KONG LEGISLATIVE COUNCIL-2 March 1988 785 OFFICIAL REPORT OF PROCEEDINGS
Wednesday, 2 March 1988
The Council met at half-past Two o’clock
PRESENT
HIS EXCELLENCY THE GOVERNOR (PRESIDENT)
SIR DAVID CLIVE WILSON, K.C.M.G.
THE HONOURABLE THE CHIEF SECRETARY
SIR DAVID ROBERT FORD, K.B.E., L.V.O., J.P.
THE HONOURABLE THE FINANCIAL SECRETARY
MR. PIERS JACOBS, O.B.E., J.P.
THE HONOURABLE THE ATTORNEY GENERAL
MR. MICHAEL DAVID THOMAS, C.M.G., Q.C.
THE HONOURABLE LYDIA DUNN, C.B.E., J.P.
DR. THE HONOURABLE HO KAM-FAI, O.B.E., J.P.
THE HONOURABLE ALLEN LEE PENG-FEI, C.B.E., J.P.
THE HONOURABLE WONG PO-YAN, C.B.E., J.P.
THE HONOURABLE DONALD LIAO POON-HUAI, C.B.E., J.P.
SECRETARY FOR DISTRICT ADMINISTRATION
THE HONOURABLE CHAN KAM-CHUEN, O.B.E., J.P.
THE HONOURABLE JOHN JOSEPH SWAINE, C.B.E., Q.C., J.P.
THE HONOURABLE STEPHEN CHEONG KAM-CHUEN, O.B.E., J.P. THE HONOURABLE CHEUNG YAN-LUNG, O.B.E., J.P.
THE HONOURABLE MRS. SELINA CHOW LIANG SHUK-YEE, O.B.E., J.P. THE HONOURABLE MARIA TAM WAI-CHU, O.B.E., J.P.
THE HONOURABLE CHAN YING-LUN, J.P.
THE HONOURABLE MRS. RITA FAN HSU LAI-TAI, O.B.E., J.P.
THE HONOURABLE MRS. PAULINE NG CHOW MAY-LIN, J.P.
THE HONOURABLE PETER POON WING-CHEUNG, M.B.E., J.P.
THE HONOURABLE YEUNG PO-KWAN, O.B.E., C.P.M., J.P.
THE HONOURABLE KIM CHAM YAU-SUM, J.P.
THE HONOURABLE JOHN WALTER CHAMBERS, O.B.E., J.P.
SECRETARY FOR HEALTH AND WELFARE
THE HONOURABLE JACKIE CHAN CHAI-KEUNG
THE HONOURABLE CHENG HON-KWAN, J.P.
THE HONOURABLE HILTON CHEONG-LEEN, C.B.E., J.P.
DR. THE HONOURABLE CHIU HIN-KWONG, J.P.
THE HONOURABLE CHUNG PUI-LAM
786 HONG KONG LEGISLATIVE COUNCIL-2 March 1988
THE HONOURABLE THOMAS CLYDESDALE, J.P.
THE HONOURABLE HO SAI-CHU, M.B.E., J.P.
THE HONOURABLE HUI YIN-FAT
DR. THE HONOURABLE CONRAD LAM KUI-SHING
THE HONOURABLE MARTIN LEE CHU-MING, Q.C., J.P. THE HONOURABLE DESMOND LEE YU-TAI
THE HONOURABLE DAVID LI KWOK-PO, J.P.
THE HONOURABLE LIU LIT-FOR, J.P.
THE HONOURABLE NGAI SHIU-KIT, O.B.E., J.P.
THE HONOURABLE PANG CHUN-HOI, M.B.E.
THE HONOURABLE POON CHI-FAI
THE HONOURABLE SZETO WAH
THE HONOURABLE TAI CHIN-WAH
THE HONOURABLE MRS. ROSANNA TAM WONG YICK-MING THE HONOURABLE TAM YIU-CHUNG
DR. THE HONOURABLE DANIEL TSE, O.B.E., J.P.
THE HONOURABLE ANDREW WONG WANG-FAT
THE HONOURABLE LAU WONG-FAT, M.B.E., J.P.
THE HONOURABLE RONALD GEORGE BLACKER BRIDGE, O.B.E., J.P. SECRETARY FOR EDUCATION AND MANPOWER
THE HONOURABLE MICHAEL LEUNG MAN-KIN, J.P. SECRETARY FOR TRANSPORT
THE HONOURABLE NATHANIEL WILLIAM HAMISH MACLEOD, J.P. SECRETARY FOR TRADE AND INDUSTRY
THE HONOURABLE EDWARD HO SING-TIN, J.P.
THE HONOURABLE GEOFFREY THOMAS BARNES, J.P. SECRETARY FOR SECURITY
ABSENT
THE HONOURABLE PETER C. WONG, C.B.E., J.P.
THE HONOURABLE HU FA-KUANG, O.B.E., J.P.
DR. THE HONOURABLE HENRIETTA IP MAN-HING, O.B.E., J.P. THE HONOURABLE RICHARD LAI SUNG-LUNG
PROF. THE HONOURABLE POON CHUNG-KWONG
THE HONOURABLE HELMUT SOHMEN
THE HONOURABLE GRAHAM BARNES, C.B.E., J.P.
SECRETARY FOR LANDS AND WORKS
IN ATTENDANCE
THE CLERK TO THE LEGISLATIVE COUNCIL
MR. LAW KAM-SANG
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 787 Papers
The following papers were laid on the table pursuant to Standing Order 14(2): Subject L.N. No.
Subsidiary Legislation:
Public Order Ordinance
Public Order Curfew (Variation) Order 1988................................................. 36/88
Inland Revenue Ordinance
Inland Revenue (Interest Tax) (Exemption) (Amendment)
(No. 2) Notice 1988 ........................................................................................ 37/88
Tax Reserve Certificates (Fourth Series) Rules
Tax Reserve Certificates (Rate of Interest) Notice 1988................................ 38/88
Hong Kong Airport (Control of Obstructions) Ordinance
Hong Kong Airport (Control of Obstructions) (Consolidation)
(Amendment) Order 1988............................................................................... 39/88
Public Health and Municipal Services Ordinance
Public Health and Municipal Services (Amendment of Fifth
Schedule) Order 1988..................................................................................... 40/88
Employment Ordinance
Women and Young Persons (Industry) (Amendment) Regula
tions 1988 ....................................................................................................... 41/88
Registration of Persons Ordinance
Registration of Persons (Application for New Identity Cards)
(No. 2) Order 1988 ......................................................................................... 42/88
Small Claims Tribunal Ordinance
Small Claims Tribunal (Fees) Rules 1988...................................................... 43/88
Labour Tribunal Ordinance
Labour Tribunal (Fees) Rules 1988................................................................ 44/88
Lands Tribunal Ordinance
Lands Tribunal (Fees) Rules 1988.................................................................. 45/88
Coroners Ordinance
Coroners (Fees) Rules 1988............................................................................ 46/88
Legal Practitioners Ordinance
Legal Practitioners (Fees) (Amendment) Rules 1988..................................... 47/88
New Territories Leases (Extension) Ordinance 1988
New Territories Leases (Extension) Ordinance 1988 (Com
mencement) Notice 1988................................................................................ 48/88
788 HONG KONG LEGISLATIVE COUNCIL-2 March 1988 Sessional Papers 1987-88:
No. 46—Police Welfare Fund Income and Expenditure Accounts with balance sheet and certificate of the Director of Audit for the year ended 31 March 1986 No. 47—Draft Estimates for the year ending 31 March 1989 Estimates Summaries— General Revenue Account and Fund Accounts including Controlling
Officers’ Reports on Heads of Expenditure
No. 48—Draft Estimates for the year ending 31 March 1989 Supporting Details Section I: General Revenue Account
No. 49—Draft Estimates for the year ending 31 March 1989 Supporting Details Section II: Funds
Government Business
First Reading of Bill
APPROPRIATION BILL 1988
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 1988
THE FINANCIAL SECRETARY moved the Second Reading of: ‘A Bill to apply a sum not exceeding $49,975,838,000 to the service of the financial year ending on 31 March 1989’.
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 789
INDEX Paragraphs INTRODUCTION 1- 6 THE ECONOMY IN 1987 7- 18 PRESENT STATE OF PUBLIC FINANCES AND REVISED
ESTIMATES 1987-88 19- 24 ECONOMIC PROSPECTS FOR 1988 25- 28 STRATEGY FOR PUBLIC FINANCES 29- 30
The Medium Range Forecast 31- 35 Strategy for expenditure 36- 46 Strategy for revenue 47- 50 The Government’s reserves 51
DRAFT ESTIMATES 1988-89 52 Draft Estimates of Expenditure 53- 63 Draft Estimates of Revenue 64- 67 Summary of Draft Estimates 68- 72
REVENUE MEASURES 73 Dutiable commodities 74- 81 Fees and charges 82- 88 Tax concessions 89
Personal taxation 90- 91 Taxation of married women 92- 94 Profits tax 95- 96 Property tax, interest tax and profits tax paid by unincorporated
businesses 97 Stamp duty 98- 99 Air passenger departure tax 100
IMPLEMENTATION 101 SUMMING UP 102-110
Pages
APPENDICES A—F 817-864
790 HONG KONG LEGISLATIVE COUNCIL-2 March 1988
He said: Sir, I move that the Appropriation Bill 1988 be read the Second time. Last year in presenting my first Budget to this Council I warned that Hong Kong remained as vulnerable as ever to external forces, and that volatility in our economic performance was inevitable. Like others I recognised that there were some clouds on the horizon but I did not predict when the storm would break. The warnings I gave then remain valid today. Already there are signs that the extraordinarily rapid growth we have enjoyed over the last two years is slowing down.
2. As 1987 progressed, it became apparent that the economy, including our stock market, was becoming overheated. Few, however, foresaw the full extent of the October crash, which affected not only Hong Kong’s stock market but also stock markets worldwide. I shall be referring later in this speech to those events and the aftermath. But I mention them now for three reasons. First, I think it is important to note that we still cannot say with any certainty what will be their effect on the world economy and therefore on Hong Kong itself. Secondly, in Hong Kong and in some other major markets attention has become sharply focussed on the operation and structure of the market place. Many are asking what improvements need to be made to ensure that the markets are capable of carrying out the job for which they are intended. Thirdly, perhaps the single most important message that has come through clearly is that technology has increasingly made the world a single market. There may be many players but there is only one play.
3. But today we must not let ourselves be overcome by gloom. Almost all the economic indicators show that Hong Kong has done extremely well in the last 12 months and our immediate prospects are good. What I shall be saying this afternoon will reveal the extent to which our buoyant economy will enable me not only to increase the provision of government services but also to ease the tax burden on the community without putting our economy or the longer-term stability of our budgetary management at undue risk.
4. A Budget speech does not merely give a snapshot of the state of the economy and the public finances at a particular point in time. More importantly, it gives us the opportunity to examine our performance since the last Budget and to forecast what the economy may have in store for us next year and in the years beyond. This approach reflects what I believe should be the underlying theme in the management of our public finances—the careful planning of public services in the light of what we can afford over the longer term. I must stress that the prudent management of our public finances, given the cyclical nature of our economy, depends to a great extent on our continuing to pay close attention to trends and on taking early action where necessary to avoid more extreme measures at a later date. As I reveal my budgetary proposals for 1988-89, I hope it will be apparent how this underlying theme of steady management has, once again, been woven into my thinking.
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 791
5. From time to time, Members have usefully commented on the presentation of the documents supporting the Budget. This year, I have altered the format of the Draft Estimates. Under each head of expenditure, we have provided sufficient detail to enable Members to identify not only the objectives of each department but also how the funds to be appropriated to each head will be devoted to achieving those objectives. In addition, we have attempted to give measures of both output and effectiveness. I hope that the changes that we have made will be seen by Members as an improvement. The task continues. I am particularly conscious of the need to give further consideration to the refinement of our Consolidated Account definition.
6. I shall now embark upon the substance of this Budget by describing the performance of the economy in 1987(1).
THE ECONOMY IN 1987
7. The trend begun in 1986 of strong export-led growth continued through 1987. The sharp rise in our domestic exports and re-exports in turn boosted incomes and domestic demand. As a result, our gross domestic product (GDP) recorded a growth rate of about 13.5 per cent in real terms(2). Thus we have enjoyed two consecutive years of double-digit growth(3).
8. This remarkable economic performance has benefited Hong Kong in a number of ways. First, the buoyant economic conditions led to a substantial increase in capital investment and an active property market. Secondly, with the unemployment rate staying at a historic low level of 1.8 per cent during much of 1987, we had in effect full employment throughout the year. Thirdly, wages and salaries rose rapidly, resulting in a significant increase in personal incomes, even after allowing for inflation. The community at large shared in the fruits of our economic success.
(1) See ‘1987 Economic Background’ for further details.
(2) Unless otherwise indicated all subsequent growth rates for the economy are in real terms. This growth rate for the GDP is a preliminary estimate. The growth rates of the various major components of expenditure on the GDP in 1987 are as follows:
percentage
Private consumption expenditure
Government consumption expenditure
Gross domestic fixed capital formation
of which, in building and construction
in plant and machinery
Total exports of goods
Domestic exports
Re-exports
Imports of goods
Net exports of services
Gross domestic product
(3) The provisional estimate of the growth rate of GDP in 1986 is 11.2 per cent.
10.8 4.7
15.2 6.6
27.3 33.0 23.2 45.9 31.7 29.4 13.6
792 HONG KONG LEGISLATIVE COUNCIL-2 March 1988
9. At a time when the economy was operating at full capacity, public sector expenditure grew more slowly than that of the private sector. This minimised, as was entirely appropriate, the extent to which resources were absorbed by the public sector(4).
10. During the year, our imports also increased rapidly in line with the strong growth in our economy. Overall our visible trade account in 1987 was roughly in balance(5). So although we have been maintaining trade surpluses with many of our major markets we have used our export earnings to buy what we need from our major suppliers, with many of whom we run large trade deficits. We do not amass vast surpluses on our visible trade account. We are free traders in the full sense of that term.
11. I draw particular attention to our visible trade account and our large trade deficits with a number of economies because our trade surpluses with some economies, particularly the United States, have been cited as a reason for changing the linked exchange rate. Our overall visible trade balance provides no justification whatsoever for a change in the linked rate, especially since a change would involve a revaluation of the Hong Kong dollar against the currencies of trading partners with whom we already have large visible trade deficits.
12. In the light of the intense speculative pressure to which our exchange rate has been subjected from time to time, I wish to emphasise that the Government must have regard to the long-term overall interests of Hong Kong and its community. The linked rate system is a vital element of stability for Hong Kong; and it provides a mechanism for monetary control. I have no intention of altering the current rate.
(4) Government expenditure in national accounts terms differs from that shown in the Consolidated Account. Details of the difference are given in Appendix A. In national accounts terms, public sector expenditure grew by about 6 per cent in 1987; the corresponding growth rate of private sector expenditure was about 12 per cent. Taking into account changes in prices, the share of public sector expenditure in aggregate domestic demand dropped from 11 per cent in 1986 to 10.6 per cent in 1987. However, as regards expenditure on building and construction, a growth rate of 6.9 per cent was recorded for the public sector in 1987, compared with a figure of 6.4 per cent for the private sector.
(5) Hong Kong’s visible trade in 1987:
percentage of increase
Domestic exports
Re-exports
Total exports
Imports*
Visible trade balance
Visible trade deficit as a percentage of the
$ million 195,254 182,780 378,034 379,989 (1,955)
in money terms 26.8
49.2
36.7
36.9
total value of imports of goods 0.5 per cent * Including an estimate of imports of gold for industrial and commercial use.
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 793
13. The essence of our system is that adjustments do not take place through the exchange rate itself, but through changes in other aspects of the economy, a process which may include changes in the rate of inflation. Our recent inflation rate crept up over the course of 1987, but remains fairly moderate by historical standards(6). In the fourth quarter of 1987, the Consumer Price Index (A) was 6.7 per cent higher than a year earlier, while for 1987 as a whole, the average annual increase was 5.5 per cent. Some of the inflation was imported, partly reflecting the weakening of the Hong Kong dollar against most other major currencies, and some arose on the high liquidity and pressure of demand within the economy.
14. With the economy operating at full capacity, labour shortages became widespread in 1987. And in response, local producers have displayed a remarkable degree of flexibility and ingenuity in increasing productivity. They have also made significantly more use of outward processing facilities in China. This increased inter-relationship of our economy with that of China was a marked feature of last year and seems likely to continue this year. There are benefits for all in the development of this relationship.
