HONG KONG LEGISLATIVE COUNCIL 7 March 1990 943
OFFICIAL REPORT OF PROCEEDINGS
Wednesday, 7 March 1990
The Council met at half-past Two o'clock
PRESENT
HIS EXCELLENCY THE GOVERNOR (PRESIDENT)
SIR DAVID CLIVE WILSON, K.C.M.G.
THE CHIEF SECRETARY
THE HONOURABLE SIR DAVID ROBERT FORD, K.B.E., L.V.O., J.P.
THE FINANCIAL SECRETARY
THE HONOURABLE SIR PIERS JACOBS, K.B.E., J.P.
THE ATTORNEY GENERAL
THE HONOURABLE JEREMY FELL MATHEWS, C.M.G., J.P.
THE HONOURABLE ALLEN LEE PENG-FEI, C.B.E., J.P.
THE HONOURABLE STEPHEN CHEONG KAM-CHUEN, C.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, C.B.E., J.P.
DR. THE HONOURABLE HENRIETTA IP MAN-HING, O.B.E., J.P. THE HONOURABLE CHAN YING-LUN, O.B.E., J.P.
THE HONOURABLE MRS. RITA FAN HSU LAI-TAI, O.B.E., J.P.
THE HONOURABLE PETER POON WING-CHEUNG, O.B.E., J.P. THE HONOURABLE CHENG HON-KWAN, O.B.E., J.P.
THE HONOURABLE CHUNG PUI-LAM, J.P.
THE HONOURABLE HO SAI-CHU, M.B.E., J.P.
THE HONOURABLE HUI YIN-FAT, O.B.E., J.P.
THE HONOURABLE MARTIN LEE CHU-MING, Q.C., J.P.
944 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 THE HONOURABLE DAVID LI KWOK-PO, 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, J.P.
PROF. THE HONOURABLE POON CHUNG-KWONG, J.P.
THE HONOURABLE SZETO WAH
THE HONOURABLE TAI CHIN-WAH, J.P.
THE HONOURABLE MRS. ROSANNA TAM WONG YICK-MING, J.P. THE HONOURABLE TAM YIU-CHUNG
DR. THE HONOURABLE DANIEL TSE, O.B.E., J.P.
THE HONOURABLE ANDREW WONG WANG-FAT, J.P.
THE HONOURABLE LAU WONG-FAT, O.B.E., J.P.
THE HONOURABLE GRAHAM BARNES, C.B.E., J.P.
SECRETARY FOR PLANNING, ENVIRONMENT AND LANDS
THE HONOURABLE MICHAEL LEUNG MAN-KIN, J.P.
SECRETARY FOR TRANSPORT
THE HONOURABLE EDWARD HO SING-TIN, J.P.
THE HONOURABLE MARTIN GILBERT BARROW, O.B.E. THE HONOURABLE PAUL CHENG MING-FUN
THE HONOURABLE MICHAEL CHENG TAK-KIN, J.P.
THE HONOURABLE DAVID CHEUNG CHI-KONG, J.P.
THE HONOURABLE MRS. NELLIE FONG WONG KUT-MAN, J.P. THE HONOURABLE MRS. PEGGY LAM, M.B.E., J.P.
THE HONOURABLE DANIEL LAM WAI-KEUNG, J.P.
THE HONOURABLE MRS. MIRIAM LAU KIN-YEE
THE HONOURABLE LAU WAH-SUM, J.P.
DR. THE HONOURABLE LEONG CHE-HUNG
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 945 THE HONOURABLE LEUNG WAI-TUNG, J.P.
THE HONOURABLE JAMES DAVID McGREGOR, O.B.E., I.S.O., J.P. THE HONOURABLE KINGSLEY SIT HO-YIN
THE HONOURABLE MRS. SO CHAU YIM-PING, J.P.
THE HONOURABLE JAMES TIEN PEI-CHUN, J.P.
THE HONOURABLE MRS. ELSIE TU, C.B.E.
THE HONOURABLE PETER WONG HONG-YUEN, J.P.
THE HONOURABLE YEUNG KAI-YIN, J.P.
SECRETARY FOR EDUCATION AND MANPOWER
THE HONOURABLE MRS. ANSON CHAN, J.P.
SECRETARY FOR ECONOMIC SERVICES
THE HONOURABLE PETER TSAO KWANG-YUNG, C.B.E., C.P.M., J.P. SECRETARY FOR HOME AFFAIRS
THE HONOURABLE MRS. ELIZABETH WONG CHI-LIEN, I.S.O., J.P. SECRETARY FOR HEALTH AND WELFARE
THE HONOURABLE ALISTAIR PETER ASPREY, O.B.E., A.E., J.P. SECRETARY FOR SECURITY
ABSENT
THE HONOURABLE RONALD JOSEPH ARCULLI, J.P.
THE HONOURABLE RONALD CHOW MEI-TAK
IN ATTENDANCE
THE CLERK TO THE LEGISLATIVE COUNCIL
MR. LAW KAM-SANG
946 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 Papers
The following papers were laid on the table pursuant to Standing Order 14(2): Subject
Subsidiary Legislation L.N. No.
Prevention of Bribery Ordinance
Prevention of Bribery Ordinance
(Amendment of Schedule) Order 1990 62/90
Electricity networks (Statutory Easements) Ordinance
Electricity networks (Statutory Easements)
(Rectification of Approved Scheme) Order 1990 63/90
Tax Reserve Certificates (Fourth Series) Rules
Tax Reserve Certificates (Rates of Interest)
Notice 1990 64/90
Sessional Papers 1989-90
No. 57 Draft Estimates for the year ending 31 March 1991: Volume I General Revenue Account Expenditure Summaries and Controlling Officers' Reports
No. 58 Draft Estimates for the year ending 31 March 1991: Volume II General Revenue Account Expenditure by Heads and Subheads
No. 59 Draft Estimates for the year ending 31 March 1991: Volume III Fund Accounts
No. 60 Report on the Administration of the Fire Services Welfare Fund for the year ended 31st March 1988
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 947 First Reading of Bill
APPROPRIATION BILL 1990
Bill read the First time and ordered to be set down for Second Reading pursuant to Standing Order 41(3)
Second Reading of Bill
THE FINANCIAL SECRETARY moved the Second Reading of: "A Bill to apply a sum not exceeding $88,201,918,000 to the service of the financial year ending on 31 March 1991."
948 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 CONTENTS
Paragraphs
INTRODUCTION 1 7 THE ECONOMY IN 1989 8 17
ECONOMIC PROSPECTS FOR 1990 18 28 REVISED ESTIMATES 1989-90 AND
PRESENT STATE OF PUBLIC FINANCES 29 38 STRATEGY FOR PUBLIC FINANCES 39 47 Strategy for expenditure 48 50 Strategy for revenue 51 53 The Government's reserves 54 57 DRAFT ESTIMATES 1990-91 58 Draft estimates of expenditure 59 74 Draft estimates of revenue 75 76 Summary of draft estimates 77 TAXATION MATTERS 78 Wholesale tax 79 82 Venture capital 83 Stamp duty 84
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 949
Paragraphs
REVENUE MEASURES 85 86 Dutiable commodities 87 95 First registration tax 96 97 Bets tax 98 99 Rates 100 104
Fees and charges 105 113 Tax concessions 114 Personal taxation 115 117 Commercial rebuilding allowance 118
Estate duty 119 120 Unit trusts and mutual funds 121
Implementation 122 SUMMING UP 123 130
Pages
SUPPLEMENT 973 1003 APPENDICES A E 1005 1035
950 HONG KONG LEGISLATIVE COUNCIL 7 March 1990
He said: I move that the Appropriation Bill 1990 be read the Second time. In presenting my Budget for 1990-91, I am conscious that over the past 12 months the international scene has changed more quickly and dramatically than any of us could have anticipated. Hong Kong did not emerge unscathed. But the Administration remains determined to undertake the vital programme of infrastructural and other projects which you, Sir, described in your address to this Council last October.
2. We have set ourselves ambitious long-term objectives, and this Budget sets the scene for their ultimate achievement. The programme in its entirety is our investment in our own future and is essential to the continued progress and prosperity of this community. Hong Kong has grown to be both an international trading and financial centre and a place which provides a rewarding lifestyle for its people only by planning ahead and by meeting challenges and overcoming difficulties as they arise.
3. The programme of public expenditure upon which we are now embarking is within our capabilities but it will require financial management of a high order. Today it is more important than ever that we should assess our prospects realistically and tailor our thinking to what is possible. The starting point has to be the best use of our resources. Controlling public sector expenditure in all its forms, achieving value for money, containing civil service growth, increasing productivity, all are needed.
4. Raising revenue, and how we raise it, is no less important. In this Budget I shall be proposing a number of measures designed to improve the revenue yield and to bring about a relative shift from direct to indirect taxation.
5. In setting the scene for the achievement of our objectives, I shall not attempt to describe in detail how each project will be financed. That is for a later stage when our plans are further advanced. What I am seeking is a sound fiscal position upon which we will be able to develop our financing strategy. The task will not be achieved in the course of one year. Now that the key decision to build our new airport has been taken, it is all the more important to ensure that we maintain a position of considerable financial strength. I shall have more to say about this later.
6. As to presentation of the Budget and related documents, I would like to draw Members' attention to the fact that this year we published the estimates earlier than usual to assist Members in their preparation for the special meetings of Finance Committee. We have also revised and retitled the three volumes of the estimates to provide a more logical and, I hope, convenient arrangement of the contents. In addition, I have made some changes to the presentation of the printed version of the speech. The unwieldy footnotes should be removed to a new supplement, which also contains a glossary of some of the technical terms.
7. Although my speech this year is focussed upon our programme of expenditure and on how it should be managed and financed, I shall as usual begin by describing the economic background to my Budget.