15. The pressure of demand and the resulting labour shortages set in train the adjustment process, which is bringing about a gradual slowdown in the growth rate of the economy. In the later part of last year, the growth rate of our exports eased somewhat, and more recently there have been some signs that the pressure of demand on resources is beginning to slacken.
16. The events of last October in the world’s stock markets may have lessened some of the pressure on resources and thus shortened this adjustment process in our economy. Before I leave monetary and economic matters, therefore, I must say a few words about our own securities market. Much has been written and said about the crash and its implications. What took place in our market was in part a response to world events. The sharp falls were not a reflection of weaknesses in our economy. Nevertheless, there is no doubt that our systems were shown to be less than adequate, and it was for this reason, Sir, that you appointed the Securities Review Committee to examine critically the relevant structures and systems with a view to recommending improvements. We in Hong Kong are not alone in recognising the need to draw lessons from the crash. Other major markets, including London and New York, are conducting somewhat similar reviews. Our Securities Review Committee, under the able chairmanship of Mr. Ian Hay DAVISON, is now hard at work and we look forward to its report.
(6) Rate of increase of consumer prices over the past decade:
Rate of increase of CPI(A) (per cent)
1978 1979 1980 1981 1982
5.9
11.6 15.5 15.4 10.5
1983 1984 1985 1986 1987
9.9 8.1 3.2 2.8 5.5
Average 8.7 per cent
794 HONG KONG LEGISLATIVE COUNCIL-2 March 1988
17. In the meantime, various improvements are being carried out by both the Stock Exchange and the Futures Exchange in order to deal with immediate problems that have been identified. It is important that where steps can be taken to further safeguard investors those steps should not be delayed pending the recommendations of the Securities Review Committee.
18. The Government, for its part, continues to put together proposals in relation to the disclosure of beneficial interests in the shares held by directors and other substantial shareholders of public listed companies. Comments on the published White Bill have been received and I intend to seek the advice of the Executive Council in the near future. The subject of insider trading is also under active consideration, and again I am on the point of taking proposals to the Executive Council.
PRESENT STATE OF PUBLIC FINANCES AND REVISED ESTIMATES 1987-88
19. Sir, I turn now to the present state of our public finances. In sum, the expected position at the end of the financial year 1987-88 is one of higher than forecast revenue yields but with expenditure close to Budget. The surge in government revenue which began in 1986-87 has continued through 1987-88. Two years of double-digit economic growth have lifted our revenue base significantly.
20. The revised estimate of expenditure on General Revenue Account of $44.5 billion, including transfers to funds, is close to the original Estimate for the year. Expenditure on our various funds of $11.3 billion is about 5 per cent above Budget, due mainly to a purchase of quarters for the police force which was not allowed for in the original Estimates. Therefore, spending in cash terms on General Revenue Account and funds taken together is about 1 per cent above the original Estimates(7). Nevertheless, higher than expected inflation means
(7) Expenditure 1987-88 $ million
Revised Estimate Original Estimate
General Revenue Account Less transfers to funds
Capital Works Reserve Fund Development Loan Fund Home Ownership Fund Mass Transit Fund
Student Loan Fund
Total—funds
Total General Revenue Account +funds
(excluding transfers to funds)
44,474
6,600
________
37,874
7,700
1,638
751
1,109
93
________
11,291
49.165
44,409
6,600
________
37,809
7,050
1,690
752
1,102
103
________
10,697
48.506
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 795 that ‘real’ expenditure growth for the year is, in fact, slightly below the budgetted figure.
21. In Consolidated Account terms, real expenditure growth is now expected to be about 4.6 per cent compared with an original Estimate of 4.9 per cent(8). Furthermore, as a result of the exceptional growth rate in the economy, Consolidated Account expenditure as a proportion of GDP has fallen from 16 per cent in 1986-87 to around 15 per cent. The growth in the establishment of the Civil Service at just over 3 per cent is in line with the budgetted figure(9).
22. Transfers to the various funds from General Revenue Account of $6.6 billion will be as budgetted.
23. The original Revenue Estimates for the year were formed on the assumption at that time of GDP growth of around 8.5 per cent in 1986 and 6 per cent in 1987. As we have seen, actual economic growth has been considerably better. I now expect the revenue yield on General Revenue Account to be 9 per cent above the original estimate. Combining General Revenue Account and fund account revenue the increase on the original Estimate is 11 per cent(10). Stamp duty at $5 billion is nearly double the original Estimate; whilst salaries tax, profits tax, motor vehicle first registration tax and land sales revenue, all of which normally benefit from a strong economic performance, also have higher than expected yields.
24. As a consequence of the gains in our revenue yields, I now expect a much higher than budgetted surplus on General Revenue Account of some $6.1 billion. When combined with our fund accounts, the surplus becomes $7.6
(8) See Appendix A, paragraph 22 for the definition of Consolidated Account. (9) The position at the Budget cut-off date (19 December) compared to a year earlier. (10) Revenue 1987-88 $ million
Revised Estimate Original Estimate
General Revenue Account Capital Works Reserve Fund Development Loan Fund Home Ownership Fund Mass Transit Fund
Student Loan Fund
Total—funds*
Total General Revenue Account +funds
50,564
3,380
767
1,951
____
76
________
6,174
56,738
46,177
2,220
635
1,797
___
76
________
4,728
50,905
*Excluding transfers from General Revenue Account.
796 HONG KONG LEGISLATIVE COUNCIL-2 March 1988
billion(11). Substantial as this surplus may seem, it must be remembered that it is the product of two years of exceptional economic performance.
ECONOMIC PROSPECTS FOR 1988
25. I shall now say a few words about our economic prospects for the year ahead. Economic forecasting is always difficult; this year it is made even more so by the prevailing climate of uncertainty in the world economy. Subject to this caveat, I expect 1988 to be a year of consolidation, with a more balanced pattern of growth between external and domestic demand.
26. Nevertheless, the demand for Hong Kong’s products in our major overseas markets remains crucial to our overall economic performance. In the United States, the likely setback in consumer demand carries with it the expectation of only a small growth in domestic exports to our largest overseas market. And, looking further ahead, the forthcoming exclusion of our exports from the United States Generalised System of Preferences seems likely to affect adversely our economic performance in 1989. Fortunately, the outlook is brighter for our domestic exports to Japan, the Federal Republic of Germany and the United Kingdom. And notwithstanding continued import controls, the recent growth trend in our domestic exports to China is still strong, although some reduction in growth during the course of this year seems likely as a result of a slower development in outward processing. Overall, I forecast an increase in domestic exports of 6 per cent. Re-exports are expected to grow by 12 per cent. Together these two forecasts result in a forecast growth rate of 9 per cent for total exports.
27. Domestically, private consumption expenditure is expected to grow more moderately in 1988, although at a higher rate than that of GDP, largely reflecting the recent rapid growth in incomes. Capital expenditure on building and construction is expected to rise moderately with most of the growth
(11) Surplus/(deficit) 1987-88 $ million
Revised Estimate Original
Estimate
Before
transfers Transfers
After
transfers
(After
transfers)
General Revenue Account Capital Works Reserve Fund
Development Loan Fund Home Ownership Fund Mass Transit Fund
Student Loan Fund
Total—funds
Total General Revenue Account +funds
12,690
(4,320)
(871)
1,200
(1,109)
(17)
_________
(5,117)
7,573
(6,600)
5,080
1,000
___
500
20
_________
6,600
__
6,090
760
129
1,200
(609)
3
__________
1,483
7,573
1,768
250
(55)
1,045
(602)
(7)
__________
631
2,399
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 797
attributable to the private sector. Expenditure on plant and machinery is likewise expected to show only a modest increase, following the substantial growth recorded in 1987.
28. This pattern of growth gives a forecast growth rate of GDP for 1988 of 5 per cent(12). My forecast leads me to the following conclusions. First, given the tight labour market in 1987 the unemployment rate is likely to remain low this year despite a reduced rate of economic growth. Secondly, the rate of inflation is expected to average about 7 per cent(13). Thirdly, as total final demand in the economy is likely to rise faster than the supply of output, some of this growth in demand will have to be met by additional imports(14). Thus, our imports are forecast to grow by 9.5 per cent, and our retained imports by slightly over 7 per cent. This, coupled with a slight further deterioration in the terms of trade, should result in an increased visible trade deficit, giving further weight to some of the arguments I advanced against revaluation of our currency when I spoke of the state of the economy in 1987 a moment ago(15). And lastly, the forecast growth rate of the GDP in money terms is about 13 per cent in 1988. At current prices, per capita GDP would thus reach about $72,000, equivalent to US$9,200.
STRATEGY FOR PUBLIC FINANCES
29. Before I describe in detail my strategy for the public finances, it is necessary for me to say a few words about the trend growth rate of GDP. As in last year’s Budget, I have assumed a trend growth rate of 5.5 per cent in real terms for the forecast period. Whilst I accept that this may seem low when compared with two years of double-digit economic growth, the negative growth
(12) The forecast growth rates of the various major components of expenditure on the GDP in 1988 are as follows:
percentage
Private consumption expenditure
6.5
Government consumption expenditure
5.6
Gross domestic fixed capital formation
4.0
of which, in building and construction
3.8
in plant and machinery
3.9
Total exports of goods
8.8
Domestic exports
6.0
Re-exports
12.0
Imports of goods
9.5
Net exports of services
10.0
Gross domestic product
5.5
For further details, see ‘1988 Economic Prospects’.
(13) Rate of increase of the CPI(A) 7 per cent; of the GDP deflator 7.5 per cent.
(14) The forecast growth rate of total final demand (excluding re-exports), at slightly over 6 per cent, is higher than that of GDP, at 5 per cent.
(15) Import prices are forecast to increase by 4.5 per cent. Compared with a corresponding increase of 4.1 per cent for export prices, this would give a deterioration of 0.4 per cent in the terms of trade in 1988. The forecast of the visible trade deficit for 1988 is about $6 billion, equivalent to 1.4 per cent of the total value of imports of goods.
798 HONG KONG LEGISLATIVE COUNCIL-2 March 1988
experienced in 1985 is a salutary warning that we should not be over-influenced by recent results. Furthermore, I have already commented on the likely impact of recent worldwide problems. In the light of these considerations, I prefer to maintain the 5.5 per cent trend growth rate assumption for the purposes of this Budget.
30. In the context of the economic and financial background I have just outlined, I shall now set the scene for the measures I propose for 1988-89. It will be clear from all that I have said so far that volatility and uncertainty continue to be facts of our economic life. Almost inevitably, we will experience considerable year to year variation in revenue dependent as it is on the performance of our economy. Notwithstanding these swings in revenue, our aim is to maintain stability in public expenditure growth. This strategy is essential to the orderly and efficient development of government services and the stability of our tax system. It is only through prudent and careful management, which involves looking ahead a number of years, that we can ensure that the Government’s finances do not add to the innate volatility that affects our economy.
The Medium Range Forecast
31. Sir, Members will by now be familiar with the Medium Range Forecast, which we use to formulate our budgetary strategy. The forecast for the period up to 1991-92 is shown in an Appendix to the printed version of this speech and I commend it as a document for careful study(16). Because it forms the basis for my specific Budget proposals for 1988-89, I shall highlight some of the more important features of this forecast.
32. First, while both performance and projections of government expenditure remain close to previous forecasts, revenue is running well ahead of earlier expectations. Two years of rapid economic growth have lifted tax yields to a higher base. If no further fiscal measures were taken, our average surplus over the forecast period up to 1991-92 would run at about $5.9 billion a year.
33. Secondly, this level of surplus is well in excess of the $2 billion or so that we need each year just to maintain the real value of our reserves. It reflects the underlying strength of our position and gives us some room for manoeuvre.
34. And thirdly, government expenditure in Consolidated Account terms as a proportion of GDP is forecast to remain slightly below the 16 per cent mark, around which it has been maintained in recent years. Our aim of not crowding out the private sector with public sector demand is being achieved. This is particularly important at a time when our economy is already running up against capacity constraints.
35. If we are to maintain stability in our public finances, expenditure plans must be related to our longer-term prospects rather than shaped on the basis of
(16) Appendix A.
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 799
just two years of exceptional revenue yields. It follows, therefore, that any adjustments in 1988-89 should relate primarily to revenue. In the light of the results we have achieved and taking account of our projections over the period of the Medium Range Forecast, some further lowering of tax rates is thus possible; it has been earned by the efforts of the community. But you will not be surprised to learn that the measures I shall outline to you later retain a proper element of caution dictated by the uncertainties against which we must continue to guard.
Strategy for expenditure
36. Average annual growth in Consolidated Account expenditure over the forecast period is projected to be 5.4 per cent in real terms. This is just a little higher than the 5 per cent contained in my 1987-88 Budget strategy, but remains within the trend growth rate assumption for GDP.
37. It is important not to lose sight of the fact that such a growth rate in expenditure means that public sector expenditure will almost double by the end of the next decade. As we face this overall and perhaps inevitable growth in spending, we must pay particular attention to recurrent expenditure; I have in mind staff and departmental expenses. We must ensure that these continuing and ever increasing commitments do not exceed our longer-term ability to finance them. Against this background, I draw attention to the fact that the detailed Estimates which I present today make provision for growth in the size of the Civil Service of some 4 per cent in 1988-89(17). This is largely due to the staffing impact of some major new medical facilities and the build up of the Police Tactical Unit in preparation for taking over the work of the British garrison. These and other factors push staff growth beyond our target of 2.5 per cent a year.
38. There are potentially serious implications if such a high growth rate of 4 per cent in the size of the Civil Service were to continue. I have in mind the relationship between the size of the Civil Service and that of the labour force as a whole. The total labour force, which expanded by an average of 3.8 per cent in the 1970s and 2.4 per cent in the first part of this decade, is expected to grow by only 1.4 per cent for the remainder of this decade. Also, this rapid growth in the size of the Civil Service occurs at a time when the unemployment rate is particularly low. It may be unavoidable in the short term, but it cannot be permitted to continue indefinitely.
39. In a period of sustained expenditure growth, attention to priorities and to the effective deployment of resources is particularly important. It is therefore essential that our systems for appraising resource allocation be further refined. We aim to ensure that decisions are made in the context of planning for several years ahead. The Medium Range Forecast as an instrument to be utilised in the
(17) After allowing for project slippage and savings from further Value for Money studies.
800 HONG KONG LEGISLATIVE COUNCIL-2 March 1988
determination of appropriate fiscal policies was one of the early developments in furtherance of this objective. From this beginning, our financial planning machinery is being developed to focus attention on relative priorities between programmes. There is now an increasing emphasis in the Budget documents on what is being done with money and what is being achieved.
40. In an effort to make the total Budget package more readily understood, new material has been provided this year to illustrate the distribution of resources between programmes(18). As well as providing historical data, it also forecasts changes in the balance of spending in the light of current plans and commitments.
41. Let me draw attention to some of the major features. Since the beginning of this decade there has been a steady shift in emphasis towards the social services. In particular, education, medical and social welfare programmes have each significantly increased their share of total spending. The forecast indicates that this trend is set to continue. There are measures to improve welfare assistance for the elderly and the disabled who require constant attendance, a planned expansion of various welfare services, and major new facilities coming on stream such as the Hong Kong University of Science and Technology, the Tuen Mun Hospital and the Pamela Youde Hospital at Shau Kei Wan. Taken together, these result in a growth pattern in respect of social services that will ensure this sector an increasingly large slice of the cake in the coming years. Although we should accept this trend as a reflection of the aspirations of a developing community as it grows more prosperous, the burden on our Budget is something we must recognise and plan for. Also, when considering my revenue proposals, or indeed any possible revenue measures in future, it is important to bear in mind that this increased expenditure largely benefits the less affluent members of our community.
42. For many years, the driving force behind our development programmes has been the Government’s determination to ensure that adequate housing is available for all. As a further step in this process it is intended that the Housing Authority will, with effect from next month, assume full financial responsibility for the Home Ownership Scheme, the Home Purchase Loan Scheme, temporary housing areas and cottage areas(19). the new arrangements will ensure that the authority is able to plan a comprehensive housing programme in co-operation with the private sector, and with greater flexibility than before. The Government will, of course, continue to support the housing programme with finance and land as necessary, retaining its overall policy responsibility.
(18) Appendix B.
(19) The new arrangements are subject to Legislative Council approval and their impact has therefore been excluded at this stage from the detailed estimate proposals and the Medium Range Forecast.
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 801
43. We have already made a considerable impact on the provision of housing. Now the emphasis can increasingly be turned elsewhere. If we are to maintain economic progress we must ensure the efficient movement of people and goods within Hong Kong. Thus, greater priority must now be given to transport. In this respect, the Government is co-operating closely with the private sector in the planning and construction of several major transport projects such as the Eastern Harbour Crossing and Tate’s Cairn Tunnel.
44. We need also to ensure that our external transport links-by land, sea, and air-remain adequate for our economic needs. We are continuing to improve our cross border road links; we are expanding the existing container port, and we are developing better facilities at Kai Tak. But there is a need to look beyond the short and medium term, towards the possible relocation of the airport and new port facilities. These long-term developments and their implications are receiving close government scrutiny.
45. Thus, it follows that beyond the present forecast period a higher proportion of the Government’s total spending may have to be devoted to transport and infrastructural development even though we may look to the private sector to assume some of the financial burden. Bearing in mind our increasing commitments to the social services any additional public sector investment on our transport infrastructure will need to be carefully co-ordinated in order to ensure that our overall expenditure guidelines are not breached.
46. In the context of infrastructural development, I would like to say a few words about the Government’s support for the manufacturing industry. The well-publicised rapid growth in importance of our financial and other services sectors has sometimes overshadowed the vital contribution that our manufacturing industry has made to our economic success. Industry remains a mainstay of our economy, accounting for some 22 per cent of our gross domestic product and 34 per cent of total employment. Our time honoured philosophy is that market forces should be allowed to determine the direction of our industry. Business decisions should be made by businessmen. Nevertheless, the Government accepts a responsibility to ensure a favourable environment for industry, with the availability of the necessary infrastructure and support services. So, on services related to industrial development, we are planning to spend, subject to this Council’s approval, significantly more in 1988-89 than in earlier years and I shall be giving details later when I present my expenditure proposals.
Strategy for revenue
47. I turn now to my strategy for public revenue over the next few years. I have already indicated the potential that exists for a lowering of the tax burden. After allowing for the expenditure programmes, I am able to propose a package of taxation measures that overall will reduce recurrent revenue by about 5 per cent of present yields. The effect will be to reduce the average overall surplus in the Medium Range Forecast period to $2.7 billion a year. This will still leave a
802 HONG KONG LEGISLATIVE COUNCIL-2 March 1988
comfortable margin to maintain the value of our reserves in real terms and to provide a cushion for unforeseen events.
48. The balanced package that I shall detail later is however more than just a simple lowering of some tax rates. The particular measures I am proposing are designed to move our overall fiscal regime towards what I believe will be a more robust and equitable shape for the future.
49. When Members commented last year on my remarks about the potential value of a wider and more stable tax base, I gave an assurance that nothing would be proposed to alter the balance between direct and indirect taxes without the most careful consideration of the potential effects. Since then, we have been working to identify the advantages and disadvantages of different ways of bringing about such a move towards indirect taxes. In this regard, let me remind Members of the basic criteria which I consider any major new indirect tax should meet. First, it should produce a stable and worthwhile revenue yield at a low tax rate; secondly, it should cause minimal distortion to the economy; and thirdly, it should be simple and cheap to administer.
50. Whilst our researches are far from complete, they have tended to confirm my belief that a measure of tax diversification, together with some rationalisation of existing indirect taxes, is a practical proposition. What we have done so far suggests that a form of sales tax, though probably not at the retail level, best meets the criteria I have described. But this is a complex area and many factors remain to be considered. There is, therefore, much more to be done before I am able to present any proposals for public debate.
The Government’s reserves
51. The impact of the strategy I have outlined on the level of the Government’s consolidated reserves results in the forecast balances of $40.5 billion at the end of 1987-88 rising to about $46 billion by the end of 1988-89 after allowing for the taxation proposals that I shall be making this afternoon. The Medium Range Forecast shows that maintenance of these reserves in real terms will be achieved over the forecast period up to 1991-92. However, over this period the reserve balances will fall as a percentage of annual spending from about 77 per cent to 65 per cent(20). In this respect, our reserves have been higher only briefly in the early years of this decade when we experienced substantial windfall receipts from land sales. Sir, there can be no absolute guideline as to a satisfactory level of reserves. Nevertheless, the present position not only provides essential cover for our contingent liabilities and for fluctuations in our short-term cash flow but also assists us in maintaining fiscal stability over the longer term(21).
(20) Appendix A, paragraph 15.
(21) Contingent liabilities as at 31 March 1987 are listed in Appendix C.
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 803 DRAFT ESTIMATES 1988-89
52. Against this background, I now present the Draft Estimates of Expenditure, the Revenue Estimates and my revenue proposals for 1988-89.
Draft Estimates of Expenditure
53. Dealing first with expenditure, the Medium Range Forecast, on which my Budget for 1987-88 was based, indicated that expenditure growth was expected to peak in 1988-89 due to the timing of payments in respect of the Kowloon Walled City clearance. As Members will see from the updated Medium Range Forecast, this is still the case. The Draft Estimates I submit today show expenditure on General Revenue Account of $50 billion including transfers to funds. Expenditure on our various funds is estimated to be $13 billion. Taking General Revenue Account and funds together, but excluding transfers, these Estimates represent an increase of about 13 per cent in cash terms over the Revised Estimate for 1987- 88(22). This figure of $50 billion for General Revenue Account includes $3.8 billion for additional commitments to cover the usual range of new and unforeseen items that arise each year including possible salaries adjustments. In addition, this year, the provision allows for payments under a new Defence Cost Agreement when a new agreement is, in fact, concluded.
54. When coupled with the estimated expenditure of other public bodies such as the Housing Authority and the Urban and Regional Councils, the estimated growth rate on Consolidated Account is 15.7 per cent in cash terms and 7 per cent in real terms; that is to say 1.5 percentage points above our budgetary guideline. The Kowloon Walled City project accounts for some 1.2 percentage points of this real growth in Consolidated Account expenditure. I am, therefore, satisfied that after excluding this exceptional and one-off project, the remaining growth is broadly consistent with my intention of keeping the underlying trend to around 5.5 per cent.
(22) Draft Expenditure Estimates 1988-89
$ million
Revised Estimates 1987-88
$ million
General Revenue Account Less transfers to funds
Capital Works Reserve Fund Development Loan Fund Home Ownership Fund Mass Transit Fund
Student Loan Fund
Total—funds
Total General Revenue Account +funds
(excluding transfers to funds)
49,976
7,410
________
42,566
10,180
1,790
800
95
109
________
12,974
55,540
44,474
6,600
________
37,874
7,700
1,638
751
1,109
93
________
11,291
49,165
804 HONG KONG LEGISLATIVE COUNCIL-2 March 1988
55. In coming to these figures, full allowance has been made for the cost of running new facilities and for responding to the underlying growth in demand for many of our services. In addition, there has been room within my guidelines to finance a number of major improvements or entirely new services. Some Members will note particularly that provision is made for the recently announced improvements in welfare benefits for the elderly. In all, the improvements in services planned for 1988-89 will cost $560 million in the Budget year and about $1.1 billion in a full year. A list of the more significant items is included in an Appendix to the printed version of this speech(23).
56. Consolidated Account spending on capital programmes, including the Kowloon Walled City clearance, is forecast to be $16.9 billion—an increase of about 19 per cent on the previous year in cash terms. Major new projects to start in the year include several highway developments in both the New Territories and urban areas and land formation contracts in respect of the Tin Shui Wai development. Again, a fuller list is given in an Appendix(24).
57. As regards the composition of the expenditure estimates, I have already referred to the tendency in recent years for a higher proportion of our total resources to be devoted to social services. In this respect, 1988-89 will be no exception. In particular, we plan to spend on medical services $6.1 billion on Consolidated Account, thus increasing the share from 9.4 per cent in the current year to 9.7 per cent as we service some of the major new facilities coming on stream. And on social welfare services, total spending is estimated at $3.9 billion, an increase in the share from 5.7 per cent in 1987-88 to 6.3 per cent. This is partly due to the improvements in welfare benefits for the elderly and for the disabled who require constant attendance, but also is a result of the expansion of various welfare services. Furthermore, we should not lose sight of the impact of past Budgets. The cumulative real increase in spending on medical and social welfare services since 1983-84 will be 46 per cent and 45 per cent respectively.
58. Of the Consolidated Account expenditure in 1988-89, 12.6 per cent will be allocated to housing. In 1988-89, the Housing Authority expects to produce some 45 000 rental flats, the highest number of such flats ever produced in a single year. Twelve thousand one hundred and sixty flats are expected to be produced under the Home Ownership and Private Sector Participation Schemes next year, which is 21 per cent over the average annual production target under these schemes. This increased production level will help meet the very welcome demand for home purchase.
(23) Appendix D.
(24) Appendix E.
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 805
59. Net land production in 1988-89 is expected to be 165 hectares compared with a Revised Estimate of 174 hectares for 1987-88. Over the three years of the forecast period 1989-90 to 1991-92, total production is expected to be 1 092 hectares(25).
60. I referred earlier to the proposal to increase our expenditure significantly in support of our manufacturing industry. We are already committed to spending over $1 billion a year on services for industry. Our plans for increased expenditure in 1988-89 include a grant to the Hong Kong Productivity Council for the first year of a new three-year programme for upgrading and expanding its productivity enhancement services, a grant to assist towards the creation of a plastics technology centre based on the Hong Kong Polytechnic and additional appropriations to enable the Industry Department to improve its promotional activities.
61. Although I am satisfied that my overall expenditure proposals for 1988-89 can be contained within my budgetary strategy, this means, as I have said, a growth in the civil service establishment of some 4 per cent. Of the total staff growth, some 26 per cent will accrue to the Medical and Health Department and 15 per cent to the police. It is likely that we shall witness a similar overall growth rate in 1989-90, but I shall look for a move towards our 2.5 per cent guideline thereafter.
62. I have provided for transfers amounting to $7.4 billion from General Revenue Account to our various funds in 1988-89 to support the activities they finance. The transfers are broadly sufficient to ensure that the balances in the funds are maintained in real terms. I have also taken into account a switch of certain items to the Capital Works Reserve Fund in 1988- 89 which were previously funded from General Revenue Account.
63. Overall, as a result of these Estimates, Consolidated Account expenditure as a proportion of GDP is estimated to increase from 15 per cent in 1987-88 to around 15.5 per cent.
(25) This includes land to be formed (net of internal roads) under on-going and committed projects in the Public Works Programme and the Public Housing Development Programme and land to be formed by the private or subsidised sector under conditions of land sale grant. A breakdown of the total land production is as follows:
Year
1989-90 1990-91 1991-92
Production(hectares) 302
343
447
806 HONG KONG LEGISLATIVE COUNCIL-2 March 1988
Draft Estimates of Revenue
64. Turning now to the Draft Estimates of Revenue, total revenue on General Revenue Account before my Budget proposals is estimated to be $55.6 billion(26). Revenue accruing to our various funds is estimated to be $7.3 billion(26). Growth in total revenue, taking General Revenue Account and the funds together, is about 11 per cent.
65. Although I have forecast a slowdown in economic growth, revenue in 1988-89 will still be benefiting from two years of exceptional economic performance in 1986 and 1987. In particular, yields from profits tax, salaries tax, vehicle first registration tax and many of our fees and charges are expected to remain buoyant. The yield from rates will benefit from the recently announced property revaluation.
66. I have, however, been deliberately cautious on stamp duty, because stock market turnover recorded in the first half of 1987-88 was exceptionally high and unlikely to be repeated in 1988-89. Whilst the impact of the slowdown in economic growth on land prices is not yet clear, I have again preferred to use relatively conservative assumptions as to land sale yields.
67. In terms of the proportion of direct to indirect taxes, the direct element is forecast to rise slightly to about 61 per cent in 1988-89 before my revenue measures. The comparable Revised Estimate for 1987-88 is 58 per cent and the actual share for 1986-87 was 60 per cent.
(26) Draft Estimates 1988-89
$ Million
Revised Estimates 1987-88
$ Million
General Revenue Account Capital Works Reserve Fund Development Loan Fund Home Ownership Fund Mass Transit Fund
Student Loan Fund
Total—funds*
Total General Revenue Account +funds
55,550
4,480
786
1,981
__
83
____
7,330
62,880
50,564
3,380
767
1,951
___
76
____
6,174
56,738
*Excluding transfers from General Revenue Account.
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 807
Summary of Draft Estimates
68. Taken together, the Draft Estimates of Revenue and Expenditure for 1988-89, before revenue measures, show a net surplus on General Revenue Account of $5.6 billion and an increase in the balances of the funds of $1.7 billion. In total, therefore, a potential overall surplus for the year of $7.3 billion is indicated(27).
69. I have already suggested that there is scope for some reduction in taxation. In formulating my proposals, I have looked beyond 1988-89. I must emphasise that it will take time before the slower economic growth that I have forecast affects our revenue yields. Furthermore, the full impact on revenue yields of any tax concessions I introduce will not be felt until 1989-90.
70. With these considerations in mind, I am proposing a package of measures which will reduce our revenue yields by $1.8 billion in 1988-89, but, more importantly, by $2.7 billion in a full year. As I have indicated, the full year cost is equivalent to about 5 per cent of recurrent revenue yields. In 1988-89, these proposals will, therefore, reduce the estimated overall surplus on General Revenue Account from $5.6 billion to $3.8 billion and the overall surplus, when taken together with our funds, from $7.3 billion to $5.5 billion.
71. In terms of their impact on the ratio between direct and indirect taxes, my proposals will reduce the direct element in 1988-89 from what would have been 61 per cent of tax revenue to 60 per cent. Pending the further consideration of new indirect sources, to which I have referred, my proposals are intended merely to contain what is a tendency for the naturally buoyant direct sources to increase as a share of the whole.
72. I shall now present my revenue proposals.
(27) Estimated surplus/ (deficit) 1988-89 (Before revenue measures)
$million
Before
transfers Transfers
After
transfers
General Revenue Account Capital Works Reserve Fund Development Loan Fund Home Ownership Fund Mass Transit Fund
Student Loan Fund
Total—funds
Total General Revenue Account +funds
12,984
(5,700)
(1,004)
1,181
(95)
(26)
____
(5,644)
7,340
(7,410)
6,200
1,100
__
100
10
___
7,410
—
5,574
4,480
786
1,981
__
83
____
1,766
7,340
808 HONG KONG LEGISLATIVE COUNCIL-2 March 1988 REVENUE MEASURES
73. The package is made up of a number of revenue-raising measures designed to yield $390 million in 1988-89, equivalent to $507 million in a full year. But this additional revenue is more than offset by tax concessions estimated to cost $2.2 billion in 1988-89, and $3.2 billion in a full year(28).
Dutiable commodities
74. I shall deal first with dutiable commodities. The principle underlying my proposals continues to be that specific duty rates should be maintained in real terms. I look for regular small changes broadly in line with inflation rather than less frequent, but inevitably larger, increases.
Imported hydrocarbon oils
75. The duty rates on hydrocarbon oils were revised last year(29). I propose to increase the duty rate on motor spirit from $2.40 to $2.55 a litre, and on diesel oil for road vehicles from $1.20 to $1.27 a litre(30). The refund on diesel oil to the franchised bus companies will remain at 65 cents a litre. The two increases come into effect this afternoon. I estimate the additional revenue yield to be $98 million in 1988-89.
Intoxicating liquor and imported alcohol
76. Duty rates on intoxicating liquor were also revised last year(31). This year I have three proposals. First, for cider and perry, beer, non-European type wines and Chinese type spirits, I propose an increase of 6 per cent in the specific duty elements to restore their real value.
77. Secondly, I propose to increase the basic rates for imported ethyl alcohol and methyl alcohol from $4.30 to $4.55 a litre. This will maintain the rates in real terms, and keep them in line with the rates for non-European type wines.
78. Thirdly, I propose to lower the differential on duty rates which exists at present between, on the one hand, brandy and, on the other, whisky, gin, liqueurs, rum, vodka and other spirituous liquors. I propose to reduce the specific duty rate on brandy by $12 a litre, that is from $67 to $55 per litre, whilst leaving the others at the existing specific duty rate of $48 per litre. However, to protect the real revenue yield, I propose to increase the ad valorem
(28) Details can be found in Appendix F.
(29) 1987 Budget speech, paragraph 103.
(30) If the full increase is passed on to consumers, petrol prices will rise by about 3.3 per cent and diesel prices by about 2.1 per cent.
(31) 1987 Budget speech, paragraph 106.