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 951 THE ECONOMY IN 19891
8. The economy continued to slow down in 1989, adjusting to the pressures on capacity brought about by substantial growth over the previous three years. Reduced overseas demand for Hong Kong's products, as well as the austerity programme in China, also contributed to the cyclical slow-down. As a result, our gross domestic product (GDP) recorded a growth rate of only 2.5% in real terms in 1989, compared with increases of around 14% in 1987 and 7% in 19882. A period of consolidation is perhaps inevitable, and in some respects welcome.
9. With the unemployment rate staying below 2% for three successive years, wages and salaries have been driven up by the keen competition for manpower, and this has contributed to a level of domestically generated inflation which is uncomfortably high. In the latter part of last year, however, there was some indication that conditions in the labour market were becoming less tight, in that there was a significant drop in the number of job vacancies in most sectors.
10. For 1989 as a whole, the Consumer Price Index (A) rose by an average of around 10%. But there are signs that inflationary pressures, which dominated much of the year, may now be easing as a result of the economic slow-down. The year-on-year rates of increase in the consumer price indices started to level off in the second half of the year, after peaking in June. But the adjustment process will take time. I shall have more to say about this when describing our economic prospects for 1990.
11. In the external sector, there was virtually no growth in domestic exports in 1989, but re-exports continued to grow strongly, although not as fast as in 1988. As a proportion of total exports, re-exports exceeded domestic exports for the second consecutive year3. The performance about domestic exports in some of our major markets, including the United States, the Federal Republic of Germany and the United Kingdom, was rather disappointing. By contrast, our domestic exports to both Japan and China still showed a significant increase, although there was some slackening in the latter part of the year. Re-exports to China grew more modestly than in 1988, but the strong growth in re-exports of China origin was sustained. With total re-exports up by 19%, Hong Kong remained a major entrepot for China and the Asia-Pacific region.
12. The slow-down in economic growth was also evident in the domestic sector. Private consumption expenditure grew by only 3% in 1989, much less than the increase of 9% in 1988; expenditure on consumer durables in fact showed a decline.
1 For detailed statistics on the economy in 1989 see the Supplement and the '1989 Economic Background'.
2 Unless otherwise indicated, all growth rates for the economy are in real terms.
3 The share of re-exports in the value of total exports increased from 48% in 1987 to 56% in 1988 and to 61% in 1989.
952 HONG KONG LEGISLATIVE COUNCIL 7 March 1990
13.The growth rate of investment also fell, from 6% in 1988 to only about 1% in 1989. This comprised a 1.5% increase in expenditure on plant and machinery and a 5.3% increase in expenditure on building and construction, offset in part by a decrease of about 3% in the real estate developers' margin. Reflecting a more cautious sentiment towards investment in the manufacturing sector, retained imports of machinery for use in manufacturing declined by 8% last year.
14. With the slow-down in both exports and domestic demand, imports also grew more slowly, at 9% in 1989 compared with 27% in the previous year. As in 1988, our visible trade account remained virtually in balance.
15. Last year was a testing time for Hong Kong, and this was reflected in our economic performance. As an open economy, we are vulnerable to external influences. But history has demonstrated our flexibility and resilience. Although the June events had their effect, notably on the property and tourist-related sectors, the economy generally, and the financial sector in particular, withstood the impact well. The exchange rate of the Hong Kong dollar against the US dollar remained stable even during the months of May and June, and Hong Kong dollar interest rates stayed close to corresponding US dollar rates for most of the year4. It is abundantly clear that the linked exchange rate continues to serve the interests of Hong Kong.
16. The maintenance of monetary stability is vital to Hong Kong in the run-up to 1997 and beyond. We need to ensure that our monetary system can successfully absorb shocks. Where necessary and appropriate, we will take action to strengthen our system. For example, the issue of short-term Exchange Fund bills, scheduled to start shortly, will provide us with an additional means of conducting the money market operations which assist in maintaining exchange rate stability.
17. Despite the events in 1989, Hong Kong continued to develop as an international financial centre. There was a significant increase in the number of licences granted to foreign banks and banking business grew rapidly. This indicates continuing confidence on the part of the international banking community in the prospects for the Hong Kong economy, to which I shall now turn.
ECONOMIC PROSPECTS FOR 19905
18. Overall, the economy is expected to continue to grow only slowly during the first half of this year, with the possibility of some recovery in the second half. For 1990 as a whole, the growth rate of the GDP is forecast to be broadly similar to that
4 The market exchange rate moved within a narrow range of HK$7.774/7.815 to US$1 during 1989.
5 For detailed forecasts on the economy in 1990 see the Supplement and the '1990 Economic Prospects'. Will depend more on China's export capability than on her import demand. A slow-down from last year's growth rate of 19% seems inevitable, and my forecast of re-export growth for this year is 8%.
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 953
achieved in 1989. The rate of inflation will nevertheless be somewhat lower. For many sectors, constraints on productive capacity and pressure on costs will continue to affect business growth.
19. Although it is likely that the world economy will grow more slowly this year, I expect our domestic exports to resume modest growth, at 2.5%, as compared to virtually zero growth last year. But performance will vary from market to market. Our domestic exports to the United States may show a marginal improvement after two years of decline. Those to China are likely to be restrained by China's austerity programme, and exports across the border for outward processing purposes may continue to be affected by supply bottlenecks in Guangdong and uncertain overseas demand. Our domestic exports to the Federal Republic of Germany and Japan should show fairly strong growth, but those to the United Kingdom could decline further.
20. Our major partner in our re-export trade is China. In present circumstances, growth in Hong Kong's total re-exports will depend more on China's export capability than on her import demand. A slow-down from last year's growth rate of 19% seems inevitable, and my forecast of re-export growth for this year is 8%.
21. Exports of services are forecast to increase by 5.5% this year. I expect continued demand for trade-related services and an encouraging recovery in tourism. For imports of services, I forecast a growth rate of 5%.
22. The recent slow-down in economic growth in Hong Kong is likely to affect domestic demand in 1990. My forecast of the growth rate in 1990 for private consumption expenditure is 3.5%, and for investment in plant and machinery 2.8%. By contrast, and reflecting the continuing commitment of the Government to provide more and better public services, government consumption expenditure is expected to increase by 10% and public sector expenditure on building and construction by 15%. Even though private sector expenditure on building and construction is expected to be only 0.5% higher, overall construction output is forecast to increase by 5.5%. The pressure on the construction industry, even before the new airport project really gets under way, will thus continue to be heavy.
23. In the light of the forecasts of exports and domestic demand, imports are expected to grow by 6.4%. With total exports forecast to grow by 5.7%, and with a modest improvement in the terms of trade, we should have a small visible trade surplus for 19906.
24. In sum, I am forecasting a GDP growth rate of 3% in 1990. In current price terms, Hong Kong's per capita GDP is expected to rise to US$12,1007. At this level, our per capita GDP should continue to be among the highest in the region.
6 $6.5 billion, equivalent to 1% of the total value of imports.
7 An increase of 11% in money terms, or 1.9% in real terms. At current prices, it would amount to $94,700.
954 HONG KONG LEGISLATIVE COUNCIL 7 March 1990
25.Before I describe the present state of public finances, I wish to say a little more about the inflationary pressures in the economy. This is a matter of concern. In the labour market, the persistently low unemployment and underemployment rates over the past couple of years suggest that there is still little spare capacity. This will continue to restrain economic growth in the short term. Although, as I have already commented, there have been signs of easing in the labour market in recent months, the pressure on wages and salaries is likely to persist for some time.
26. Thus I expect that the rate of inflation will come down, but more slowly than we would like. The availability of outward processing facilities across the border may have caused our rate of inflation to be less responsive to shifts in external demand. The prospect for a significant reduction in inflationary pressures will depend, in large measure, on labour market conditions. I forecast the average rate of increase in the Consumer Price Index (A) to be 8.5% in 1990, somewhat lower than the 10% increase in 1989.
27. Although there has been some improvement, inflation is still too high. But the remedies do not rest entirely in the Government's hands. The private sector can do much to help by improving productivity both through training and through appropriate investment.
28. In 1990 and in the years beyond, economic and political developments both globally and within the region will continue to be the key influence on Hong Kong's economic prospects. We remain exposed to many uncertainties, but in those uncertainties there are opportunities to be grasped. How we respond will be the measure of our success.
REVISED ESTIMATES 1989-90 AND PRESENT STATE OF PUBLIC FINANCES
29. I turn now to the present state of the public finances. The revised estimates for the current financial year indicate that total government expenditure will, at $73.1 billion, exceed the estimate by about 6%. Revenue, at $82.4 billion, is expected to exceed the estimate by about 2%. As a result I am now expecting an overall surplus in 1989-90 of $9.3 billion compared with my original estimate of $11.5 billion8.
30. General Revenue Account expenditure, at $52.3 billion, is expected to be close to the original estimate. It has been possible to meet increases in expenditure from the provision for additional commitments and from savings, including those arising from unfilled posts.
31. Expenditure from the various funds is expected to total $20.8 billion compared with the estimate of $16.8 billion, an increase of around 24%. This increase is attributable to our having to meet higher building and construction costs in the public works programme; the cost of resuming the Mobil site at Tsing Yi, which was not
8 Supplement (Table 1)
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 955 provided for in the estimates; and lastly, additional investment in the Housing Authority.
32. Taking the General Revenue Account and the funds together, total government expenditure is likely to be about 6% above the original estimate and about 29% above the actual figure for 1988-89.
33. Consolidated Public Sector expenditure, that is total government expenditure and that incurred by the Housing Authority and the Urban and Regional Councils, is also expected to be about 29% above the actual figure for 1988-89. After adjustment for cost increases, this represents an increase of around 13% compared with the original estimate of 9%.