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 809
rates for all these liquors from 20 per cent to 30 per cent. This proposal is consistent with my predecessor’s view that a purchaser of a cheaper brand should not be required to pay the same duty per bottle as a purchaser of a more expensive brand(32). The effect of lowering the differential between the duty rates imposed on brandy and whisky will mean that the duty on the cheaper brandies will be reduced by some 12.5 per cent, that is $9 per litre, whereas there will be a modest rise in the duty on the cheaper whiskies. More expensive brandies and whiskies will attract more duty. Details of these new rates are given in an Appendix to the printed version of this speech(33). No changes are proposed to existing duty rates for champagne, and sparkling or still wines.
79. All these changes in rates are effective this afternoon. I estimate the additional revenue yield in 1988-89 to be $40 million assuming no consumer resistance.
Tobacco
80. Members will recall that last month this Council approved the Dutiable Commodities (Amendment) Ordinance 1988, which amended Part II of the Schedule to the Dutiable Commodities Ordinance in order to remove the duty then payable on a weight basis on the import of unmanufactured tobacco and cigarettes, and to replace it with a duty payable per 1 000 cigarettes. The duty rate imposed of $165 per 1 000 cigarettes was revenue neutral; the rates for other items in the Schedule were unchanged.
81. Tobacco duty rates were last revised in 1987(34). To keep all these rates broadly in line with inflation, I propose to increase the duty on cigarettes from $165 to $175 per 1 000 sticks. The duty on cigars will be increased from $220 to $233 a kilogram; on smoking tobacco from $200 to $212 a kilogram; and on Chinese prepared tobacco from $43 to $45.50 a kilogram(35). These increases come into effect this afternoon. I estimate the additional revenue yield to be $69 million in 1988-89.
Fees and charges
82. I turn now to fees and charges. For 1988-89, I propose to increase the following fees and charges—first, vehicle and driving licence fees; secondly, bank and deposit-taking company licence and registration fees; thirdly, passenger embarkation and berthing fees; and, lastly, postal and telecommunication fees and charges.
(32) 1984 Budget speech, paragraphs 103-109.
(33) Appendix F(1).
(34) 1987 Budget speech, paragraph 111.
(35) If the full duty increase is passed on to consumers, the average price per packet of cigarettes will increase by about 20 cents. Further details can be found in Appendix F(1).
810 HONG KONG LEGISLATIVE COUNCIL-2 March 1988
Vehicle and driving licence fees
83. Vehicle registration and driving licence fees were increased last year(36). I propose to increase these fees with immediate effect by about 6 per cent. I estimate that the additional revenue accruing from these increases will be $62 million in 1988-89.
Bank and deposit-taking company licence and registration fees
84. Bank and deposit-taking company licence and registration fees were last increased in 1986(37). I propose with effect from 1 April 1988, an 8 per cent increase in these and related fees. Details are given in an Appendix to the printed version of this speech(38). The yield in 1988-89 will be around $11 million.
Passenger embarkation and berthing fees
85. Passenger embarkation and berthing fees were increased in 1985 for Macau ferry services(39). At that time, my predecessor said that, as and when facilities at other terminals were improved, we would seek to raise additional revenue from those terminals at which operating costs were not being recovered.
86. In recent years, the Government has invested considerable additional resources to cater for the growth in passenger ferry traffic to China. In accordance with our general policy of cost recovery, I propose that when the China Ferry Terminal in Canton Road opens later this year, the passenger embarkation fee of $15 be extended to those departing from this new terminal. Berthing fees at the China Ferry Terminal will then be set at the same level as those for vessels using the Macau Ferry Terminal(40). These fees will be reviewed regularly in line with the existing policy of recovering the full operating costs. I estimate the total additional revenue yield in 1988-89 to be $6 million, and $12 million in a full year.
Postal and telecommunication fees and charges
87. Postal and telecommunication fees and charges were last revised in 1985(41). To restore the real value of these fees and charges, I propose to
(36) 1987 Budget speech, paragraph 119.
(37) 1986 Budget speech, paragraph 107.
(38) Appendix F(2).
(39) 1985 Budget speech, paragraph 109.
(40) Current fees for each berthing are:
Ferries—
Hong Kong—Macau Terminal
Hong Kong—China Terminal
(41) 1985 Budget speech, paragraph 102.
Ferries— dynamically supported craft
$ per ton
2.0
1.0
other than dynamically supported craft
$ per ton
1.0
0.5
Vessel
not being a ferry
vessel
$ per ton
2.0
1.0
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 811
implement during the next financial year a package of moderate increases in postal and telecommunication fees and charges. The additional revenue yield in 1988-89 is estimated at $23 million, and $70 million in a full year.
Other fees and charges
88. A number of other fees and charges, including those in relation to certain services provided by the Immigration Department, the Medical and Health Department, the Trade Department and the Water Supplies Department, are scheduled for their normal regular review in 1988. From these sources, I expect additional revenue of about $81 million in 1988-89, equivalent to $145 million in a full year.
Tax concessions
89. I now turn to tax concessions. My personal taxation package has been carefully structured to slow down the rate at which people move to higher tax brackets. At the same time, although allowances will be raised broadly in line with inflation, thus keeping a number of people outside the tax net, increases in real income will of course have the overall effect of increasing the number of taxpayers. It is through the combination of these features that I am seeking to move towards the more robust and equitable fiscal regime to which I referred earlier(42). I trust that Members will note that my proposals will be of particular assistance to the middle income group.
Personal taxation
90. For personal taxation, I propose:
First, to reduce the standard rate from 16.5 per cent to 15.5 per cent;
Secondly, that the Second Schedule of the Inland Revenue Ordinance be revised to provide both a lower initial tax rate and a more gradual progression through the various marginal rates as income increases(43). Furthermore, the
(42) 1988 Budget speech, paragraph 48.
(43) If the revision proposed is brought into law, the table in the Second Schedule of the Ordinance would be amended to:
For the year of assessment 1988-89 and each year thereafter:
Upon the first $10,000 Upon the next $10,000 Upon the next $10,000 Upon the next $10,000 Upon the next $10,000 Upon the next $10,000 Upon the next $10,000 Upon the remainder
Proposed
3 per cen 6 per cen 9 per cen
12 per cen 15 per cen 18 per cen 21 per cen 25 per cen
present
5 per cen 10 per cen 15 per cen 15 per cen 20 per cen 20 per cen 25 per cen 25 per cen
Examples of the effect on tax payable due to the revision of the marginal tax rates are given in Appendix F(3).
812 HONG KONG LEGISLATIVE COUNCIL-2 March 1988
point at which the maximum 25 per cent marginal rate will begin to apply will be raised by $10,000;
Thirdly, I propose that the additional personal allowance be increased from $5,000 to $7,000 for a single person, and from $10,000 to $14,000 for a married couple. Thus, the basic allowance plus the increased additional allowance will total $36,000 for a single person, and $74,000 for a married couple; below these income levels there will be no liability to tax. The new allowances at their maximum levels will be nearly 6 per cent higher than the present basic and additional personal allowances(44);
Fourthly, I propose that the child allowance be increased, for a first child from $11,000 to $12,000, and for a second child from $8,000 to $8,500; and
Lastly, that the allowance for a dependent parent be increased from $9,000 to $10,000. Thus, the total allowance in respect of a dependent parent residing with a taxpayer will be $13,000.
91. I intend to introduce these concessions with effect from the year of assessment commencing 1 April 1988. Therefore, the first occasion on which they will apply will be to provisional and final salaries tax assessments for 1988-89, and also to 1988-89 personal assessments. I estimate that the cost to the revenue in 1988-89 will be about $1.1 billion, and for a full year, $1.5 billion.
Taxation of married women
92. Sir, in debating my Budget proposals last year, a number of Members urged that separate taxation should be introduced for working wives. In my speech concluding the debate on last year’s Budget, I explained why I did not consider that separate taxation was appropriate(45). Since that time, there has been continued public debate on this subject; I am also aware of the trend in some other tax administrations in the direction of separate taxation. In all the circumstances, I am now prepared to consider further how separate taxation for working wives might best be introduced.
93. I must warn, however, that there are a number of difficult questions to be resolved not the least of which is the question of transferability of allowances between spouses. This is a complex subject with many options to be considered
(44) Under section 42B(l) of the Ordinance, the present basic and additional allowances are:
Single
Married
Basic
Allowance $
29,000
60,000
Additional Allowance $
5,000
10,000
Total $
34,000 70,000
(45) Speech concluding the debate on the Second Reading of the Appropriation Bill, 1987, paragraphs 29-30.
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 813
if we are to ensure broadly equitable treatment. It would therefore not be feasible to introduce separate taxation overnight. Because of the difficulties involved in implementing separate taxation, and so that some benefit can be enjoyed now, I propose to introduce in 1988-89 an annual allowance of up to $15,000 for working wives. This will cost a further $240 million in 1988-89, and $340 million in a full year. As this concession will be introduced with effect from the year of assessment commencing 1 April 1988, the first occasion on which it will apply will be to provisional and final salaries tax assessments for 1988-89, and also to 1988- 89 personal assessments.
94. Examples of the effects of the personal taxation concessions upon various categories of taxpayers, together with the comparative tables, are set out in an Appendix to the printed version of this Speech(46).
Profits tax
95. As to profits tax, I propose a reduction in the rate of tax on corporate profits from 18 per cent to 17 per cent. The cost of the reduction proposed is $370 million in 1988-89 and, for a full year, $760 million. The new corporate rate of 17 per cent will apply to provisional and final assessments for 1988-89.
96. Some have argued that a stimulus should be provided to the manufacturing sector through an increase in capital allowances for expenditure incurred on the provision of plant and machinery. As I said earlier, in 1987 there was no reluctance on the part of manufacturers to invest. We are seeing more and more effort being made to increase capacity, improve productivity and enhance profitability. I do not believe that the selective inducement of an increase in capital allowances is what is needed at this time. Instead, I consider that the proposed reduction in the rate of tax on corporate profits will provide appropriate and proper encouragement to all those in business.
Property tax, interest tax and profits tax paid by unincorporated businesses 97. The reduction proposed in the standard rate from 16.5 per cent to 15.5 per cent will lower the yields from property tax, interest tax and profits tax paid by unincorporated businesses. Taken together, I estimate that this will cost a further $70 million in 1988-89 and $160 million in a full year. The new standard rate will apply to provisional and final profits tax and property tax assessments for 1988-89; it will apply also to final interest tax assessments for that year.
Stamp duty
98. I have a further concession; it relates to stamp duty. The concession is designed to facilitate wider home ownership and assist the middle income group. At present, the rate of duty payable on assignments varies according to the sale price or market value of the property, whichever is the higher. I intend to relax the rates applicable to small and medium-sized properties.
(46) Appendix F(3).
814 HONG KONG LEGISLATIVE COUNCIL-2 March 1988
99. I propose with effect from 1 April 1988 to lift the threshold at which the 2.75 per cent rate begins to apply from the present $500,000 to $1.5 million; to cut the rate of duty for properties costing between $250,000 and $1.5 million; and to introduce a new formula for determining marginal relief, which will provide a greater benefit to duty payers and have the effect of pushing the various duty rate thresholds upward. I estimate that some 100 000 persons will benefit from these proposals, which will cost a further $300 million in 1988—89. Details are given in an Appendix to the printed version of this speech(47).
Air passenger departure tax
100. Lastly, I have one other proposal. This relates to Air Passenger Departure Tax. The tax on passengers departing from Hong Kong by air was last increased in 1985 to its present level of $120 for an adult and $60 for a child. Over the last three years, the value of this tax has been eroded by inflation. Balancing one factor against another, and in the light of my overall budgetary strategy, I propose that from 1 April 1988 the tax on passengers departing from Hong Kong by air be revised to $100 for an adult and $50 for a child. This concession will cost $120 million in 1988-89. I trust that not only our own travellers but also our many visitors will welcome this reduction.
IMPLEMENTATION
101. My proposals for air passenger departure tax, bank and deposit-taking company licence and registration fees, dutiable commodities, stamp duty and vehicle and driving licence fees were the subject of Public Revenue Protection Orders signed by you, Sir, this morning. During the current session, a Bill to amend the Inland Revenue Ordinance will be introduced into this Council to give effect to my proposals on tax concessions. Other increases in fees and charges will be brought forward during the year as the relevant reviews are completed.
SUMMING UP
102. Sir, that concludes my revenue proposals. This year I have again been able to propose an easing of the tax burden whilst increasing expenditure on public services and maintaining the value of our reserves. We have adhered to our policy of continuity and we are building for the future. The proposals that I have outlined offer something for all sectors of our community. The tax concessions, particularly for middle-income earners, and the efforts we are making to assist the less advantaged of our community are especially worthy of note.
103. In putting together my tax proposals, I have deliberately sought a broadening of the tax base to achieve greater fiscal stability. As and when people enjoy a real increase in their income, it is not unreasonable that they should contribute to the funding of our public services. I have also referred to
(47)Appendix F(4).
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 815
the work that we are carrying out in relation to a broadly based indirect tax, but I repeat my assurance that we will not rush into something that does not suit us.
104. It is in the context of my theme of continuity and forward planning that I believe we must remind ourselves of the need for prudence. The governance of Hong Kong is becoming increasingly complex and the range of functions required of the Administration is expanding. The private sector, too, is playing its part particularly in the provision of infrastructure. And we are making greater use of statutory authorities.
105. All this is evidence of dynamism and change. In such an environment, I remain aware of the need for continuing vigilance regarding the growth in public sector expenditure. Experience elsewhere shows that an expanding public sector in relation to the economy as a whole is often a major factor in dampening long-term economic prospects. This should not be allowed to happen in Hong Kong.
106. I recognise that my overall budgetary package could well provide a stimulus to the economy in 1988, but I believe that the effect will be tolerable. I have no doubt, however, given that the economy will still be operating at near full capacity, that any further stimulus would be inappropriate and could well result in higher inflation rather than greater real growth.
107. I am particularly conscious that the expenditure proposals I have put before you today imply real growth in our spending in 1988-89 higher than my forecast for economic growth. Furthermore, the indications are that the size of the Civil Service is set to increase, for at least the next few years, at a rate faster than that of Hong Kong’s labour force.
108. It is inevitable, however, that in some years our spending will be above the trend. Continuing care is needed to ensure that in the longer term we move back to our planning criteria. If we fail in this regard, we may find ourselves locked into high expenditure growth rates that cannot be reduced if and when circumstances turn against us. We could then find ourselves in a position of being forced to increase taxation, and, through that increase, erode significantly our competitive edge bearing in mind the move towards lower tax rates worldwide.
109. But let me not end on such a sombre note. Hong Kong has prospered over the last two years and I have been able to return to our community some of the fruits of that prosperity. It is a task I have enjoyed. Finally, Sir, throughout this Budget speech, I have often stressed the continuity of our policies and so I conclude with the words of T. S. ELIOT:
‘What we call the beginning is often the end
And to make an end is to make a beginning.
The end is where we start from.’
110.Sir, I beg to move.
Debate adjourned pursuant to Standing Order 54(2).
816 HONG KONG LEGISLATIVE COUNCIL-2 March 1988 Adjournment and next sitting
HIS EXCELLENCY THE PRESIDENT: In accordance with Standing Orders I now adjourn the Council until 2.30 pm on Wednesday, 9 March 1988.
Adjourned accordingly at nineteen minutes to Four o’clock.
(Note: The short title of the Bill listed in the Hansard have been translated into Chinese for information and guidance only; they do not have authoritative effect in Chinese.)
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 817 Appendices
Page
A. Medium range forecast 1987-88 to 1991-92 818-827 Forecasting Government’s expenditure and revenue in the period up to 1991-92 and setting these forecasts in a historical context.
B. Trends in public expenditure 1983-84 to 1991-92 828-840 Showing the past and projected allocation of resources between service groups.
C. Contingent liabilities 841 Setting out the more significant contingent liabilities of Government.
D. The recurrent cost implications of major new or improved services to begin in 1988—89 842 Listing new items each with an annual recurrent cost of $3 million or over and incorporated in the 1988-89 draft Estimates.
E. Major capital works projects to begin in 1988-89 843 Listing projects each with a project cost of $100 million or over budgetted to begin in 1988-89.
F. Budget revenue measures 844-864 Containing further details of the revenue proposals made.
818 HONG KONG LEGISLATIVE COUNCIL-2 March 1988 Appendix A
MEDIUM RANGE FORECAST 1987-88 TO 1991-92
INTRODUCTION
The Medium Range Forecast (MRF) is Government’s planning tool for ensuring that budgetary policy, and in particular expenditure programmes, are developed and implemented within the context of the economy as a whole looking forward over a five year period. It is the starting point from which detailed expenditure programmes and taxation measures are developed and is a reflection of the financial consequences of policy decisions. The MRF is updated regularly.
2 This MRF is for the period 1987-88 to 1991-92 and has been used in the formulation of the 1988-89 budget. It is presented in three sections:
(I) Forecasting assumptions and budgetary criteria.
(II) The MRF for 1987-88 to 1991-92.
(III) Commentary on the MRF in relation to budgetary criteria.
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 819
Appendix A—Contd.
SECTION I—FORECASTING ASSUMPTIONS AND BUDGETARY CRITERIA 3 A number of computer based models are used to derive the MRF. These models reflect a wide range of assumptions about the factors determining each of the components of Government’s revenue and expenditure. Some are economic in nature (the general economic assumptions) while others deal with specific areas of Government’s activity (the detailed assumptions). These are supported by studies of historic and anticipated trends.
General Economic Assumptions
Growth in Gross Domestic Product (GDP)
4 There is a clear link between many of Government’s major revenue sources and economic growth. For planning purposes the medium range assumption as to annual GDP growth for the current MRF has been set at % in real terms.
Inflation
5 The inflation rate fell rapidly in 1985 and 1986 but, in recent months, has begun to edge upwards. Over the forecast period the average year on year assumption has been increased to % (from % in the previous Medium Range Forecast). It is emphasized that this is a trend assumption and the prospect in the short-term is that actual inflation will exceed this trend.
Detailed Assumptions
6 A wide range of detailed assumptions relating to developing expenditure and revenue patterns over the forecast period are taken into account. These include:
—estimated cash flow on capital projects.
—forecast completion dates of these capital projects and their related recurrent consequences in terms of staffing and running costs.
—the expected pattern of demand for individual services.
—the trend in yield from individual revenue sources.
—changes in taxation rates and fees and charges.
Budgetary Criteria
7 In addition to the above forecasting assumptions there are a number of criteria against which the results of forecasts are tested for overall acceptability in terms of budgetary policy. Any significant breach of these parameters results in a review of the underlying programmes and adjustments as necessary. 8 The following are the more important budgetary criteria:
—Total cash flow surplus/deficit
As a general aim, a cash flow surplus is sought each year to ensure that total reserves in General Revenue Account and in the Funds maintain their value in real terms. On the basis of the current level of reserves an annual surplus of around $2.0 billion is necessary to achieve this objective. —Operating surplus/deficit
With the reduction in importance of capital revenue from land sales a continuing substantial element of capital expenditure must now be financed from a surplus on operating account (recurrent revenue in relation to recurrent expenditure). A broad target of at least a 50% funding of capital expenditure from the operating surplus is adopted.
—Total expenditure growth
It is intended that expenditure growth should not exceed the trend assumption as to growth in GDP taking one year with another.
—Capital expenditure growth
By its nature some fluctuations in the level of capital expenditure are to be expected. However. taking one year with another the aim is to contain capital expenditure growth within overall expenditure guidelines. i.e. within the trend assumption as to GDP growth. Allowance is made for a number of major projects due to start in the forecast period. In planning the size of the capital programme regard is also had to the recurrent consequences of capital works (staffing, maintenance, etc.). —Size of the civil service
This is a significant determinant of the growth rate of Government’s expenditure. A target average annual growth of no more than % in the size of the civil service is adopted.
—Taxation policy
The projections reflect the taxation measures introduced in this year’s budget. Thereafter. no major shifts in the tax burden are assumed. Account is taken, however, of the need to maintain the real yield from fees and charges, fixed duties etc. and to review periodically the various tax thresholds in the light of inflation.
820 HONG KONG LEGISLATIVE COUNCIL-2 March 1988
Appendix A—Contd.
SECTION II—THE FORECASTS
9 The current MRF is summarized in the following three tables which indicate the forecast operating position, capital cash flow and the aggregation of the two in a consolidated cash flow statement.
10 It is emphasized that the forecasts are based on trends and, therefore, the actual results of any individual year may vary significantly from the trend assumption. This is particularly so in Hong Kong’s volatile economic circumstances.
Operating Statement (before budget revenue measures) Table 1
—defines the relationship between expenditure and revenue of a regular (recurrent) nature, i.e. it excludes both capital expenditure and revenue which, by their nature, are a collection of one-off items.
Revised
Estimate
Forecast
1987-88
1988-89
1989-90
1990-91
1991-92
$mn
$mn
$mn
$mn
$mn
Recurrent expenditure
Capital expenditure of a regular nature
Total operating expenditure
Recurrent revenue before interest but before budget revenue measures
Operating surplus before interest
Interest on balances
Operating surplus after interest but before budget revenue measures
35,920
1,160
41,140
1,130
46,100
1,120
52,130
1,250
58,970
1,200
37,080
48,370
42,270
52,970
47,220
59,340
53,380
65,640
60,170
72,720
11,290
1,280
10,700
1,820
12,120
2,360
12,260
2,570
12,550
2,860
12,570
12,520
14,480
14,830
15,410
Capital Expenditure and Financing Statement Table 2
—indicates the extent to which capital expenditure on major works is met by capital revenue.
Revised
Estimate
Forecast
1987-88
1988-89
1989-90
1990-91
1991-92
$mn
$mn
$mn
$mn
$mn
Capital expenditure
General Revenue Account
Capital Works Reserve Fund
Other funds*
Bond issue repayment
Total capital expenditure
790
7,700
3,590
—
290
10,180
2,280
—
310
12,460
4,110
1,000
350
12,340
3,520
—
470
13,070
2,320
—
12,080
13,270
17,880
16,210
15,860
Capital revenue
General Revenue Account
Capital Works Reserve Fund (land sales and interest)Other funds*
Total capital revenue
910
3,380
2,790
760
4,480
2,850
770
3,190
3,030
790
3,240
3,200
780
3,400
3,370
7,080
8,090
6,990
7,230
7,550
Capital financing (deficit)
(5,000)
(5,180)
(10,890)
(8,980)
(8,310)
*Development Loan Fund, Home Ownership Fund, Mass Transit Fund and Student Loan Fund.
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 821 Appendix A—Contd.
Consolidated Cash Flow Table 3
—shows the extent to which the capital financing deficit is covered by the operating surplus and the combined cash flow impact on Government’s total reserves.
Revised
Estimate
Forecast
1987-88
1988-89
1989-90
1990-91
1991-92
$mn
$mn
$mn
$mn
$mn
Capital financing (deficit)
Operating surplus before budget revenue measures
Consolidated cash surplus/(deficit) before budget revenue measures Less: Impact of budget revenue measures*
Consolidated cash surplus/(deficit) after budget revenue measures
Reserve balances at 1 April
Reserve balances at 31 March
(5,000)
12,570
(5,180)
12,520
(10,890)
14,480
(8,980)
14,830
(8,310)
15,410
7,570
—
7,340
(1,880)
3,590
(3.260)
5,850
(3,820)
7,100
(4,480)
7,570
5,460
330
2,030
2,620
32,940
40,510
40,510
45,970
45,970
46,300
46,300
48,330
48,330
50,950
*Including impact on interest on balances.
11 These tables relate to Government’s overall finances. They provide no breakdown of the details between General Revenue Account and the various funds through which, for operational reasons, the Government controls its finances.
12 The significant increase in capital spending in 1989-90 and 1990-91 shown in these forecasts is due. exceptionally, to repayment of the 1984 bond issue and further injections of equity into Mass Transit Railway Corporation (MTRC). The latter amounts to $2.5 billion and may not be needed if MTRC finances continue their recent improvement.
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 825 Appendix A—Contd.
20 After a period of high staff growth in the late 1970’s and early 1980’s, the rate of growth has stabilized from about 1983-84 onwards. However, the target rate (no more than 2 1/2% ) will be exceeded in 1988-89 and in the next three years or so as a number of major medical facilities come on stream and as the Royal Hong Kong Police Force is expanded to take on new responsibilities.
Consolidated Account Expenditure in the Context of the Economy
21 Up to this point, the forecasts have dealt with Government’s own expenditure. For monitoring purposes, this is consolidated with the expenditure of other public bodies such as the Urban Council in order to compare total Consolidated Account expenditure to the size of the economy.
22 The results of this comparison are set out in Table 4 and the historic and projected relationship between GDP and Consolidated Account expenditure is illustrated in Diagram 6.
Consolidated Account Expenditure in the Context of the Economy (Note 1) Table 4
Revised
Estimate
Forecast
1987-88
1988-89
1989-90
1990-91
1991-92
$mn
$mn
$mn
$mn
$mn
Operating expenditure
Capital expenditure
Total Government expenditure
Add: Other public sector bodies
Less: Debt repayments
MTRC equity injections
Total Consolidated Account expenditure
37,080
12,080
42,270
13,270
47,220
17,880
53,380
16,210
60,170
15,860
49,160
6,320
(400)
(1,000)
55,540
7,050
—
—
65,100
8,150
(1,000)
(1,500)
69,590
9,350
—
(1,000)
76,030
10,680
—
—
54,080
62,590
70,750
77,940
86,710
Gross Domestic Product (calendar year)(Note 2) Growth in GDP
Money terms
Real terms
Growth in Consolidated Account expenditure
Money terms
Real terms
Consolidated Account expenditure as a percentage of GDP (at current prices)(Note 3)
360,200
20.1%
13.6%
12.8%
4.6%
15.0%
400,900
11.3%
5.5%
15.7%
7.0%
15.6%
446,200
11.3%
5.5%
13.0%
6.5%
15.9%
496.600
11.3%
5.5%
10.2%
3.4%
15.7%
552.700
11.3%
5.5%
11.3%
4.4%
15.7%
Note 1 The Consolidated Account comprises expenditure by the Urban Council. the Housing Authority and the Regional Council, expenditure financed by the Government’s statutory funds and all expenditure charged to the General Revenue Account. 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 and, post 1982-83. the Kowloon-Canton Railway Corporation. Similarly. debt repayments and equity payments are excluded as they do not reflect the actual consumption of resources by the Government.
Note 2 For years beyond the current year. the GDP figures are based on trend assumptions. The projection for 1988 is. therefore, slightly different from the specific forecast for that year published in the ‘1988 Economic Prospects’.
Note 3 Caution should be exercised in interpreting these percentages as the Consolidated Account expenditure is estimated on a fiscal year basis while the GDP is estimated on a calendar year basis.
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 827 Appendix A—Contd.
23 Table 5 indicates the relationship between Consolidated Account expenditure and Public Sector expenditure. The former has historically been used as a measure for control of Government’s finances. On the other, Public Sector expenditure is an economic definition used in the context of national accounts for GDP estimation. It excludes. for instance. government transfers and current expenditure of government "trading” departments. Since the two series of statistics have different components, they may move differently and Table 5 brings out the extent of this difference in movement.
Relationship Between Consolidated Account Expenditure and Table 5
Public Sector Expenditure as Defined for GDP Purposes
Revised
Estimate
Forecast
1987-88
1988-89
1989-90
1990-91
1991-92
$mn
$mn
$mn
$mn
$mn
Total Consolidated Account expenditure (from Table 4) Add: Imputed rent (Note 1) and expenditure by other public sector bodies not included in total Consolidated
Account expenditure (Note 2)
Less: Transfers
—recurrent and capital subventions (Note 3)
—other transfer payments made by Government
(Note 4)
Current expenditure of government “trading”
departments (Note 5)
Total Public Sector expenditure in national accounts terms (Note 6) Growth in Public Sector expenditure
Money terms
Real terms
54,080
5,680
(11,010)
(5,480)
(6,300)
62,590
6,440
(13,200)
(6,890)
(6,900)
70,750
6,380
(14,830)
(8,040)
(7,630)
77,940
7,120
(17,000)
(8,280)
(8,470)
86,710
8,570
(19,760)
(8,420)
(9,400)
36,970
14.5%
5.4%
42,040
13.7%
5.1%
46,630
10.9%
4.4%
51,310
10.0%
3.1%
57,700
12.5%
5.4%
Gross Domestic Product (calendar year) (Note 7)
Growth in GDP
Money terms
Real terms
Public Sector expenditure as a percentage of GDP (at current prices) (Note 8)
360,200
20.1%
13.6%
10.3%
400,900
11.3%
5.5%
10.5%
446,200
11.3%
5.5%
10.5%
496,600
11.3%
5.5%
10.3%
552,700
11.3%
5.5%
10.4%
Note 1 An estimate of the notional rent of premises owned by the Government and occupied by the non-trading government departments.
Note 2 Capital expenditure by the Mass Transit Railway Corporation and the Kowloon-Canton Railway Corporation and current and capital expenditure by other public organizations such as the Vocational Training Council. Trade Development Council. Hong Kong Productivity Centre. Hong Kong Tourist Association and Consumer Council, etc.
Note 3 Financial assistance to government-assisted institutions in the private or quasi-private sector. Note 4 Expenditure on land acquisitions. compensations. purchases of properties. welfare payments. grants and loans etc.
Note 5 Government trading departments are distinguished from other government departments in that they are engaged in the production of goods and services principally for sale to the public. The criteria for distinguishing the trading activities of the Government from its other activities are:
(i) that the activity consists of the production of goods and services of a kind which might be provided by a private business; and
(ii) that sales. either to the public or to other government departments. account for a major part of their activities. Some examples of departments regarded as being engaged in trading activities are Civil Aviation. Housing. Post Office and Water Supplies.
Note 6 Total Public Sector expenditure and its growth rates in this table are calculated on a fiscal year basis. These may. therefore. be different from those calculated on a calendar year basis and quoted elsewhere in the Budget Speech.
Note 7 The GDP growth rates for the years 1988 to 1991 (and the GDP figures thus derived) are the trend projections used for medium-range budgetary planning purposes. Fluctuations in economic activity from year to year are not taken into account. In particular. the trend figure for the GDP in 1988 differs slightly from the short-term GDP forecast quoted elsewhere in the Budget Speech.
Note 8 Caution should be exercised in interpreting these percentages as the Public Sector expenditure is estimated on a fiscal year basis while the GDP is estimated on a calendar year basis.
828 HONG KONG LEGISLATIVE COUNCIL-2 March 1988 Appendix B
TRENDS IN PUBLIC EXPENDITURE 1983-84 TO 1991-92
INTRODUCTION
The purpose of this appendix is to present trends in public expenditure (Consolidated Account) over the period from 1983-84 to 1991-92. It draws together the actual and forecast recurrent and capital expenditures during this nine year period and expresses them in terms of five main areas of government activity—General, Security, Economic, Community and Social (1). In this way the overall priorities for the resources of Government are identified and presented to show how they have changed since 1983-84 and how, on the basis of current plans and priorities they are likely to change over the following four years to 1991-92. The analysis therefore presents two perspectives:
Historical
— an analysis of the changes in the level of expenditure on individual service groups and the balance between service groups over the last five years (1983-84 to 1987- 88).
Forecast
— an analysis of the planned changes in the level of expenditure on individual service groups and the balance between service groups over the next five years (1987-88 to 1991-92). This forecast is made on the basis of current trends and commitments (2), but does not take into account new or improved services not already planned.
(1)A key to the relationship between heads of expenditure and the five service groups is provided at the end of this appendix. The analysis is expressed in Consolidated Account terms as defined in Table 4 of Appendix A and include, for example, the expenditure of the Housing Authority, the Urban Council and the Regional Council.
(2) Planned changes take account of existing capital programmers, the recurrent consequence in terms of staffing and running costs of new capital assets once completed(e.g. a new fire station), underlying requirements for service (e.g. school populations) and service improvements either already under implementation or to be implemented as part of the 1988-89 budget proposals. They also include such major commitments as the Kowloon Walled City clearance and the Hong Kong University of Science and Technology.
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 829 Appendix B—Contd.
HISTORICAL PERSPECTIVE: THE MAJOR FEATURES
2 The changing level of expenditure on individual service groups and the balance between service groups over the period from 1983-84 to 1987-88 is illustrated in the following table:
Consolidated Account Expenditure by Service Groups 1983-84 to 1987-88 Table 1
Services
Actual
Revised Estimate
1983-84
1984-85
1985-86
1986-87
1987-88
%
%
%
%
%
(A) General Services
14.1
14.9
15.6
14.8
14.6
(B) Security Services
(1) Law and Order
(2) Immigration
(3) Internal Security
8.3
0.7
4.0
8.3
0.7
3.8
8.7
0.8
3.4
9.3
0.9
3.3
8.9
0.9
3.3
13.0
12.8
12.9
13.5
13.1
(C) Economic Services
3.3
3.4
3.5
3.7
4.0
(D) Community Services
(1) Transport
(2) Land and Civil Engineering (3) Water
(4) Other
7.6
7.4
3.5
8.7
6.2
5.5
3.1
9.2
4.7
6.1
3.0
9.4
4.4
6.1
3.3
8.5
4.9
6.1
3.4
8.4
27.2
24.0
23.2
22.3
22.8
(E) Social Services
(1) Education
(2) Medical
(3) Housing
(4) Social Welfare
(5) Labour
14.9
7.7
14.5
5.0
0.3
17.4
8.3
13.3
5.6
0.3
17.4
8.7
12.7
5.7
0.3
18.3
9.3
12.1
5.7
0.3
18.0
9.4
12.1
5.7
0.3
42.4
44.9
44.8
45.7
45.5
100.0
100.0
100.0
100.0
100.0
Total Consolidated Account expenditure
$mn
$mn
$mn
$mn
$mn
38,596
39,882
43,444
47,930
54,080
.