34. Revenue to the General Revenue Account will, at $74.3 billion, exceed the estimate by about 2%. This is mainly attributable to continuing growth in salaries tax, bets and sweeps tax and stamp duties. Revenue to the funds, at $8.1 billion, will exceed the estimate by around 4%, mainly through higher revenue from land sales.
35. The General Revenue Account surplus of $22 billion is partly offset by a net deficit on the various funds of $12.7 billion, thus giving the overall surplus of $9.3 billion. A total of $17.7 billion will be transferred from General Revenue Account to the funds, in line with the estimate9. Of this, $7 billion will be transferred to the Development Loan Fund in line with my intention, stated in my last Budget speech, of setting aside funds to meet expenditure on major infrastructural works. These transfers do not, of course, affect the overall surplus.
36. I shall be introducing a resolution into this Council next week to set up a Capital Investment Fund to serve, with the Capital Works Reserve Fund, as a vehicle for funding expenditure on capital projects. The new fund will provide the Government's financial contribution to projects outside the public works programme, such as the new airport. When the fund is established on 1 April it will take over the balance of the Development Loan Fund.
37. Although expenditure from General Revenue Account is expected to be close to the estimate, it should be noted that the growth rate of this recurrent expenditure is higher than that of GDP. Furthermore, capital expenditure from the funds will substantially exceed budget. The increase in Consolidated Public Sector expenditure of 13% over 1988-89 will be well above the trend GDP growth rate of 6% assumed last year. Consolidated Public Sector expenditure is expected to represent about 17% of GDP, compared with our earlier estimate of 16.4%. I shall revert to these relationships when discussing my strategy for public expenditure.
38. Notwithstanding this substantial growth in public expenditure, our fiscal position is satisfactory at present. We shall be ending the year with a surplus of about $9 billion and this will take our accumulated reserves to just under $71 billion. The
9 Supplement (Table 2)
956 HONG KONG LEGISLATIVE COUNCIL 7 March 1990
operating surplus will be sufficient to cover more than 50% of our capital expenditure. But we remain excessively dependent on revenue from direct taxes and we are thus vulnerable to any downturn in the performance of the economy in future.
STRATEGY FOR PUBLIC FINANCES
39. I turn now to my strategy for managing the public finances. On the expenditure side, we need to maintain the discipline that, over the years, the growth rate of public sector expenditure should not exceed the growth of the economy. To help us to achieve this discipline, we look to the Medium Range Forecast to provide the overall framework within which we plan our spending10. By looking several years ahead we can determine trends and, if necessary, take corrective action.
40. Since the Medium Range Forecast is based on assumptions regarding the expected performance of the economy, the assumed rate of growth of the GDP over the planning period is critical. We are concerned with the trend over the period and not with year-on-year variations. Last year, for the purpose of the Forecast, I assumed that the trend growth rate of GDP would be 6% per annum. Having regard to recent developments and to the general economic outlook, I have come to the view that for planning purposes the trend GDP growth assumption should be lowered to 5.5% per annum. But I should add a note of caution. We are expecting a 3% rate of growth in 1990, and if a trend growth rate of 5.5% per annum is to be achieved we will need higher rates of growth in the later years.
41. Notwithstanding the somewhat slower trend growth rate assumption for the next few years, we are firmly committed to a programme of public expenditure representing a major and necessary investment in our future. We also need to maintain and in some areas even improve our existing services. All this will take us beyond our budgetary guidelines for a time. The breaching of these guidelines, as I indicated last year, can on occasions be justified, particularly as regards capital expenditure, but we must keep strict control over the level of recurrent expenditure.
42. It has never been easy to maintain the discipline of controlling the growth rate of expenditure close to that of the economy at a time when our revenue has enabled us to meet expenditure. It has been even more difficult to do so when we have been enjoying substantial budget surpluses. But let me emphasize that a budget surplus should not be a reason for incurring expenditure beyond our guidelines. In recent years we have been able both to add to our reserves and to allow the community to benefit through cuts in taxation. But conditions are now changing.
43. As regards the other side of the equation, slower economic growth will affect the growth in our revenue. The period up to the turn of the century is likely to be dominated by our major infrastructural building programmes. On present indications it seems unlikely that we will be able to fund from existing revenue resources all of
10 Appendix A
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 957
the expenditure without drawing on our reserves to a dangerous extent. We shall therefore need to increase our revenue. Furthermore, even with adequate control over the growth of expenditure, we must still seek to broaden our revenue base and reduce its vulnerability to fluctuations in our economy.
44. Some have asked how we will finance the airport and the rest of our programme of infrastructural development. I said at the outset that we were not yet in a position to give full details. Much will depend upon the negotiations that we conclude with interested parties. Our broad strategy is clear. We will build on methods already well tried and tested in Hong Kong. We shall seek participation by the private sector in individual projects which are for one reason or another intrinsically attractive to private sector investment. This will mean that some projects will be built and operated entirely by the private sector. We have many successful examples of this approach, such as the container terminals, and more recently the Tate's Cairn Tunnel and the Eastern Harbour Crossing. For some other projects, most notably the airport itself, we plan to use methods similar to those employed for the Mass Transit Railway. We envisage a statutory airport authority, financed by a blend of government equity and loan financing. Lastly, certain projects will be carried out entirely by the Government through the public works programme. The exact mix must ensure that we obtain the best overall results for Hong Kong both in terms of delivery and financial benefit in the longer term.
45. The port and airport strategy comprises a number of different but related projects to be completed over a considerable period of time. The effect on the economy and on our finances will not be concentrated in any one year. We have some scope for phasing in the light of demand and other factors, especially in relation to the port. Over the months ahead, as the detailed costings and plans become available, we shall be able to assess all aspects of the financing and the possible effects on the economy. Financial advisers will assist us in this task, and our strategy will have to be sufficiently flexible to take into account the particular economic and financial climate at the time the different projects commence.
46. Large civil engineering projects are not as labour intensive as they were in the past. I am confident that both the new airport and all the other infrastructural developments that we are contemplating are within our overall capability, although as you yourself said, Sir, we may need to consider exceptional arrangements to ensure that they are completed on time and without unacceptable inflationary impact.
47. What I am seeking to do in this Budget is to begin putting in place a structure for our public revenues that can be used as a basis for financing these projects, whilst at the same time maintaining as far as possible our low rates of direct taxation.
Strategy for expenditure
48. I now turn specifically to my strategy for expenditure. In the period of the Medium Range Forecast up to 1993-94, real growth in Consolidated Public Sector expenditure is forecast to average about 6.6% a year. This is higher than the trend growth rate assumption for the GDP of 5.5% a year. The proportion of GDP
958 HONG KONG LEGISLATIVE COUNCIL 7 March 1990
represented by Consolidated Public Sector expenditure will average 19% compared with an average over the last four years of 15.5%11. In the light of the slow-down in the economy and the level of expenditure to which we are now committed, this is regrettably unavoidable.
49. The Medium Range Forecast shows an average annual growth rate for recurrent expenditure of 7%. In the light of this, and from what I have said so far, there is clearly a need to tighten control and ensure value for money. The Civil Service accounts for a high proportion of recurrent expenditure and we have already conducted a special exercise to review staff establishments and to control growth in the size of the service. By reducing establishment levels in the current year we have achieved nil growth. I am grateful for the efforts made by branch secretaries and heads of departments in this exercise. As most of the posts deleted were unfilled, what we have done does not reduce current levels of expenditure, but it does reduce the scope for future growth, and sets a new, lower base. It is from this new, lower base that departments will have to justify any additional posts.
50. It is inevitable that new commitments will require more posts, but in 1990-91 we aim to limit growth in establishment to 2.5%, and posts will be created only if there is a clear need and a definite prospect of filling them. Given that we have achieved nil growth in 1989-90, this means that the growth in establishment over the two years in question will average only 1.25%. A useful start.
Strategy for revenue
51. Turning to revenue, in essence, and using the Medium Range Forecast, my strategy is that we should raise enough to meet government expenditure and to maintain adequate reserves.
52. As I have said many times before, our revenue base is too narrow and too vulnerable to economic change. Revenue from direct taxes, that is salaries tax, profits tax and estate duty, represented 60% of total revenue from direct and indirect taxes in 1985-86. In 1989- 90, it had risen to 63% and it is expected to be 65% in 1990-91. We must now take steps to reverse this trend.
53. We must also maintain the value of our revenue from other sources, in particular the charges made for the services we provide. The level of fees and charges is based on the principle that they cover the cost of the service being provided unless we have consciously decided to recover less than the full cost, or unless the fee or charge in question is tax loaded. Thus, fees and charges are reviewed regularly.
11 Proportion of GDP represented by Consolidated Public Sector expenditure:
1986-87 : 15.7% 1988-89 : 15.2%
1987-88 : 14.2% 1989-90 : 17.0%
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 959 The Government's reserves
54. In the context of the programme of public expenditure to which we are committed, our reserves have a critical place in relation to our overall strategy for public finances. At the end of the current financial year the consolidated reserves are expected to stand at about $71 billion, which is equivalent to about 85% of Consolidated Public Sector expenditure12. This high percentage is unlikely to be maintained, even assuming growth in the economy at the trend rate of 5.5%.
55. The reserves are sometimes seen as a symbol of Hong Kong's economic and financial success. In recent years substantial surpluses have been added to the reserves, but the next few years are unlikely to be as fiscally comfortable. There will be a fall in the relative size of our reserves and we must not exacerbate that decline by unwise expenditure or revenue concessions, however popular such a course of action might be in the short term.
56. We must maintain our reserves at an adequate level. To some extent, what is an adequate level is a matter of judgement, but in forming that judgement it is necessary to take into account a number of factors. First, we may have to draw on reserves to meet unforeseen shortfalls in revenue. Secondly, we have contingent liabilities to cover13. These include guarantees of non-government public sector borrowing, such as that by the two railway corporations. In addition, we may be called upon to increase our equity holding in the Mass Transit Railway Corporation. We also have to cover the liabilities of the Hong Kong Export Credit Insurance Corporation. Although we can measure in financial terms the contingent liabilities I have mentioned, it is extremely unlikely that we would be required to discharge them in full. Nevertheless, it is only prudent to make some allowance for them.