832 HONG KONG LEGISLATIVE COUNCIL-2 March 1988 Appendix B—Contd.
FORECAST OF PLANNED TRENDS IN PUBLIC EXPENDITURE 1987-88 TO 1991-92
9 Table 2 shows forecast Consolidated Account expenditure over the period from 1987-88 to 1991-92 and the forecast share of individual services.
Consolidated Account Expenditure by Service Groups 1987-88 to 1991-92 Table 2
Services
Revised
Estimate
Forecast
1987-88
1988-89
1989-90
1990-91
1991-92
%
%
%
%
%
(A) General Services
14.6
14.6
14.3
14.2
14.2
(B) Security Services
(1) Law and Order
(2) Immigration
(3) Internal Security
8.9
0.9
3.3
8.7
1.0
2.8
8.8
1.0
2.7
8.8
1.0
2.6
8.9
1.0
2.5
13.1
12.5
12.5
12.4
12.4
(C) Economic Services
4.0
4.1
4.1
3.9
3.8
(D) Community Services
(1) Transport
(2) Land & Civil Engineering
(3) Water
(4) Other
4.9
6.1
3.4
8.4
4.7
5.7
3.0
8.5
4.7
5.7
3.0
8.5
4.2
5.9
2.8
8.5
4.0
5.9
2.7
8.5
22.8
21.9
21.9
21.4
21.1
(E) Social Services
(1) Education
(2) Medical
(3) Housing
(4) Social Welfare
(5) Labour
18.0
9.4
12.1
5.7
0.3
18.0
9.7
12.6
6.3
0.3
17.8
9.7
12.9
6.5
0.3
18.1
10.3
12.4
7.0
0.3
18.3
10.9
11.9
7.1
0.3
45.5
46.9
47.2
48.1
48.5
100.0
100.0
100.0
100.0
100.0
Total Consolidated Account expenditure
$mn
$mn
$mn
$mn
$mn
54,080
62,590
70,500
76,670
84,140
10 The above table only takes into account current trends and actual or planned commitments as defined earlier in footnote (2) on page 17. It does not, therefore, prejudge decisions relating to further new or improved services over the period which may be introduced within overall expenditure planning guidelines.
11 In considering these expenditure forecasts it should be remembered that individual service groups exhibit different characteristics which affect their underlying financial requirements. This may be due, for example, to the anticipated pattern of demand for a particular service, the phasing of capital programmes, the timing of the recurrent consequences of capital projects once completed, and the introduction of new or improved services to be implemented as part of the 1988-89 budget proposals.
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 835
Appendix B—Contd.
KEY TO CLASSIFICATION OF EXPENDITURE
Service Groups Reference
(A) General Services
(1) Administration His Excellency the Governor’s Establishment
General Expenses of the Civil Service (with the exception of leasing and management
of quarters)
Government Secretariat
Government Secretariat: City and New Territories Administration
Government Secretariat: Civil Service Training Centre
Government Secretariat: Overseas Offices
Miscellaneous Services—
Allowances for Members of the Executive and Legislative Councils
Contribution to the third/fourth replenishment of the Asian Development Fund
Election expenses
Subscription to the Asian Development Bank
Office of Members of the Executive and Legislative Councils
Public Service Commission
Registrar General’s Department
Standing Commission on Civil Service Salaries and Conditions of Service
Subventions: Miscellaneous—
Subventions to New Territories organizations
Capital Works Reserve Fund: payments in respect of—
Major Systems—Government Secretariat
Registrar General’s Department
(2) Support Architectural Services Department
Census and Statistics Department
Electrical and Mechanical Services Department
General Expenses of the Civil Service—
Leasing and management of quarters
Government Data Processing Agency
Government Laboratory
Government Land Transport Agency
Government Supplies Department
Marine Department
(Government dockyard and pool launches)
Miscellaneous Services—
Expenses of visiting advisers
Hire of services and professional fees
Office rents and rates
Pensions
Printing Department
Royal Observatory
Subventions: Miscellaneous—
World Meteorological Organization
Capital Works Reserve Fund: payments in respect of—
Major Systems—Architectural Services Department
Government Data Processing Agency
Royal Observatory
Support projects
836 HONG KONG LEGISLATIVE COUNCIL-2 March 1988 Appendix B—Contd.
Service Groups Reference
(A) General Services—Contd.
(3) Public Relations Information Services Department
Radio Television Hong Kong
Subventions: Miscellaneous—
Commonwealth Institute
Capital Works Reserve Fund: payments in respect of—
Major Systems—Radio Television Hong Kong
(4) Revenue Collection and
Financial ControlAudit Department
Customs and Excise Department
Inland Revenue Department
Miscellaneous Services—
Subscription to Customs Co-operation Council
Rating and Valuation Department
Treasury
Capital Works Reserve Fund: payments in respect of—
Major Systems—Customs and Excise Department
Inland Revenue Department
Treasury
(5) Unallocable Expenses Miscellaneous Services—
Additional commitments
Compensation
Interest on tax reserve certificates
Other miscellaneous items
Refunds of revenue
Write-offs
Public Debt
(B) Security Services
(1) Law and Order Correctional Services Department
Independent Commission Against Corruption
Judiciary
Legal Department
Miscellaneous Services—
Expenses of refugees not in Correctional Services institutions
Police Complaints Committee
Police: Royal Hong Kong Police Force
Subventions: Miscellaneous—
Commonwealth Legal Advisory Service
Capital Works Reserve Fund: payments in respect of—
Law and Order projects
Major Systems—Independent Commission Against Corruption
Police: Royal Hong Kong Police Force
(2) Immigration Immigration Department
Capital Works Reserve Fund: payments in respect of—
Major Systems—Immigration Department
(3) Internal Security Internal Security: Miscellaneous Measures
Royal Hong Kong Auxiliary Air Force
Royal Hong Kong Regiment (The Volunteers)
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 837 Appendix B—Contd.
Service Groups Reference
(C) Economic Services
(1) Food Supply Agriculture and Fisheries Department (excluding Conservation and Country Parks Branch)
Subventions: Miscellaneous—
Commonwealth Agricultural Bureaux
Capital Works Reserve Fund: payments in respect of—
Food Supply projects
Development Loan Fund: payments in respect of—
Fisheries Loans
(2) Aviation and Shipping Civil Aviation Department
Marine Department (excluding Government dockyard and pool launches)
Capital Works Reserve Fund: payments in respect of—
Aviation and Shipping projects
Major Systems—Civil Aviation Department —Marine Department
(3) Trade and Industry Industry Department
Miscellaneous Services—
Subscription to the General Agreement on Tariffs and Trade
Subventions: Miscellaneous—
Asian and Pacific Development Centre
Asian Productivity Organization
Commonwealth Foundation
Commonwealth Fund for Technical Co-operation
Consumer Council
Hong Kong Design Innovation Company Limited
Hong Kong-Japan Business Co-operation Committee
Hong Kong Management Association
Hong Kong Plastics Technology Centre Company Limited
Hong Kong Productivity Council
Hong Kong Tourist Association
Hong Kong Trade Development Council
Statistical Institute for Asia and the Pacific
Trade Policy Research Centre
United Nations Development Programme
Trade Department
Capital Works Reserve Fund: payments in respect of—
Major Systems—Trade Department
Development Loan Fund: payments in respect of—
Flatted factories
Industrial estates
(4) Posts and Post Office
Telecommunications Subventions: Miscellaneous—
Asia-Pacific Telecommunity
Capital Works Reserve Fund: payments in respect of—
Major Systems—Post Office
Post and Telecommunication projects
(D) Community Services
(1) Transport Civil Engineering Services Department (Railway Development Office) Highways Department
Miscellaneous Services—
Payment to Cross-Harbour Tunnel Company Ltd.
838 HONG KONG LEGISLATIVE COUNCIL-2 March 1988 Appendix B—Contd.
Service Groups Reference
(D) Community Services—Contd. Subventions: Miscellaneous—
Road Safety Association
Special transport facilities for the disabled
Transport Department
Capital Works Reserve Fund: payments in respect of—
Transport projects
Mass Transit Fund payments
(2) Land and Civil Engineering
Buildings and Lands Department (with the exception of Buildings Ordinance Office)
Civil Engineering Services Department (excluding the Railway Develop- ment and Geotechnical Control offices)
Government Secretariat: Lands and Works Branch
Territory Development Department
Capital Works Reserve Fund: payments in respect of—
Civil Engineering projects
Land Acquisition (excluding Kowloon Walled City projects) Major Systems—Buildings and Lands Department
(3) Water Water Supplies Department
Capital Works Reserve Fund: payments in respect of—
Water Supplies projects
(4) Public Safety Auxiliary Medical Services
Buildings and Lands Department (Buildings Ordinance Office)
Civil Aid Services
Civil Engineering Services Department (Geotechnical Control Office)
Fire Services Department
Capital Works Reserve Fund: payments in respect of—
Major Systems—Fire Services Department
Public Safety projects
(5) Recreation, Culture and Amenities
(6) Environmental Protection
Government Secretariat: Municipal services Branch
Subventions: Miscellaneous—
Commonwealth Youth Programme
Hong Kong Academy for Performing Arts
Hong Kong Archaeological Society
Outward Bound Trust of Hong Kong
Royal Asiatic Society
Royal Life Saving Society, Hong Kong Branch
Subventions for performing arts activities
Subventions for the promotion of sports
Subventions to voluntary agency camps
Television and Entertainment Licensing Authority
Regional Council expenditure
Urban Council expenditure
Capital Works Reserve Fund: payments in respect of—
Recreation, Culture and Amenities projects
Subventions to Jubilee Sports Centre
Agriculture and Fisheries Department (Conservation and Country Parks Branch) Environmental Protection Department
Miscellaneous Services—
Payment in respect of air pollution mitigation measures
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 839 Appendix B—Contd.
Service Groups Reference
(D) Community Services—Contd. Subventions: Miscellaneous—
Commonwealth Forestry Institute
Royal Society for the Prevention of Cruelty to Animals (Hong Kong)
Capital Works Reserve Fund: payments in respect of—
Environmental Protection projects
(E) Social Services
(1) Education Education Department
Education Subventions
Subventions: Miscellaneous
Hong Kong University of Science and Technology
Technical Education and Industrial Training Department
Universities and Polytechnics
Capital Works Reserve Fund: payments in respect of—
Education projects
Education Subventions projects
Technical Education and Industrial Training subvention projects
Universities and Polytechnics subvention projects
Development Loan Fund: payments in respect of—
Loans to schools
Student Loan Fund payments
(2) Medical Medical and Health Department
Medical Subventions
Subventions: Miscellaneous—
Hong Kong Council on Smoking and Health
United Nations Fund for Drug Abuse Control
Capital Works Reserve Fund: payments in respect of—
Major Systems—Medical and Health Department
Medical and Health projects
Medical Subvention projects
(3) Housing Housing Department
Housing Authority expenditure
Capital Works Reserve Fund: payments in respect of—
Housing
Kowloon Walled City projects (including Land Acquisition)
Development Loan Fund: payments in respect of—
Housing
Home Ownership Fund payments
(4) Social Welfare Legal Aid Department
Social Welfare Department
Social Welfare Subventions
Subventions: Miscellaneous—
Commonwealth War Graves Commission
Far Eastern Relief Fund
Hong Kong War Memorial Fund
Law Society Legal advice and duty lawyer schemes
Magistrates poor box
United Nations Children’s Fund
Capital Works Reserve Fund: payments in respect of—
Social Welfare projects
Lotteries Fund payments
840 HONG KONG LEGISLATIVE COUNCIL-2 March 1988 Appendix B—Contd.
Service Groups Reference
(E) Social Services—Contd.
.
(5) Labour Labour Department
Registry of Trade Unions
Capital Works Reserve Fund: payments in respect of—
Major Systems—Labour Department
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 841 Appendix C
CONTINGENT LIABILITIES AS AT 31 MARCH 1987
A contingent liability is defined as a liability arising from a condition or situation which exists at the year end, where the amount of the liability, if any, and its timing will depend on the occurrence or non-occurrence of one or more uncertain future events.
2 The Government’s contingent liabilities as at 31 March 1987 are listed below. The approximate maximum potential amount of each liability as at that date is indicated in brackets. It is not an assessment of actual risk.
(1) Capital subscription to Asian Development Bank ($671.8 million); (2) Outstanding currency notes demonetized under the Dollar and Subsidiary Currency Notes Ordinance (Cap. 67)($10.2 million); (3) One cent notes issued under Section 4(1) of the Dollar and Subsidiary Currency Notes Ordinance (Cap. 67) ($1 million); (4) Gold coins issued in accordance with L.N. 97 of 1975 ($369.7 million);
(5) A guarantee on notes issued by the Hong Kong Building and Loan Agency Ltd. ($320 million);
(6) All moneys which may become due by the Hong Kong Export Credit Insurance Corporation under contracts of insurance ($3,710 million);
(7) Guarantees in respect of the repayment of loans made to and the discharge of indebtedness of the Mass Transit Railway Corporation under the facilities specified in the Schedules to L.N. 242 of 1975 and L.N. 105 of 1978 ($5,860.7 million);
(8) A guarantee in respect of the reimbursement of costs incurred by the Mass Transit Railway Corporation arising from the possible extension of the mass transit railway to Junk Bay ($2 million);
(9) Possible equity injections to the Mass Transit Railway Corporation to be made on or after 31 December 1989 ($2,500 million);
(10) Full and partial default guarantees in respect of mortgage loans made by banks and other financial institutions under the Home Ownership Scheme and the Private Sector Participation Scheme ($5,774.4 million);
(11) A guarantee in respect of the reimbursement to the developers of the projects under the Private Sector Participation Scheme for unsold flats and flats sold at a price below the stipulated average price ($3,365.7 million);
(12) A guarantee under Section 13 of the Kowloon-Canton Railway Corporation Ordinance (Cap. 372) in respect of the repayment of the principal of, the payment of interest on, and the discharge of any other financial obligation in connexion with any sums borrowed by the Kowloon-Canton Railway Corporation ($500 million);
(13) A guarantee in respect of a commercial loan to the City Polytechnic of Hong Kong for the acquisition of temporary premises ($240 million); (14) A guarantee in respect of a commercial borrowing facility for the Hong Kong Nuclear Investment Company Ltd. ($255 million); (15) Outstanding New Territories Land Exchange Entitlements (Letters A/B)(estimated monetized value of $3,025 million); (16) Outstanding litigation ($1,251 million).
842 HONG KONG LEGISLATIVE COUNCIL-2 March 1988 Appendix D
THE RECURRENT COST IMPLICATIONS OF MAJOR NEW OR IMPROVED SERVICES TO BEGIN IN 1988-89
The following items (each costing $3 million or over) have been included in the draft Estimates for implementation in 1988-89. Together with some other minor items costing under $3 million each, the full year cost of proposals to be introduced in 1988-89 is $1,060 million.
Full Year
Cost
Description ($ million) General Services
Establishment of the office of the Commissioner for Administrative Complaints 3.4 Corporations5.7
Strengthening liaison with Area Committees, Mutual Aid Committees/Owners’
Modified annual leave passage scheme for expatriate officers 17.4 Security Services
Expansion of the Police Tactical Unit 72.3 Economic Services
Expansion of the Hong Kong Productivity Council’s productivity enhancement
services15.3 Establishment of a Hong Kong Government office in Tokyo 3.4 Community Services
Implementation and enforcement of the proposed Noise Control Bill 6.0 Social Services
Research grants for the five UPGC-funded institutions 30.0 Application of the Home Purchase Scheme to the five UPGC-funded institutions 6.5 Technology11.5
Setting up costs for the Council of the new Hong Kong University of Science &
Setting up of the Open Learning Institute of Hong Kong 6.5 English for each secondary school using Chinese as the medium of instruction)13.9
Language improvement measures in public sector schools (two additional teachers of
Providing higher disability allowance for the severely disabled who require constant
attendance119.6 Increases in old age allowances for the elderly (phased implementation of new rates
for those aged 70 and above and extension to the 65 to 69 age group)495.2 Improvements to the Public Assistance Scheme (improved rates for certain categories
of recipients)26.7 Extension of standard costs for subvented social welfare services 17.3 Increased grants for central administration of subvented social welfare agencies 7.3
8.0
Additional staff for guardianship and supervision cases in connection with proposed amendments to the Mental Health Ordinance and additional costs resulting from the establishment of a Mental Health Review Tribunal
2 The above growth in recurrent expenditure is in addition to growth arising from meeting the running costs of new buildings (schools, hospitals, etc.) and from responding to changes in the underlying demand for individual services. The latter may be due, for example, to population growth or changes in the number of persons eligible for a particular service.
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 843 Appendix E
MAJOR CAPITAL WORKS PROJECTS TO BEGIN IN 1988-89
The following projects, each with a project cost of $100 million or over, are budgetted to begin in 1988- 89:—
Project Cost*
Description ($ million) New Territories circular road improvements: Au Tau to Fan Kam Road—Au Tau bypass and widening of the circular road260 Austin Road corridors195
Road improvement and pedestrian schemes in the Salisbury Road, Canton Road and
Yuen Long-Tuen Mun eastern corridor and Yuen Long west link 300 Yuen Long southern bypass 120
Government offices and car park at Wan Chai 410
Future increase of water supply from China—upgrading of Harbour Island pumping
260
station and construction of land/submarine pipelines in Lantau Island
works and upgrading of pumping station190 Water treatment and transfer facilities at Au Tau, Yuen Long—extension of treatment
Pak Kong treatment works and water transfer facilities—extension of treatment works including sludge disposal facilities434 Queen Mary Hospital (stage III)—extension and improvements to main hospital block and installation of central air-conditioning118 Wong Chuk Hang complex for the elderly 100 roads, pedestrian facilities and drainage280
Tsing Yi development—Tsing Yi Bay reclamation, site formation and construction of
Widening of Kwai Chung Road from Lai Chi Kok to Tsuen Wan bypass 125 Texaco Road295
Completion of Texaco Road/Tsuen Wan bypass interchange and improvements to
Formation of a light rail transit reserve in the Tuen Mun-Yuen Long corridor and construction of roads, pedestrian facilities and drainage175 Tin Shui Wai development—formation of 242 hectares of land and main drainage 243 Tin Shui Wai development—construction of roads, pedestrian facilities and drainage 235 Tuen Mun New Town development—construction of roads, pedestrian facilities and drainage in areas 14 and 16105
Main drainage channels for Yuen Long and Kam Tin 250 Junk Bay development, area 86—reclamation, drainage and ancillary works 110 Junk Bay development, head of bay—reclamation and road link 150
*Including the part of works to be commenced in 1988-89 as well as the remaining parts which are to start in a later year.
844 HONG KONG LEGISLATIVE COUNCIL-2 March 1988 Appendix F(1)
PROPOSED RATES OF DUTY
(i) INTOXICATING LIQUOR AND IMPORTED ALOOHOL
Present rate Proposed rate
($) ($)
Specific + Ad Valorem
(per litre) (of value)
Part I
Brandy $67/L + 20% AV 55.00 30%
Whisky, gin, Liqueurs, Rum, Vodka and other Spirituous Liquors
Champagne and
Sparkling Wines
$48/L + 20% AV 48.00 30% $30/L + 20% AV 30.00 20%
Still Wines over 15% $20/L + 20% AV 20.00 20% Still Wines not over 15% $17/L + 20% AV 17.00 20%
Intoxicating liquor in this part above the strength of 45% by volume, for every 1% above such strength in addition to the duties specified above
Part II
$1.3/L 1.40 -
Cider and Perry $1.28/L 1.36 - Part III
Beer not exceeding 1030° original gravity
and in addition for every degree by which the original gravity exceeds 1030°
$1.28/L 1.36 - $0.043/L 0.045 -
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 845 Appendix F(1)(cont’d)
PROPOSED RATES OF DUTY
(i) INTOXICATING LIQUOR AND IMPORTED ALOOHOL
Present rate Proposed rate
($) ($)
Specific + Ad Valorem
(per litre) (of value)
Part IV
Non-European Type Wines
Chinese Type Spirits and other Spirituous Liquors, Sake, Arrack
and in addition for every 1% by which the
alcoholic strength by volume exceeds 30%
Part V
Ethyl alcohol, and
admixtures containing ethyl alcohol
Methyl alcohol, and admixtures containing methyl alcohol
and in addition for every 1% by which the
alcoholic strength
exceeds 30%
$8.30/L 8.80 - $4.30/L 4.55 -
$0.143/L 0.151 -
$4.30/L 4.55 - $4.30/L 4.55 - $0.143/L 0.151 -
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 846
TOBACCO (ii)
The effect of the proposed duty changes on the estimated average retail price of various categories of smoking pExisting Proposed Current averagduty rate duty rate retail price ($/1,000 sticks) ($/1,000 sticks) ($/1,000 sticks(1) Cigarettes
413.80
)
imported from US(i)
450.00 175.00 165.00
)
imported from UK(ii)
327.50
locally manufactured)(iii)
($/kg)
($/kg)
($/kg)
Cigars
(2)
670.70
)
ordinary grade(i)
233.00 220.00
)
2,877.40
)
deluxe grade(ii)
441.00 212.00 200.00
Smoking Tobacco(3)
115.00
45.50
43.00
Chinese Prepared Tobacco(4)
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 847
Appendix F (2)
(i) VEHICLE AND DRIVING LICENCE FEES
Existing Proposed
fees fees
($) ($)
1. Driving
Licences
Full 180 p.a. 190 p.a. Driving instructor’s 550 p.a. 580 p.a. Leamer’s 370 p.a. 390 p.a. Temporary 180 190
Driving test 370 390 Driving instructor’s 370 390 Intemational driving permit 55 p.a. 60 p.a. Duplicate licence 80 85 Duplicate intemational driving permit 55 60 Record of convictions 45 45 Cartificate of no recorded conviction 45 45
2. Vehicle Licences
Goods
Vehicle
not exceeding 1.9 tonnes 850 900
exceeding 1.9 tonnes but not exceeding 5.5 tonnes
1,650 1,750
exceeding 5.5 tonnes 3,300 3,500 Taxi 2,200 2,330
Private Car
not exceeding 1,500 cc 2,750 2,915 exceeding 1,500 cc but not exceeding 2,500 cc 4,100 4,345 exceeding 2,500 cc but not exceeding 3,500 cc 5,450 5,775 exceeding 3,500 cc but not exceeding 4,500 cc 6,800 7,210 exceeding 4,500 cc 8,100 8,585 additional fee for private car using diesel fuel 1,050 1,115
Electrically powered passenger
vehicles
not exceeding 1 tonne 320 340 for each additional 250 kg 65 70
Motor Cycle 870 920 Motor Tricycle 870 920
848 HONG KONG LEGISLATIVE COUNCIL-2 March 1988 Appendix F(2)(cont’d)
(i) VEHICLE AND DRIVING LICENCE FEES
Existing Proposed
fees fees
($) ($)
Public Light Bus 6,000 6,360 Private Light Bus 1,900 2,015
Public
Bus
for the driver 16 17 additional fee for each seat 37 39
Private Bus
for the driver 16 17 additional fee for each seat 32 34
Trailer
for each 250 kg or part thereof 21 22
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 849 Appendix F(2)(cont’d)
(ii) BANK AND DEPOSIT-TAKING COMPANY LICENCE FEES
Existing Proposed
fee fee
($) ($)
1. Annual banking licence fee for bank, other than an unincorporated bank (section 19(1))
360,000 388,800
2. Registration fee (section 23(1)) 50,000 54,000 3. Renewal of registration fee (section 23(2)) 50,000 54,000 4. Deposit-taking licence fee (section 26(1)) 170,000 183,600 5. Renewal of deposit-taking licence fee (section 26(2)) 170,000 183,600 6. Inspection fee (section 27(3)) 10 10 7. Fee for a copy or extract, per page (section 27(3)) 5 5
8. Fee for the establishment of a local branch of a bank (section 45(1))
9. Annual fee for maintaining a local branch of a bank (section 45(1) and (2))
10. Fee for the establishment of a local branch of a deposit-taking company (section 45(1))
11. Annual fee for maintaining a local branch of a deposit-taking comany (section 45(1) and (2))
12. Fee for the establishment of a local representative office (section 48(1))
13. Annual fee for maintaining a local representative office (section 48(1), (2) and (3))
14. Fee for the establishment of an overseas branch of a bank (section 51(1))
15. Annual fee for maintaining an overseas branch of a bank (section 51(1) and (2))
16. Fee for the establishment of an overseas branch of a deposit taking company (section 51(1))
17. Annual fee for maintaining an overseas branch of a deposit taking company (section 51(1) and (2))
18. Fee for the establishment of an overseas of an overseas representative office of a bank (section 51(1))
19. Annual fee for maintaining an overseas representative office of a bank (section 51(1) and (2))
20. Fee for the establishment of an overseas representative office of a deposit-taking company (section 51(1))
21. Annual fee for maintaining an overseas representative office of a deposit-taking company (section 51(1) and (2))
17,000 18,360 17,000 18,360 8,500 9,180 8,500 9,180 17,000 18,360 17,000 18,360 34,000 36,720 34,000 36,720 17,000 18,360 17,000 18,360
8,500 9,180 8,500 9,180 8,500 9,180 8,500 9,180
22. Annual banking licen ce fee for unincorporated bank (section 109(1)) 5,000 5,400
850 HONG KONG LEGISLATIVE COUNCIL-2 March 1988 Appendix F(3)
(i) EFFECT ON TAX PAYABLE DUE TO THE REVISION
OF THE MARGINAL TAX RATES
Present Proposed
Cumulativ
e
Chargeable income Rate Tax tax (A)
Cumulative
Rate Tax tax (B)
Tax reduction (A) - (B)
($) ($) ($) ($) ($)(%)
First $10,000 5% 500 500 3% 300 300 200 40.0 Next $10,000 10% 1,000 1,500 6% 600 900 600 40.0 Next $10,000 15% 1,500 3,000 9% 900 1,800 1,200 40.0 Next $10,000 15% 1,500 4,500 12% 1,200 3,000 1,500 33.3 Next $10,000 20% 2,000 6,500 15% 1,500 4,500 2,000 30.8 Next $10,000 20% 2,000 8,500 18% 1,800 6,300 2,200 25.9 Next $10,000 25% 2,500 11,000 21% 2,100 8,400 2,600 23.6 Next $10,000 25% 2,500 13,500 25% 2,500 10,900 2,600 19.3
$80,000
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 851 Appendix F(3)(cont’d)
(ii) BROAD EFFECT OF THE INCREASE IN ADDITIONAL PERSONAL ALLOWANCE ON SINGLE AND MARRIED TAXPAYERS
No. of
Single
taxpayer s
Remarks
Full benefit
(ie those with income below $36,000 or with total allowances in excess of their income)
Partial benefit
(ie those with income between $36,001 and $105,999)
No benefit
(ie in situation where income exceeds $106,000, clawback exhausts allowance)
No effect - income subject to standard rate of
15 1/2%
Married
Full benefit
(ie those with income below $74,000 or with total allowances in excess of their income)
Partial benefit
(ie those with income between $74,001 and $213,999)
No benefit
(ie in situation where income exceeds $214,000, clawback exhausts allowance)
No effect - income subject to standard rate of
15 1/2%
67 000 This group receives full benefit from the increase in personal
allowance.
340 000 This group receives partial benefit from the increase in personal
allowance but the full benefit of
the revision to the marginal tax
rates.
34 000 This group receives no benefit from the increase in personal
allowance but the full benefit of
the revision to the marginal tax
rates.
13 000 Standard rate taxpayers.
26 000 This group receives full benefit from the increase in personal
allowance.
147 000 This group receives partial benefit from the increase in personal
allowance but the full benefit of
the revision to the marginal tax
rates.
32 500 This group receives no benefit from the increase in personal
allowance but the full benefit of
the revision to the marginal tax
rates.
40 500 Standard rate taxpayers.
T O T A L 700 000
852 HONG KONG LEGISLATIVE COUNCIL-2 March 1988 Appendix F(3)(cont’d)
(iii) Distribution of Single and Married Taxpayers
by
different income groups in 1988-89
Single No. of taxpayers
Low Income Group
(I e those with income below $84,000) 303 000
Middle Income Group
(ie those with income between $84,000 and $144,000) 61 000
High Income Group
(ie those with income in excess of $144,000) 23 000
Married
Low Income Group
(ie those with income below $120,000) 62 000
Middle In come Group
(ie those with income between $120,000 and $240,000) 96 000
High Income Group
(ie those with income in excess of $240,000) 62 000 Total after Budget concessions 607 000 Add :
No. of Taxpayers estimated to fall out and be
kept out of the tax net [on account of the
budget concessions but liable to pay 1987-88
final tax in 1988-89] 93 000 Total no. of Taxpayers estimated to pay tax in 1988-89 700 000
HONG KONG LEGISLATIVE COUNCIL-2 March 1988
EXAMPLES OF THE EFFECT THE PROPOSED INCREASE IN PERSONAL ALLOWANREDUCTION IN THE STANDARD RATE AND REVISION OF THE MARGINAL TAX WILL HAVE ON SALARIES TAX AT VARIOUS INCOME LEVELS
Single person
(iv)
Proposed tax payable Present tax payable
(Exemption level: $36,000) (Exemption level: $34,000)
Tax saving
Effective
Effective
Annual income
rate Amount
rateAmount
(A) - (B)
(B)(A)
(%) ($)
(%) ($)
(%) ($)
($)
This group recei 100.0
55
-
-
0.2 55
35,000
in personal allow 100.0
110 -
-
0.3 110
36,000
70.0 154
0.2 66
0.6 220
38,000
This group recei 52.7
548
1.0 492
2.2 1,040
48,000
increase in perso 47.1
1,314
2.5
1,476
4.7
2,790 60,000
benefit of the rev 39.3
1,908
4.1 2,952
6.8 4,860
72,000
rates.
33.3 2,496
6.0 5,004
8.9 7,500
84,000
26.2 2,690
7.9 7,560
10.7 10,250
96,000
21.0 2,625
9.4 9,875
11.9 12,500
105,000
20.4 2,600
9.6 10,150
12.0 12,750
106,000
This group recei 16.0
2,600
11.4 13,650
13.5 16,250
120,000
increase in perso 13.5
2,600
12.6 16,650
14.6 19,250
132,000
benefit of the rev 11.7
2,600
13.6 19,650
15.5 22,250
144,000
rates.