57. Lastly, with a programme of the size and complexity of the port and airport development we must accept that some of the costs may be higher than originally estimated. We are assuming that a large proportion of the expenditure on the airport and related projects will be financed by the private sector. But the availability of private sector finance and the terms of any loans will be influenced by the financial strength of the Government. Healthy reserves and financial prudence will have an important bearing on the decisions of institutional lenders and investors. So we must maintain our record of sound budget management.
DRAFT ESTIMATES 1990-91
58. I now present the draft estimates of expenditure and revenue for 1990-91. In so doing, I am faced with a dilemma. I referred at the outset to the ambitious long-term goals that we have set ourselves. The estimates for public expenditure, which show a
12 Appendix A
13 Appendix C
960 HONG KONG LEGISLATIVE COUNCIL 7 March 1990
considerable increase, should be seen in the context of our investment for the future. It is essential that we continue to develop and improve our services and the infrastructure necessary to enable Hong Kong to continue its dramatic success story. But the dilemma is that the level of public expenditure implicit in our programmes will, in the short term, take us well beyond our guidelines. Nevertheless, what I am seeking over the medium to longer term is a real and sustainable improvement in services and infrastructure, and this depends upon the imposition of discipline and insistence on value in its widest sense.
Draft estimates of expenditure
59. The draft estimates show expenditure on General Revenue Account of $65.3 billion, an increase of 25% over the revised estimate for 1989-90. Expenditure from the funds is estimated at $25.7 billion, an increase of 23% over 1989-90. Total Consolidated Account expenditure, estimated at $91 billion, will thus be 24% higher than total expenditure in the current financial year14.
60. The estimate of $65.3 billion for General Revenue Account includes $8.3 billion for additional commitments to cover items of expenditure which cannot be foreseen or for which we do not have firm estimates. In making this provision it has been necessary, among other things, to take a view of the cost of setting up the Hospital Authority. Not an easy task. Whilst it is expected that the Hospital Authority will assume its responsibilities later this year, it is too early to assess accurately the full financial implications, or the extent to which the additional expenditure will fall within 1990-91. Consequently, although I have made some provision in the draft estimates, it might be necessary to seek additional funds later on.
61. The expenditure from the funds, at $25.7 billion, allows for a 30% increase in expenditure on public works and for further equity investment of $4 billion in the Housing Authority.
62. Transfers totalling $22.9 billion will be made from General Revenue Account to the various funds, including $4.1 billion to the new Capital Investment Fund15. These transfers will be in addition to expenditure of $65.3 billion provided for in the draft estimates for the General Revenue Account.
63. Total Consolidated Public Sector expenditure is expected to be 24% higher than in 1989-90 and this, when adjusted for cost increases, indicates a growth in real terms of 9.4%16. In 1990-91, we expect recurrent and capital expenditure to increase in real terms by approximately the same rate. The rate of growth greatly exceeds the expected rate of growth in the economy in 1990 of only 3%. Furthermore, as I have said, in the period to 1993-94 the average annual real growth in Consolidated Public
14 Supplement (Table 1)
15 Supplement (Table 2)
16 Appendix A
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 961
Sector expenditure is estimated at 6.6%, which is above the assumed trend GDP growth rate of 5.5%.
64. With Consolidated Public Sector expenditure expected to grow in 1990-91 at a rate which exceeds the growth in the economy, expenditure will represent 18.8% of GDP, which is a higher proportion than the 17% expected in 1989-90. In the longer term, this trend is unacceptable. We must not allow the public sector to consume an increasing share of Hong Kong's economic resources indefinitely, and I should explain why we have deviated from our budgetary guidelines.
65. First, our budget strategy takes account of several years, not just the estimates year, and when there is a short-term dip in economic growth it is neither necessary nor desirable to reduce public expenditure by a rigid and automatic adherence to our guidelines. To do so would disrupt to an unwelcome extent the orderly development of our public services.
66. Secondly, we have commitments and items of expenditure which cannot easily or readily be avoided or deferred. The purchase of additional water supplies is perhaps a good example.
67. Thirdly, in some areas the development of our services has not kept pace with the growing aspirations of the community. People rightly expect better quality services and, if we are to meet those expectations, we have to spend more. Thus the estimates provide for the introduction in the next financial year of some new services, and improvements to existing services. These include additional funding for the Open Learning Institute, the new University of Science and Technology, the setting up of a Hong Kong Sports Development Board, and improvements in the environmental, social welfare and health fields, such as the Sha Tin Infirmary and Tuen Mun Hospital17.
68. Lastly, to maintain good and efficient public services, we have to ensure that we can recruit and retain staff of the necessary calibre. Improvements in the pay and conditions of our Civil Service are a major factor in the growth in public expenditure. But we will need to exert more pressure to ensure a matching quality of performance and improved productivity. We cannot afford over any significant length of time both real increases in civil service pay and significant growth in numbers. Despite some success from our recent efforts, the growth rate is still too high and will have to come down in the next few years.
69. We have to recognize that in Hong Kong today the cost of an employee is high and is likely to increase over the short term. This applies as much to the public sector as to the private sector. In endeavouring to control the overall growth in public expenditure, we cannot ignore this fact. We must recognize that if we are to control the overall growth in public expenditure, our prime target must be growth in numbers. I have already mentioned the special exercise to reduce staff establishments,
17 Appendices D and E
962 HONG KONG LEGISLATIVE COUNCIL 7 March 1990
but we need to do more in this area because staff costs represent some 60% of recurrent expenditure.
70. Thus, we must ensure maximum value for money. This requires more efficiency and productivity at every level of Government. We must look first to the baseline expenditure to accommodate improvements and new services and not simply add to expenditure levels. Financial management remains of critical importance.
71. Turning now to the main programme areas, in terms of Consolidated Public Sector expenditure, spending on social services at $16 billion will show an increase of 17% in real terms over 1989-90, and spending on education will increase by 3%. Expenditure on social services and education will together account for 30% of the total. In the years ahead we will continue to see an expansion in these areas, particularly in tertiary education. In addition, expenditure on community affairs will increase by 16% and on security by 8%.
72. Expenditure on the housing programme will represent about one-eighth of total expenditure, excluding the clearance of Kowloon Walled City. About one-third of the new housing units to be constructed will be for sale. In addition more will be spent on remodelling and renovating some of the older housing estates.
73. As regards infrastructure and economic services, expenditure will grow in 1990-91 largely because of improvements to Kai Tak Airport to meet anticipated traffic demand and because of preliminary expenditure on the new airport and other major infrastructural projects. Once we actually embark on these projects the share of expenditure devoted to infrastructure and economic services will increase substantially. In addition, there will be a large equity investment by the Government in the airport authority and the railway corporations in respect of the airport itself and related projects which will be undertaken by these bodies.
74. The acceleration of the programme to improve the environment, to which we attach great importance, is underlined by the fact that expenditure will grow by no less than 43% in real terms. At $2.2 billion, this is a relatively small part of our total expenditure, but in the years ahead this programme area will account for an increasing share18.
Draft estimates of revenue
75. I turn now to the draft estimates of revenue. General Revenue Account before my budget proposals shows revenue of $82.7 billion, an increase of 11% over 1989-9019. Revenue from direct taxes will increase by 16% and will represent 65% of the total of direct and indirect taxes taken together. This compares with 63% in 1989-90, as Members will recollect.
18 Appendix B
19 Supplement (Table 1)
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 963
76.Revenue to the various funds is estimated to be $5.9 billion, a reduction of 27% compared with 1989-90. In the current financial year, we have enjoyed some exceptional land sales. Having regard to the projected land sales programme and the state of the property market, we do not expect such buoyant results in 1990-91; hence the reduction in the estimate. Taken together, revenue to the General Revenue Account and the funds will be $88.6 billion, an increase of 7% over 1989-90. This increase is modest when compared with increases in some previous years.
Summary of draft estimates
77. The draft estimates of expenditure and revenue, before revenue measures, indicate a deficit of $2.4 billion. Given the expenditure commitments we have undertaken, and having regard to the lower economic growth rate we are expecting, I have decided to introduce measures which will both yield additional revenue and shift some of the burden of taxation from direct taxes to indirect taxes. My proposals will reduce direct taxation by about $800 million but increase indirect taxation by $2.9 billion and other revenue by $1 billion.
TAXATION MATTERS
78. Before turning to the details of my revenue proposals, I wish to say a few words about a number of issues that I raised in my speech last year.
Wholesale tax
79. In presenting my first three Budgets, and on various other occasions, I have spoken at length about the need to move towards a wider and more stable tax base for Hong Kong. I floated the idea of some form of sales tax, and last year I announced my intention to issue a consultative document to a number of professional bodies and other organizations. In so doing, I sought informed advice on the technical aspects relating to the possible introduction of a sales tax at the wholesale level. The consultative exercise was completed in October, and I would like to express my thanks for the useful views and comments that we received.
80. The consultation did not uncover any major technical hurdle to the introduction of a wholesale tax in Hong Kong, and some helpful comments were made as to how we might implement such a tax. What was clear, however, was that most of those consulted felt that Hong Kong was not ready for a wholesale tax at this moment in time, and indeed some expressed concern over the possible adverse consequences of such a tax on the economy. Some also doubted whether it would achieve the desired objective of providing a more stable source of tax revenue, and generously put forward suggestions as to other revenue raising measures that we might adopt.
81. Although I was faced with something less than total enthusiasm for a wholesale tax, there was nevertheless a recognition of the need for a more stable tax base, one less vulnerable to the vicissitudes of economic performance. Indeed, an encouraging number of Members of this Council who spoke in the debates on the last two Budgets
964 HONG KONG LEGISLATIVE COUNCIL 7 March 1990
also recognized the problem. I attach a great deal of importance to these reactions. Part of the purpose of my raising for debate the whole matter of a sales or wholesale tax was to encourage discussion of the fundamental problem, that is the vulnerability of our tax system as presently structured.
82. That the discussion has taken place largely without political Sturm and Drang has been helpful. What has been said has influenced me in putting together my budget proposals this year. I am not dissatisfied with the results of the consultation and debate and I will continue to avoid any hasty decisions. We must ensure that we do not saddle ourselves with a tax structure that might be difficult to implement or inappropriate to our needs. Thus whilst we are giving this issue of a wholesale tax further thought, I wish to make it clear that I am not working to any specific timetable.
Venture capital
83. I mentioned last year that I was considering whether a tax concession should be granted to venture capital investments in Hong Kong20. There has been some uncertainty as to whether profits arising from venture capital disinvestment are liable to profits tax, and it was suggested that this uncertainty was hindering the development of such financing methods. I have examined the proposal in some detail and have come to the conclusion that the complexity of the necessary legislation makes the proposal unsuitable for implementation in Hong Kong at this time. I am conscious also that the benefits accruing to the economy are unlikely to be significant.
Stamp duty
84. Recently, it has been suggested to me that a concession on stamp duty on share transfers would be welcome and that it would be self-financing through increased turnover. It was also suggested that we should ease the administrative cost involved in the collection of stamp duty by changing the system of levy so that the duty becomes payable by one party only, namely the vendor. Whilst I can appreciate that these proposals may be of some attraction to those investing in our markets, for fiscal reasons I do not think that, at the present time, we are in a position to give any concession on the duty itself. Furthermore, I would need to be convinced that the payment of the duty by one party would not create loopholes, causing an unacceptable erosion of stamp duty revenue. I shall, however, be examining both proposals in greater detail, because I am conscious of the possible potential for market development.
REVENUE MEASURES
85. I now turn to the revenue proposals themselves. The package includes a number of revenue raising measures which will yield some $3.9 billion in 1990-91
20 1989 Budget Speech
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 965
and approximately $4.7 billion in a full year21. I also propose to grant a number of tax concessions, in respect of direct taxes, estimated to cost $800 million in 1990-91, and $1.1 billion in a full year. The net effect will be to produce additional revenue of $3.1 billion for 1990-91. These proposals will therefore convert the estimated overall deficit of $2.4 billion to an overall surplus of $720 million. The proposals will, in addition, achieve the objective of reducing the percentage of total tax revenue derived from direct taxes, from 65% to 62%.
86. Higher indirect taxes, by their nature, can have some inflationary impact, but I am satisfied that the package I shall be proposing will have only a marginal effect. I consider the alternative of raising the same amount of revenue from higher direct taxes on balance to be less desirable. We have managed to reduce the standard rate of tax in recent years. To raise it again could adversely affect investment decisions.
Dutiable commodities
87. My first proposal relates to dutiable commodities. For some years now the duties on hydrocarbon oils, liquors and tobacco have been revised solely to keep pace with inflation. I now propose to raise additional revenue from this source.
Hydrocarbon oils
88. For fiscal and not transport reasons, I propose to increase the duty rate on hydrocarbon oils by 30%. Therefore, the duty on petrol will increase from $2.75 a litre to $3.58 a litre, and on diesel oil for road vehicles from $1.37 a litre to $1.78 a litre. I estimate the additional revenue arising from these increases to be $580 million.
89. The refund on diesel oil to the franchised bus companies will remain at 65 cents a litre. The cost of the duty increase to all three companies taken together will be about $50 million. The effect will be to increase costs by an average of about 4 cents a passenger trip.
90. I have considered the possibility of introducing a differential rate of duty for unleaded petrol. At the moment this is impracticable because of the lack of suitable facilities at petrol stations. When this situation changes, I shall give the proposal further thought. Clearly, the benefits for the environment would be welcomed.
Intoxicating liquor and alcohol
91. I have a number of proposals in relation to intoxicating liquor and alcohol. First, I propose to raise the specific duty rates on all liquors and alcohol by about 10% to offset erosion by inflation.
21 Details are given in the Supplement.
966 HONG KONG LEGISLATIVE COUNCIL 7 March 1990
92. Secondly, I propose to bring the ad valorem rate on champagne and sparkling wines into line with that of brandy, whisky and other spirituous liquors and to increase the rate on both categories to 35%.
93. Thirdly, I propose to merge the two categories of still wines into one, with duty payable at $24 a litre plus an ad valorem rate of 20%.
94. Details of these new rates are given in the Supplement to the printed version of this speech. Assuming no consumer resistance, I estimate the additional revenue yield to be $50 million.
Tobacco
95. For fiscal and not health reasons, I propose to increase the duty on tobacco by about 25%. The duty on cigarettes will increase from $190 to $240 per 1 000 sticks. The duty on cigars will be increased from $250 to $310 a kilogram; on smoking tobacco from $230 to $290 a kilogram; and on Chinese prepared tobacco from $50 to $60 a kilogram. Assuming no consumer resistance, I estimate the additional revenue yield to be $400 million.
First registration tax
96. I turn next to the first registration tax on motor vehicles. The last real increase in this tax dates back to 1982, and the scale which defines basic, semi-luxury and luxury cars has remained unchanged since it was first introduced in 1978. I propose to redefine the scale to reflect more realistically the current value of vehicles and to increase the tax rates for private cars, motor cycles and tricycles and goods vehicles by 10 percentage points.
97. For private cars, the present scale distinguishes between basic cars, for which the rate of tax is 70%, semi-luxury cars, for which the rate is 80%, and luxury cars, for which the rate is 90%. I propose, again for fiscal and not transport reasons, to change the rates as follows: 80% tax on a basic car; 90% tax on a semi-luxury car; and 100% tax on a luxury car. My proposals would have no practical effect on the retail price of a basic or a semi luxury car as defined in the new scale. They would increase the retail price of a luxury car by about 3 to 4%. Details of the new scale and revised rates are given in the Supplement to the printed version of this speech. I estimate the additional revenue arising from these increases to be $200 million.
Bets tax
98. Bets tax was last increased in 1985. I propose to increase this for both standard and exotic bets by one percentage point. The tax rates will become 10.5% on standard bets and 17% on exotic bets, and will take effect from the beginning of the next racing season.
99. I am conscious of the need to maintain a reasonable return to punters and not to give any encouragement to the activities of illegal bookmakers. I propose therefore
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 967
that the increase in the rates should be borne entirely by the Jockey Club, that is to say, there will be no reduction in the size of the prize money pool. The increase is estimated to yield an additional $340 million in 1990-91.
Rates
100. My next proposal concerns rates on property. These are levied by applying a percentage charge to the rateable value of properties and are clearly one of the more stable sources of revenue. The value of rates when expressed as a proportion of actual rents charged for properties has fallen considerably in recent years. I have therefore decided to make an adjustment to the present rates percentage charge.
101. The total charge is currently 6%. In Hong Kong, Kowloon and New Kowloon, 2.5 percentage points are for general revenue and 3.5 percentage points for the Urban Council. For properties in the New Territories, the revenue from the charge of 6% all goes to the Regional Council, and none to general revenue.
102. I propose to raise the general rates, that is the rates which are payable to general revenue, by 1.5 percentage points. No revision is proposed to the Urban and Regional Council rates. This means that the general rate will be 4% in Hong Kong, Kowloon and New Kowloon and 1.5% in the New Territories, and that the overall charge will be 7.5% throughout the territory. The additional yield to general revenue in 1990-91 resulting from this proposal is in the region of $1.3 billion.
103. The average increase in rates for a small private flat will be about $40 a month, and for a large flat about $200. In the past, the Housing Authority has initially absorbed increases in rates for tenants of public housing. The Authority's rents, which include an element for rates, are normally revised every two years on a rolling cycle. It will be for the Authority to decide whether to absorb the rates in a similar manner on this occasion. The average cost of the increase for a Housing Authority flat will be around $20 a month. Details of increases relating to different classes of property are set out in the Supplement to the printed version of this speech.
104. I should point out that the Government's announced intention to revise all rateable values with effect from 1991-92 is a completely separate exercise and is not of itself designed to increase rates revenue. Its purpose is to ensure that the burden of the charge is equitably spread between different classes of ratepayer. Consequently if, as is likely, this results in a substantial increase in rateable values, the percentage charges for that year will be looked at again but, let me emphasize, looked at in the light of the revenue needs of the Government and the two Councils at that time.
Fees and charges
105. I now turn to fees and charges. I propose to increase the following fees and charges first, business registration fees; secondly, company registration fees; thirdly, bank and deposit-taking company licence and registration fees; fourthly, vehicle and driving licence fees; and, lastly, passenger embarkation and berthing fees.
968 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 Business registration fee
106. The business registration fee, which is tax-loaded, was revised last year to $630. With effect from 1 April 1990, I propose to increase it to $900.
107. At the same time, I propose to increase the present exemption levels, which relieve businesses with low turnover from payment of the fee. In future, a business will, upon application, be exempt from the fee if its average sales do not exceed $5,000 per month; or, where the business consists of rendering services, if its average receipts do not exceed $1,500 per month. The present exemption levels have not been adjusted since 1974.
108. I estimate the additional revenue arising from the increase in business registration fee to be $140 million. The $100 levy for the Protection of Wages on Insolvency Fund will continue and is therefore not affected by this proposal.
Company registration fee
109. A registration fee is payable under the Companies Ordinance by limited companies upon incorporation. The present fee of $600 has remained unchanged since 1983. I propose to increase this fee to $1,000. I estimate the additional revenue to be $30 million.