9.7
2,600
14.9 24,091
16.5 26,691
(161,765)
7.5 2,070
15.3 25,650
16.5 27,720
168,000
Standard rate tax 6.1
1,721
15.5
26,676
16.5 28,397
(172,105)
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 854
EXAMPLES OF THE EFFECT THE PROPOSED INCREASES IN PERSONAL AND DEPPARENT ALLOWANCES, REDUCTION IN THE STANDARD RATE AND REVISIOMARGINAL TAX RATES WILL HAVE ON SALARIES TAX AT VARIOUS INCOMESingle
parents
pendent
person, with two de
(v)
Proposed tax payable Present tax payable
(Exemption level: $54,182) (Exemption level: $50,364)
Tax saving
Effective
Effective
Annual income
rate Amount
rateAmount
(A) - (B)
(B)(A)
(%) ($)
(%) ($)
(%) ($)
($)
This grouin person 100.0
200
-
-
0.4
200
54,000
80.6 250
0.1 60
0.6 310
56,000
This grou 70.0 294
0.2 126
0.7
42058,000
increase i 65.7 368
0.3 192
0.9 560
60,000
benefit of 57.7 1,194
1.2 876
2.9 2,070
72,000
47.3 1,914
2.5 2,136
4.8 4,050
84,000
38.1 2,400
4.1 3,900
6.6 6,300
96,000
31.3 2,538
5.3 5,562
7.7 8,100
105,000
30.6 2,540
5.4 5,760
7.8 8,300
106,000
26.4 3,100
7.2 8,650
9.8 11,750
120,000
21.0 3,100
8.8 11,650
11.2 14,750
132,000
This grou 17.5
3,100
10.2 14,650
12.3 17,750
144,000
personal 14.9 3,100
11.3 17,650
13.3 20,750
156,000
revision t 13.1 3,100
12.3 20,650
14.1 23,750
168,000
11.6 3,100
13.1 23,650
14.9 26,750
180,000
10.4 3,100
13.9 26,650
15.5 29,750
192,000
9.5 3,100
14.5 29,650
16.1 32,750
204,000
8.8 3,100
15.1 32,326
16.535,426
(214,706)
Standard 6.1
2,247
15.5
34,834
16.537,081
(224,737)
HONG KONG LEGISLATIVE COUNCIL-2 March 1988
EXAMPLES OF THE EFFECT THE PROPOSED INCREASES IN PERSONAL AND CHILD ALLOWANCES, THE INTRODUCTI$15,000, REDUCTION IN THE STANDARD RATE AND REVISION OF THE MARGINAL TAX RATES WILL HAVE ON SALARMarried person, with two children
Proposed tax payable (with workin(Exemption level: $106,273*) Proposed tax payable (without working wife)
(Exemption level: $92,636)
Ta
Effective
Tax
Effective
savi
rate
Amount
saving
rate
Amount
(A) -
(C) (A) - (B)
(B)
($) (%) ($) (%) ($) (%) ($)
260 -
-
100.0 260
-
-
370 -
-
87.8 325
0.1 45
480 -
-
76.9 369
0.1 111
1,863 0.1 57
62.8 1,206 0.7 714
3,294 0.5 606
53.5 2,088 1.5 1,812
4,693 1.2 1,647 44.9 2,845 2.6 3,495
5,875 2.2 3,225 37.7 3,430 3.9 5,670
7,054 3.4 5,346 32.8 4,063 5.3 8,337
7,741 4.7 7,959 26.0 4,075 6.9 11,625
7,575 6.2 11,175 20.4 3,825 8.3 14,925
7,275 7.5 14,475 16.2 3,525 9.5 18,225
6,975 8.7 17,775 13.0 3,225
10.6 21,525
6,750 9.5 20,250 11.1 3,000
11.3 24,000
6,725 9.6 20,525 10.9 2,975
11.3 24,275
6,725 10.5 24,025 9.7 2,975
12.2 27,775
6,725 11.3 27,025 8.8 2,975
12.8 30,775
6,725 11.9 30,025 8.1 2,975
13.4 33,775
6,725 13.6 39,025 6.5 2,975
14.9 42,775
6,725 14.3 43,932 5.9 2,975
15.5 47,682
6,725 14.3 44,230 6.1 3,088
15.5 47,867
3,471 15.5 53,801 6.1 3,471
15.5 53,801
ife Allowance of $15,0orking W* The examples shown above are calculated on the basis that the wife’s incoem is in excess of the W
(vi)
Present tax payable
(Exemption level: $87,273)
EffectiveAnnual
rate Amountincome
(A)
(%) ($)($)
0.3 260
92,000
0.4 370
94,000
0.5 480
96,000
1.8 1,920108,000
3.3 3,900120,000
4.8 6,340132,000
6.3 9,100144,000
7.9 12,400156,000
9.3 15,700168,000
10.4 18,750180,000
11.3 21,750192,000
12.1 24,750204,000
12.7 27,000213,000
12.7 27,250214,000
13.5 30,750228,000
14.1 33,750240,000
14.6 36,750252,000
15.9 45,750288,000
16.550,657(307,631)
16.550,955(308,823)
16.557,272(347,105)
HONG KONG LEGISLATIVE COUNCIL-2 March 1988
EXAMPLES OF THE EFFECT THE PROPOSED INCREASES IN PERSONAL ALLOWANCE, THE INTRODUCTION OF A $15,000,
REDUCTION IN THE STANDARD RATE AND REVISION OF THE MARGINAL TAX RATES WILL HAVE ON SALARIES Married person, with no children
Proposed tax payable (with workinExemption level: $87,636*) Proposed tax payable (without working wife)
(Exemption level: $74,000)
Ta
Effective
Tax
Effective
savi
rate
Amount
saving
rate
Amount
(A) -
(C) (A) - (B)
(B)
($) (%) ($) (%) ($) (%) ($)
110 -
-
100.0 110
-
-
220 -
-
100.0 220
-
-
330 -
-
80.0 264
0.1 66
1,040 -
-
65.4 680
0.4 360
2,514 0.3 276
54.2 1,512 1.3 1,278
3,744 1.0 1,116 44.7 2,172 2.5 2,688
5,028 2.1 2,472 38.6 2,892 3.8 4,608
6,230 3.3 4,320 32.7 3,452 5.4 7,098
7,130 4.7 6,720 26.7 3,700 7.0 10,150
7,450 7.7 13,000 18.1 3,700
10.0 16,750
7.200 9.1 16,300 14.7 3,450
11.1 20,050
6,900 10.2 19,600 11.9 3,150
12.2 23,350
6,600 11.2 22,900 9.7 2,850
13.1 26,650
6,375 11.9 25,375 8.3 2,625
13.7 29,125
6,350 12.0 25,650 8.1 2,600
13.7 29,400
6,350 12.8 29,150 7.3 2,600
14.4 32,900
6,350 13.4 32,150 6.8 2,600
15.0 35,900
6,350 14.0 35,385 6.2 2,600
15.5 39,135
6,286 14.0 35,571 6.1 2,536
15.5 39,321
2,932 15.5 45,439 6.1 2,932
15.5 45,439
ife Allowance of $15,0orking W* The examples shown above are calculated on the basis that the wife’s incoem is in excess of the W
856
(vii)
Present tax payable
(Exemption level: $70,000)
EffectiveAnnual
rate Amountincome
(A)
(%) ($)($)
0.2 110
72,000
0.3 220
74,000
0.4 330
76,000
1.2 1,04084,000
2.9 2,79096,000
4.5 4,860108,000
6.3 7,500120,000
8.0 10,550132,000
9.6 13,850144,000
12.2 20,450168,000
13.1 23,500180,000
13.8 26,500192,000
14.5 29,500204,000
14.9 31,750213,000
15.0 32,000214,000
15.6 35,000228,000
16.0 38,500240,000
16.541,735(252,941)
16.541,857(253,684)
16.548,371(293,158)
HONG KONG LEGISLATIVE COUNCIL-2 March 1988
(viii) EXAMPLES OF THE EFFECT THE PROPOSED INCREASES IN PERSONAL, CHILD AND DEPENDENT PARENT ALLOWANCES, THE IALLOWANCE
$15,000, REDUCTION IN THE STANDARD RATE AND REVISION OF THE MARGINAL TAX RATES WILL HAVE ON SALARIMarried person, with two children and two dependent parents
Proposed tax payable (with workin(Exemption level: $124,455*) Proposed tax payable (without working wife)
(Exemption level: $110,818)
Ta
Effective
Tax
Effective
savi
rate
Amount
saving
rate
Amount
(A) -
(C) (A) - (B)
(B)
($) (%) ($) (%) ($) (%) ($)
260 -
-
100.0 240
-
-
370 -
-
91.5 421
0.1 39
480 -
-
80.1 689
0.1 171
1,300 -
-
76.5 994
0.3 306
2,931 0.2 249
62.4 1,983 0.9 1,197
4,345 0.7 1,035 52.0 2,800 1.8 2,580
5,656 1.5 2,364 44.5 3,565 2.9 4,455
7,015 2.5 4,185 38.3 4,291 4.1 6,909
7,719 3.6 6,531 30.4 4,325 5.5 9,925
7,775 4.9 9,475 23.3 4,025 6.9 13,225
7,475 6.3 12,775 18.4 3,725 8.1 16,525
7,250 7.2 15,250 15.6 3,500 8.9 19,000
7,225 7.3 15,525 15.3 3,475 9.0 19,275
7,225 8.3 19,025 13.2 3,475
10.0 22,775
7,225 9.2 22,025 11.9 3,475
10.7 25,775
7,225 9.9 25,025 10.8 3,475
11.4 28,775
7,225 11.8 34,025 8.4 3,475
13.1 37,775
7,225 13.3 43,025 6.9 3,475
14.4 46,775
7,225 14.5 52,090 5.9 3,475
15.5 55,840
7,225 14.5 52,466 6.1 3,618
15.5 56,073
3,997 15.5 61,959 6.1 3,997
15.5 61,959
ife Allowance of $15,0orking W* The examples shown above are calculated on the basis that the wife’s incoem is in excess of the W
Present tax payable
(Exemption level: $8103,636)
EffectiveAnnual
rate Amountincome
(A)
(%) ($)($)
0.2 240108,000
0.4 460112,000
0.7 860116,000
1.1 1,300120,000
2.4 3,180132,000
3.7 5,380144,000
5.1 8,020156,000
6.7 11,200168,000
7.9 14,250180,000
9.0 17,250192,000
9.9 20,250204,000
10.6 22,500213,000
10.6 22,750214,000
11.5 26,250228,000
12.2 29,250240,000
12.8 32,250252,000
14.3 41,250288,000
15.5 50,250324,000
16.559,315(360,263)
16.559,691(361,765)
16.565,956(399,737)
858 HONG KONG LEGISLATIVE COUNCIL-2 March 1988 Appendix F(3)(cont’d)
(ix) INCOME LEVELS BELOW WHICH SALARIES TAXPAYERS ARE NOT REQUIERD TO PAY TAX
Present Proposed
Without working wife allowance
With working *
wife allowance
($) ($) ($)
No dependent parent
Single 34,001 36,001 - Married 70,001 74,001 87,637 Married + 1 child 80,001 84,910 98,546 Married + 2 children 87,274 92,637 106,274 Married + 3 children 90,001 95,365 109,001
Including two dependent parents
Single 50,365 54,183 - Married 86,365 92,183 105,819 Married + 1 child 96,365 103,092 116,728 Married + 2 children 103,637 110,819 124,456 Married + 3 children 106,365 113,546 127,183
Including two dependent parents
with additional allowance
Single 55,819 59,637 - Married 91,819 97,637 111,274 Married + 1 child 101,819 108,546 122,183 Married + 2 children 109,092 116,274 129,910 Married + 3 children 111,819 119,001 132,637
* The examples above are calculated on the basis that the
wife’s
income is in excess of the working wife allowance of
$15,000.
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 859 Appendix F(3)(cont’d)
(x) INCOME LEVELS ABOVE WHICH SALARIES TAXPAYERS BEGIN TO PAY TAX AT THE MAXIMUM 25% MARGINAL RATE
Present Proposed
Without working wife allowance
With working *
wife allowance
($) ($) ($)
No dependent parent
Single 88,545 99,636 - Married 124,545 137,636 151,273 Married + 1 child 134,545 148,545 162,182 Married + 2 children 141,818 156,273 169,909 Married + 3 children 144,545 159,000 172,636
Including two dependent parents
Single 104,909 117,818 - Married 140,909 155,818 169,455 Married + 1 child 150,909 166,727 180,364 Married + 2 children 158,182 174,455 188,091 Married + 3 children 160,909 177,182 190,818
Including two dependent parents
with additional allowance
Single 110,364 123,273 - Married 146,364 161,273 174,909 Married + 1 child 156,364 172,182 185,818 Married + 2 children 163,636 179,909 193,545 Married + 3 children 166,364 182,636 196,273
* The examples above are calculated on the basis that the
wife’s
income is in excess of the working wife allowance of
$15,000.
860 HONG KONG LEGISLATIVE COUNCIL-2 March 1988 Appendix F(3)(cont’d)
(xi) INCOME LEVELS AT WHICH SALARIES TAXPAYERS
ENTER THE STANDARD RATE ZONE
Present Proposed
Without working wife allowance
With working *
wife allowance
($) ($) ($)
No dependent parent
Single 161,765 172,105 - Married 252,941 253,684 293,158 Married + 1 child 285,294 285,263 324,737 Married + 2 children 308,823 307,631 347,105 Married + 3 children 317,647 315,526 355,000
Including two dependent parents
Single 214,706 224,737 - Married 305,882 306,315 345,789 Married + 1 child 338,235 337,895 377,368 Married + 2 children 361,765 360,263 399,737 Married + 3 children 370,588 368,158 407,631
Including two dependent parents
with additional allowance
Single 232,353 240,526 - Married 323,529 322,105 361,579 Married + 1 child 355,882 353,684 393,158 Married + 2 children 379,413 376,053 415,526 Married + 3 children 388,235 383,947 423,421
* The examples above are calculated on the basis that the
wife’s
income is in excess of the working wife allowance of
$15,000.
HONG KONG LEGISLATIVE COUNCIL-2 March 1988 861 Appendix F(3)(cont’d)
(xii) ANALYSIS OF ESTIMATED SALARIES TAX YIELD (AFTER BUDGET CONCESSIONS) BY INCOME GROUP IN 1988-89
Assessable
income group per annum
No. of taxpayer s
Peroentage of total taxpayers
Tax yield
Percentage of total yield
($) (%) ($M) (%)
50,000 & under 223 000 31.9 50 0.7 50,001 - 100,000 228 000 32.6 430 5.6 100,001 - 240,000 180 000 25.7 2,110 27.5 240,001 - 300,000 26 000 3.7 1,150 15.0 300,001 - 500,000 30 000 4.3 2,030 26.5 500,001 & over 13 000 1.8 1,890 24.7
T o t a l 700 000 100.0 7,660 100.0
of 700 000 taxpayers only 53 000 (or 7.6%) are estimated to pay tax at the standard rate of 15 1/2 % in 1988-89. This small group of taxpayers, however, will contribute about $4,300 million or 56% of the total tax yield and is composed of -
13 000 single persons with annual incomes of
$172,105 or more;
17 000 married couples with annual incomes of
$253,684 or more; and
23 500 married couples with one or more children
and /or dependent parents and with annual
incomes of $285,263 or more.
862 HONG KONG LEGISLATIVE COUNCIL-2 March 1988 Appendix F(4)
Existing and Proposed Rates of Stamp Duty
on Property Assignments
(i) Proposed New Rates of Duty
The proposed new rates of duty, subject to marginal relief, are -
Property consideration Duty
Up to $ 250,000 $20
$ 250,001 to $ 500,000 0.75%
$ 500,001 to $1,000,000 1.5%
$1,000,001 to $1,500,000 2.0%
Over $1,500,000 2.75%
Marginal relief: under the proposed new formula, whenever the consideration of a property slightly exceeds a marginal point on the scale of rates, the amount required to be added to the duty payable will be 10%, as opposed to the present 100%, of the excess of the consideration over that point.
HONG KONG LEGISLATIVE COUNCIL-2 March 1988
COMPARISON OF EXISTING AND PROPOSED RATES OF DU(ii)
Proposed rates Existing ratesConsideration
$20
$20Up to $250,000
$20 + 10% of excess of
$20 + excess of $250,001-$252,505
consideration over consideration over
$250,000 $250,000
1% $252,506-$270,057
0.75%
1%$270,058-$500,000
$3,750 + 10% of excess of
$5,000 + excess of $500,001-$508,997
consideration over consideration over
$500,000 $500,000
2.75% $508,998-$544,130
1.5%
2.75%$544,131-$1,000,000
$15,000 + 10% of excess of
2.75%$1,000,001-$1,062,520
consideration over
$1,000,000
2%
2.75%$1,062,521-$1,500,000
$30,000 + 10% of excess of
2.75%$1,500,001-$1,655,180
consideration over
$1,500,000
2.75%
2.75%Over $1,655,180
864 HONG KONG LEGISLATIVE COUNCIL-2 March 1988
Appendix F(4)(cont’d)
(iii) EXAMPLES OF THE EFFECT THE PROPOSED NEW RATES WILL HAVE ON STAMP DUTY PAYABLE AT VERIOUS
LEVELS OF PROPERTY CONSIDERATION
Existing Proposed
Consideration duty payable duty payable Duty saved ($) ($) ($) ($)
250,000 20 20 NIL 252,000 2,020 220 1,800 (89%) 255,000 2,550 520 2,030 (80%) 260,000 2,600 1,020 1,580 (61%) 300,000 3,000 2,250 750 (25%) 500,000 5,000 3,750 1,250 (25%) 510,000 14,025 4,750 9,275 (66%) 520,000 14,300 5,750 8,550 (60%) 550,000 15,125 8,250 6,875 (45%) 600,000 16,500 9,000 7,500 (45%)
1,000,000 27,500 15,000 12,500 (45%) 1,050,000 28,875 20,000 8,875 (31%) 1,100,000 30,250 22,000 8,250 (27%) 1,500,000 41,250 30,000 11,250 (27%) 1,600,000 44,000 40,000 4,000 ( 9%) 1,650,000 45,375 45,000 375 ( 1%)
PRINTED AND PUBLISHED BY H.MYERS, GOVERNMENT PRINTER
AT THE GOVERNMENT PRINTING DEPARTMENT, HONG KONG
161902-6L-4/88 $110-G410688