Bank and deposit-taking company licence and registration fees
110. I propose to increase licence fees for banks other than restricted licence banks by 22% and those for restricted licence banks by 30%. I also propose to increase registration fees for deposit-taking companies by 30%. Details are given in the Supplement to the printed version of this speech. I estimate the additional revenue arising from these increases to be $30 million.
Vehicle and driving licence fees
111. I propose to increase vehicle and driving licence fees by 10% to take account of inflation. I estimate the additional revenue arising from these increases to be $150 million.
Passenger embarkation and berthing fees
112. I propose to increase the passenger embarkation fee payable by those departing from the Macau and China Ferry Terminals from $17 to $19, approximately in line with inflation. As the fee was last raised in October 1989, the next increase will take effect as from 1 October 1990. I further propose to increase berthing fees by 15% from 1 April 1990. I estimate total additional revenue arising from these increases to be $20 million in 1990-91.
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 969 Other charges
113. A number of other charges, including those in relation to services provided by the Water Supplies Department, Civil Aviation Department and Transport Department, are scheduled for review in 1990. From these sources, I expect additional revenue of $510 million in 1990-91.
Tax concessions
114. I turn now to tax concessions. I propose to zero-rate the clawback on personal allowances, increase some allowances, reduce the rates of tax for the first two marginal rate bands for salaries tax and personal assessment, adjust the depreciation allowance for commercial buildings, and in relation to estate duty, raise the exemption level and provide a further specific relief.
Personal taxation
115. For personal taxation, I propose:-
first, to zero-rate the clawback on allowances. This means that all eligible taxpayers will be entitled to the full additional allowance irrespective of their income levels, and effectively increases the basic and married person's allowances from $32,000 and $66,000 to $39,000 and $80,000 respectively. Middle-income taxpayers stand to benefit most. For this group, the tax payable will be reduced by up to $1,750 for a single person and $3,500 for a married couple;
secondly, to reduce the rates of salaries tax applicable to the first two $10,000 bands of net chargeable income from 3% to 2% and from 6% to 4% respectively. This concession will particularly benefit taxpayers with lower incomes;
thirdly, that the child allowance for the first and second child be increased from $13,000 to $14,000, and from $9,000 to $10,000 respectively; and
lastly, that the basic rate of dependent parent allowance be increased from $11,000 to $12,000.
116. These concessions will take effect from the year of assessment commencing 1 April 1990. Therefore, the first occasion on which they will apply will be to provisional and final salaries tax assessments for 1990-91, and also to 1990-91 personal assessments. I estimate that the cost to the revenue in 1990-91 will be $700 million, and $980 million for a full year.
117. Examples of the effects of these personal taxation concessions upon various categories of taxpayers, together with comparative tables, are set out in the Supplement to the printed version of this speech.
970 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 Commercial rebuilding allowance
118. Commercial buildings attract an annual rebuilding allowance. With the existing allowance set at 0.75% it takes some 133 years to write off the cost of a commercial building. This is a long time. I propose therefore to reduce the write off period to 50 years by increasing the rate of the allowance to 2%. The cost to revenue of this increased allowance is estimated to be $70 million in 1990-91, and $85 million in a full year.
Estate duty
119. I have two concessions relating to estate duty. First, in recognition of the effect of inflation on asset values, I propose to raise the estate duty exemption limit from $2 million to $4 million. In addition, I propose to replace the present schedule of rates with a new schedule scaled from 6% on estates between $4 million and $4.5 million to 18% on estates over $5 million22.
120. Secondly, I propose to exempt from estate duty all death benefits from retirement funds approved by the Commissioner of Inland Revenue under section 87A of the Inland Revenue Ordinance. This will reduce hardship that might otherwise be caused to dependents of deceased employees. I estimate the overall cost of these concessions to be $50 million.
Unit trusts and mutual funds
121. I mentioned last year that I was giving thought to altering the definition of securities" in the Inland Revenue Ordinance so that a wider range of profits made by authorized unit trusts would be excluded from profits tax23. I further undertook to consider whether there was a case to exempt mutual fund corporations from profits tax in a similar manner to unit trusts. I have decided in favour of both proposals. It is my intention to introduce suitable legislation into this Council as soon as possible to amend the Inland Revenue Ordinance accordingly. I estimate the cost of these two concessions to be $25 million.
Implementation
122. My proposals on dutiable commodities, first registration tax and vehicle and driving licence fees come into effect today under the Public Revenue Protection Orders signed by you, Sir. Under similar authority, my other proposals on rates,
22 On estates between:
$4,000,001-$4,500,000 6%
$4,500,001-$5,000,000 12%
$5,000,001 and over 18%
23 1989 Budget Speech
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 971
business and companies registration fees, bank and deposit-taking companies registration and licence fees, and berthing fees will come into effect on 1 April 1990.
SUMMING UP
123. Sir, in conclusion, in this Budget I have considered it particularly important to look beyond 1990 in order to ensure that as far as possible my proposals, and the strategies upon which they are based, are appropriate not only for the current year but also for the years ahead. It is essential that we have in place a sound foundation on which to build for our future. Prudent management in the past has provided a basically strong financial position, built up on the back of healthy budget surpluses. But we can no longer take surpluses for granted, and thus both our expenditure and our revenue structure must be adapted to our changed circumstances.
124. At the beginning of the new decade, we are laying down plans for a bold and far reaching programme of expenditure, a programme designed not for cosmetic or confidence building purposes but because we need the services and infrastructure contemplated if we are to continue to prosper. Our planning must be thorough and we must use our resources to the best advantage. It is clear that we face difficulties and uncertainties, and I have alluded to them in the course of my speech, not by way of discouragement but as a spur to action. Opportunities exist, and it is now up to us to secure our future for ourselves.
125. I have emphasized the importance of effective financial management. We are examining ways in which major new projects might most sensibly be financed. The more ambitious our programmes, the more the need for us to manage our resources prudently and intelligently. I have described the steps we have taken to control public expenditure and I have given a clear indication that there is more to be done.
126. The infrastructural development that lies ahead of us, in particular the airport and the associated harbour crossings, are of interest to the private sector, and as our plans develop we look forward to private sector involvement. But we cannot expect potential investors to participate unless the Government itself has a sound financial position. In framing my budget proposals, this has been in the forefront of my mind.
127. Financial management is not just a matter of managing our expenditure, important though that is. I have stressed in all my Budgets that we must also look critically at our revenue base. I have over the last few years explained my concern regarding our over reliance on direct taxation, and the vulnerability of our present tax structure to changes in economic performance. I make no apologies for having done so. The projected state of public finances when weighed against the programmes that we have set for ourselves gives added point to what I have said.
128. The revenue measures I have proposed this year are thus intended to serve a twofold purpose. First, to raise the additional revenue we need. And secondly, to begin to address the problem of our over-reliance on direct taxation. I believe in moving gradually so as not to put strain on our systems or on the community.
972 HONG KONG LEGISLATIVE COUNCIL 7 March 1990
129. Finally, Sir, my Budget this year foreshadows the implementation of a programme of immense significance, a programme that will affect the whole fabric and quality of life in Hong Kong. We have set our sights high; we have identified the problems; and we know what needs to be done if we are to overcome them. But we will not succeed unless we display the will to do so. Our aims will not be achieved unless they are pursued with that vigour and enthusiasm which has made Hong Kong what it is today. The coming years are rich in promise for Hong Kong, and I believe that the skills, drive and resourcefulness for which our community is famous will not fail us at this point in time.
130. Sir, I move that the debate on this motion be now adjourned.
Debate adjourned pursuant to Standing Order 54(2).
Adjournment and next sitting
HIS EXCELLENCY THE PRESIDENT: In accordance with Standing Orders I now adjourn the Council until 2.30 pm on Wednesday, 14 March 1990.
Adjourned accordingly at thirteen minutes to Four o'clock.
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 973 SUPPLEMENT
Page
Glossary of terms 974-976
Notes on the text:
The economy in 1989 977-978 Economic prospects for 1990 979 Revenue measures 980-1001 Tables:
1.Consolidated Account 1989-90 and 1990-91 1002 2.Transfers between funds 1989-90 and 1990-91 1003
974 HONG KONG LEGISLATIVE COUNCIL 7 March 1990
Capital expenditure All expenditure charged to the funds, plus expenditure from General Revenue which is charged to any of the subheads listed in the estimates under Capital Account, except that which is considered to be operating expenditure.
Capital financing deficit The difference between capital expenditure and capital revenue.
Capital revenue All revenue credited to the funds (including interest on balances), plus the exceptions listed under recurrent revenue.
Consolidated Account expenditure The aggregate of General Revenue Account expenditure and funds expenditure, excluding transfers from General Revenue Account. Consolidated Account expenditure can also be described as total government expenditure. It is not the same as Consolidated Public Sector expenditure.
Consolidated cash surplus/deficit The difference between the operating surplus and the capital financing deficit.
Consolidated Public Sector expenditure This is not an official account but a statement for comparing expenditure with budget guidelines and criteria. It comprises Consolidated Account expenditure less:-
(a) investment in the Housing authority (from Development Loan Fund); (b) grant to the Regional Council (from General Revenue Account);
(c) repayment of debt (from General Revenue Account); and
(d) investment in MTRC (from Mass Transit Fund),
plus:-
(a) gross expenditure. (revenue and capital) of the Housing Authority and the Urban and Regional councils; and
(b) payments from the Lotteries Fund.
Note: Terms shown in bold print are defined elsewhere in the glossary.
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 975
Funds expenditure Expenditure charged to the Capital Works Reserve Fund, the Development Loan Fund, the Mass Transit Fund and the Student Loan Fund. Transfers to or from the funds are not relevant to the level of expenditure.
Funds revenue All receipts, except transfers from general revenue account, which are credited directly to the funds. These comprise:-
(a) Capital Works Reserve Fund
donations for projects
interest on balances
share of land premium
(b) Development Loan Fund and Student Loan Fund
repayment of loans
interest on loans
interest on balances
General Revenue Account expenditure All expenditure charged to general revenue account in accordance with the Appropriation Ordinance, including transfers to funds.
General Revenue Account revenue All receipts credited to any of the eleven revenue heads. Government reserves The accumulation of consolidated cash surpluses.
Internal revenue
direct taxes
bets and sweeps tax
entertainment tax
hotel accommodation tax
stamp duties
air passenger departure tax
Cross-Harbour Tunnel tax
Operating expenditure All expenditure from General Revenue Account charged to any of the subheads listed in the estimates under 'Recurrent Account', plus expenditure charged to certain subheads listed under Capital Account but which does not involve the acquisition of an asset.
Operating surplus The difference between operating expenditure and recurrent revenue.
976 HONG KONG LEGISLATIVE COUNCIL 7 March 1990
Recurrent revenue All revenue credited to General Revenue Account (including interest on balances) except for:-
(a) estate duty
(b) taxi concessions
(c) land transactions
(d) repayments of loans
(e) donations
which are treated as capital revenue.
Taxes (direct)
earnings and profits tax
estate duty
Taxes (indirect)
bets and sweeps tax
entertainment tax
hotel accommodation tax
stamp duties
air passenger departure tax
Cross-Harbour tunnel tax
duties
general rates
motor vehicle taxes
royalties and concessions
Note:
Subject to the approval of the Legislative Council on 14 March 1990, the Development Loan Fund, the Mass Transit Fund and the Student Loan Fund will be disestablished on 31 March 1990. The functions and obligations of these Funds will be assumed on 1 April 1990 by a Capital Investment Fund and a Loan Fund. This change will not affect the classification of revenue and expenditure explained above.
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 977 THE ECONOMY IN 1989
Paragraph 8
The growth rates in real terms of the various major components of expenditure on the GDP in 1989 are as follows:
%
Private consumption expenditure 3.0 Government consumption expenditure 5.8
Gross domestic fixed capital formation 1.0 transfer costs of land and buildings -11.0
building and construction 5.3
real estate developers' margin -2.8
plant and machinery 1.5
Total exports of goods 10.2 domestic exports 0.1
re-exports 18.6
Imports of goods 8.9 Exports of services 3.9 Imports of services 5.3 Gross domestic product 2.5 Paragraph 9
The annual unemployment rates since 1985 are as follows:
%
1985 3.1
1986 2.8
1987 1.9
1988 1.6
1989 1.3
Paragraph 10
Year-on-year rates of increase in the Consumer Price Index (A) in the latter part of 1989:
%
1989 Jun 11.0
Jul 10.3
Aug 9.9
Sep 10.1
Oct 10.4
Nov 9.6
Dec 9.7
Annual average for 1989 10.1
978 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 Paragraph 11
Growth rates in real terms (%) of:
1987 1988 1989
Domestic exports 23.1 9.0 0.1 Re-exports 45.9 45.7 18.6
Paragraph 14
Hong Kong's visible trade in 1989:
% increase
$ Million
in money terms
Domestic exports 224,104 3.0 Re-exports 346,405 25.8 Total exports 570,509 15.7
Imports* 565,238 12.8 Visible trade surplus 5,271+
* Including an estimate of imports of gold for industrial and commercial use.
+ This is equivalent to 0.9% of the total value of imports of goods in 1989. In 1988 there was a visible trade deficit of $8,105 million, equivalent to 1.6% of the total value of imports.
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 979 ECONOMIC PROSPECTS FOR 1990
Paragraph 18
The forecast growth rates in real terms of the various major components of expenditure on the GDP in 1990 are as follows:
%
Private consumption expenditure 3.5 Government consumption expenditure 10.0
Gross domestic fixed capital formation 2.0 transfer costs of land and buildings -5.0
building and construction 5.5
real estate developers' margin -3.0
plant and machinery 2.8
Total exports of goods 5.7 domestic exports 2.5
re-exports 8.0
Imports of goods 6.4 Exports of services 5.5 Imports of services 5.0 Gross domestic product 3.0 Paragraph 23
Total final demand (excluding re-exports) is forecast to increase by 3.5%. This is largely in line with the forecast growth rate of GDP, or net output, at 3%.
Paragraph 26
The forecast rate of increase in the GDP deflator in 1990 is 9%, and that of the domestic demand deflator is 7.6%. The rate of increase in unit building and construction cost is forecast to be around 12%.
980 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 REVENUE MEASURES
Paragraph 88
Duties : Hydrocarbon oil
Present rate Proposed rate
(1) Motor spirit and
aircraft spirit $2.75/L $3.58/L (2) Light diesel oil $1.37/L $1.78/L
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 981 Paragraph 94
Duties : Intoxicating liquor and alcohol
Proposed rate
($)
Part I
Present rate ($)
Brandy $52/L + 30% AV $57/L + 35% AV
Whisky, Gin, Liqueurs,
Rum, Vodka and other
spirituous liquors $52/L + 30% AV $57/L + 35% AV
Champagne and other
sparkling wines $32/L + 20% AV $35/L + 35% AV
Still wines $22/L + 20% AV or) )- $24/L + 20% AV
$18/L + 20% AV )
Intoxicating liquors in
this Part above the
strength of 45% alcohol by
volume, for every 1% above
such strength in addition to
the duties specified above $1.50/L $1.65/L
Part II
Cider and Perry $145/hectolitre $160/hectolitre
Part III
Beer $220/hectolitre $242/hectolitre
982 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 Paragraph 94 (cont.)
Proposed rate
($)
Part IV
Present rate ($)
Non-European type wines $950/hectolitre $1045/hectolitre
Chinese type spirits
and other spirituous
liquors, Sake, Arrack $490/hectolitre $539/hectolitre
and in addition for
every 1% by which the
alcoholic strength by
volume exceeds 30% $16.35/hectolitre $18.00/hectolitre Part V
Ethyl alcohol, and
admixtures containing
ethyl alcohol $490/hectolitre $539/hectolitre
Methyl alcohol, and
admixtures containing
methyl alcohol $490/hectolitre $539/hectolitre
and in addition for
every 1% by which the
alcoholic strength
by volume exceeds 30% $16.35/hectolitre $18.00/hectolitre
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 983 Paragraph 95
Duties : Tobacco
Existing duty rate
Proposed duty rate
($/1,000 sticks) ($/1,000 sticks)
(1) Cigarettes
(i) imported from US )
(ii) imported from UK ) 190.00 240.00 (iii) locally manufactured )
($/kg) ($/kg)
(2) Cigars
(i) ordinary grade )
) 250.00 310.00
(ii) deluxe grade )
(3) Smoking Tobacco 230.00 290.00 (4) Chinese Prepared Tobacco 50.00 60.00
984 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 Paragraph 97
Motor vehicle first registration tax
Scales and rates
Class
Private cars
Existing scale
Proposed scale
Existing rates
%
Proposed rates
%
(i) Basic cars cif value below
$20,000
cif value below
$30,000
70 80
(ii) Semi-luxury cars
cif value between $20,000 - $30,000
cif value
between
$30,000 -
$60,000 80 90
(iii) Luxury cars cif value exceeding
$30,000
Motor cycles &
cif value
exceeding
$60,000 90 100
Motor tricycles 70 80 Goods vehicles 15 25
Other types of
vehicles (Taxis,
public and
private light
buses, public
and private
buses, special
purpose vehicles) 15 15
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 985
Paragraph 103
Average rates increase 1990-91
for the main classes of property
Class Size
Average monthly rates payable up to 31.3.90
Average monthly rates payable from 1.4.90
Average monthly increases in rates
Private domestic $ $ $
Unit A up to 39.9m2 (up to 430 sq.ft.)
Unit B 40 - 69.9m2
(431 - 752 sq.ft.)
Unit C 70 - 99.9m2
(753 - 1,075 sq.ft.)
Small domestic up to 99.9m2 (up to 1,075 sq.ft.)
Unit D 100 - 159.9m2 (1,076 - 1,721 sq.ft.)
Unit E 160m2 and over
123 154 31 180 225 45
312 390 78
166 208 42 566 707 141
(1,722 sq.ft. and over) 1,308 1,635 327
Large domestic 100m2 and over (1,076 sq.ft. and over)
823 1,029 206
Public domestic [Note (1)] 86 108 22
Shop and commercial premises
average - 79.7m2 (858 sq.ft.)
763 954 191
Offices average - 101.6m2 (1,094 sq.ft.)
Industrial [Note (2)] average - 321.0m2 (3,455 sq.ft.)
753 941 188 658 822 164
Note (1) Including Housing Authority, Housing Society and Private Low Cost Housing Rental Estates.
Note (2) Including factories and storage premises.
Paragraph 104
Fees and charges
The policy on fees and charges continues to be that services should generally be paid for by those who use them. Some 80 per cent of the fees and charges presently collected are set at levels to ensure full cost recovery. The remainder generally fall into six different categories, viz nominal, subsidised, deterrent, tax loaded, utilities and others, to each of which different criteria are applied to determine an appropriate level of fee or charge.
986 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 Paragraph 110
Bank, restricted licence bank and deposit-taking
company licence and registration fees
Proposed
fee
($)
1. Annual banking licence fee for bank,
other than an unincorporated bank
[section 19(1) of the Banking
Existing fee
($)
Ordinance (Cap 155)] 388,800 474,340 2. Registration fee [section 23(1)] 62,100 80,730 3. Renewal of registration fee [section 23(2)] 62,100 80,730
4. Restricted banking licence fee
[section 26(1)] 211,140 274,480
5. Renewal of restricted banking licence fee
[section 26(2)] 211,140 274,480
6. Fee for establishment of a local branch of a bank
[section 45(1)] 18,360 22,400
7. Annual fee for maintaining a local branch of a bank
[section 45(1) and (2)] 18,360 22,400
8. Fee for the establishment of a local
branch of a deposit-taking company
or restricted licence bank
[section 45(1)] 10,500 13,650
9. Annual fee for maintaining a local
branch of a deposit-taking company
or restricted licence bank
[section 45(1) and (2)] 10,500 13,650
10. Fee for the establishment of a local
representative office
[section 48(1)] 18,360 22,400
11. Annual fee for maintaining a local
representative office
[section 48(1), (2) and (3)] 18,360 22,400
12. Fee for the establishment of an overseas
branch of a bank [section 51(1)] 36,720 44,800
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 987 Paragraph 110 (cont.)
Proposed
fee
($)
13. Annual fee for maintaining an overseas
branch of a bank
Existing fee
($)
[section 51(1) and (2)] 36,720 44,800
14. Fee for the establishment of an overseas
branch of a deposit-taking company
or restricted licence bank
[section 51(1)] 21,100 27,430
15. Annual fee for maintaining an overseas
branch of a deposit-taking company
or restricted licence bank
[section 51(1) and (2)] 21,100 27,430
16. Fee for establishment of an overseas
representative office of a bank
[section 51(1)] 9,180 11,200
17. Annual fee for maintaining an overseas
representative office of a bank
[section 51(1) and (2)] 9,180 11,200
18. Fee for the establishment of an overseas
representative office of a deposit-taking
companyor restricted licence bank
[section 51(1)] 10,500 13,650
19. Annual fee for maintaining an overseas
representative office of a deposit-taking
company or restricted licence bank
[section 51(1) and (2)] 10,500 13,650
988 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 Paragraph 111
Vehicle and driving licence fees
Proposed
fee
($)
1. Driving Licences
Existing fee
($)
Full 205 225 Driving instructor's 625 690 Learner's 420 460 Temporary 205 225 Driving test 420 460 Motor cycle driving test 390 460 Driving instructor's test 420 460 International driving permit 65 70 Duplicate licence 90 100 Duplicate international driving permit 65 70 Record of convictions 50 55 Certificate of no recorded conviction 50 55
2. Vehicle Licences
Goods Vehicle and Special Purpose Vehicle
not exceeding 1.9 tonnes 970 1,065 exceeding 1.9 tonnes but not
exceeding 5.5 tonnes 1,890 2,080 exceeding 5.5 tonnes 3,780 4,160
Taxi 2,515 2,765 Private Car
not exceeding 1,500 cc 3,150 3,465 exceeding 1,500 cc but not
exceeding 2,500 cc 4,690 5,160 exceeding 2,500 cc but not
exceeding 3,500 cc 6,235 6,860 exceeding 3,500 cc but not
exceeding 4,500 cc 7,785 8,565 exceeding 4,500 cc 9,270 10,195 additional fee for private car
using diesel fuel 1,205 1,325 Electrically powered passenger vehicles
not exceeding 1 tonne 365 400 for each additional 250 kg 75 85
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 989 Paragraph 111 (cont.)
Existing fee
($)
Proposed fee
($)
Motor Cycle 990 1,090 Motor Tricycle 990 1,090 Public Light Bus 6,870 7,555 Private Light Bus 2,175 2,395 Public Bus
for the driver 20 22 additional fee for each seat 40 44 Private Bus
for the driver 20 22 additional fee for each seat 35 39 Trailer
for each 250 kg or part thereof 25 28 Invalid Carriage 10 11
990 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 Paragraph 117
EFFECT OF THE REDUCTION IN THE MARGINAL
TAX RATES ON TAX PAYABLE
Present Proposed
Cumulative
Chargeable income Rate Tax tax (A)
Rate Tax Cumulative tax
(B)
Tax reduction (A) - (B)
––––––––––––––– ––– ––– ––––––––– ––––– ––––– ––––––––– ––––––––––––– ($) ($) ($) ($) ($) (%)
First $10,000 3% 300 300 2% 200 200 100 33.3 Next $10,000 6% 600 900 4% 400 600 300 33.3 Next $10,000 9% 900 1,800 9% 900 1,500 300 16.7 Next $10,000 12% 1,200 3,000 12% 1,200 2,700 300 10.0 Next $10,000 15% 1,500 4,500 15% 1,500 4,200 300 6.7 Next $10,000 18% 1,800 6,300 18% 1,800 6,000 300 4.8 Next $10,000 21% 2,100 8,400 21% 2,100 8,100 300 3.6 Next $10,000 25% 2,500 10,900 25% 2,500 10,600 300 2.8
$80,000
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 991 Paragraph 117 (cont.)
BROAD EFFECT OF THE BUDGET CONCESSIONS ON
SINGLE AND MARRIED TAXPAYERS IN 1990-91
Single Married Total
(a) Number of taxpayers
who will have:
no tax liability 1,000 11,000 12,000 a reduced tax liability 529,000 364,000 893,000
(b) Number of taxpayers who will
receive no benefit, i.e. those who
will continue to pay tax at the
standard rate 20,000 55,000 75,000 Total 550,000 430,000 980,000
992 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 Paragraph 117 (cont.)
A PROJECTION OF THE DISTRIBUTION OF SINGLE AND MARRIED
TAXPAYERS BY DIFFERENT INCOME GROUPS IN 1990-91
Single No. of taxpayers
Low Income Group
(i.e. those with income below $100,000) 438,000
Middle Income Group
(i.e. those with income between $100,000 and
$180,000) 84,000
High Income Group
(i.e. those with income in excess of $180,000) 27,000 Married
Low Income Group
(i.e. those with income below $150,000) 267,000
Middle Income Group
(i.e. those with income between $150,000 and $300,000) 106,000
High Income Group
(i.e. those with income in excess of $300,000) 46,000 Total after Budget concessions 968,000 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 1989-90
final tax in 1990-91) 12,000 Total no. of Taxpayers estimated to pay tax in 1990-91 980,000
7 March 1990 HONG KONG LEGISLATIVE COUNCIL
Paragraph 117 (cont.)
EXAMPLES OF THE EFFECT THAT THE PROPOSED ABOLITION OF CLAWBACK ON ADDITIONAL
PERSONAL ALLOWANCE AND REDUCTION IN THE MARGINAL RATES OF TAX FOR THE FIRST
TWO TAX BANDS WILL HAVE ON SALARIES TAX AT VARIOUS INCOME LEVELS
Single person
Proposed tax payable (Exemption Present tax payable (Exemption
Tax Saving
level: $39,000)
level: $39,000)
Annual Income
Effective rate Amount Effective rateAmount
(A) - (B)
(B) (A)
(%)
($) (%) ($) (%) ($)($)
All taxpayers earning less reduction in marginal rates 39.4
39
0.1
60
0.2
99
42,000
39.4
117 0.4
180 0.6 29748,000
41.5
489 1.2
690 2.0
1,17960,000
27.2
696 2.6
1,860 3.6
2,55672,000
With the abolition of the cl 22.0
975 4.1
3,450 5.3
4,42584,000
20.5
1,407 5.7
5,460 7.2
6,86796,000
taxpayers earniwill now receireduced, additi -
20.1
1,985
7.3
7,890
9.1
9,875
108,000
20.2
2,050 7.4
8,100 9.3
10,150109,000
15.9
2,050 9.0
10,850 10.8
12,900120,000
12.9
2,050 10.5
13,850 12.0
15,900132,000
taxpayers earninot entitled to the full $7,000 standard rate. -
10.8
2,050
11.7
16,850
13.1
18,900
144,000
9.4
2,050 12.7
19,850 14.0
21,900156,000
8.2
2,050 13.6
22,850 14.8
24,900168,000
8.0
2,050 13.8
23,600 15.0
25,650*171,000
4.3
1,150 14.4
25,850 15.0
27,000180,000
Standard Rate taxpayers will n -
-
15.0
28,725* 15.0
28,725191,500
Income level at which salaries taxpayers enter the standard rate zone.*
7 March 1990 HONG KONG LEGISLATIVE COUNCIL
EXAMPLES OF THE EFFECT THAT THE PROPOSED ABOLITION OF CLAWBACK ON ADDITIONAL PERSONAL
ALLOWANCE, INCREASE IN DEPENDENT PARENT ALLOWANCE AND REDUCTION IN THE MARGINAL RATES
OF TAX FOR THE FIRST TWO TAX BANDS WILL HAVE ON SALARIES TAX AT VARIOUS INCOME LEVELS
This group will not be required to paas a result of the abolition of clawbaadditional personal allowance and inin dependent parent allowance.
All taxpayers earning less than $251benefit from the reduction in marginrates.
With the abolition of the clawback -
taxpayers earning betweeand $109,000 will now refull $7,000, rather than a radditional allowance -
taxpayers earning over $1previously not entitled to allowance will be granted $7,000 unless they are chathe standard rate. -
Standard Rate taxpayers will not bethe concessions.
994
Paragraph 117 (cont.)
Single person, with two dependent parents
Proposed tax payable Present tax payable
(Exemption level: $63,000) (Exemption level: $59,000)
Annual
Tax Saving
Effective
Amount
Effective
Amount
Income
(B)
-
(A)
rate
(B)
rate
(A)
(%)
($) (%)
($) (%)
($)($)
100.0 33
-
-
0.1 33
60,000
100.0 132 -
-
0.2 132
63,000
67.7 378
0.3 180
0.8 558
72,000
56.2 885
0.8 690
1.9 1,57584,000
40.1
1,245 1.9 1,860
3.2 3,10596,000
33.7
1,752 3.2 3,450
4.8 5,202108,000
33.3
1,800 3.3 3,600
5.0 5,400109,000
27.8
2,100 4.6 5,460
6.3 7,560120,000
24.1
2,510 6.0 7,890
7.9 10,400132,000
19.0
2,550 7.5 10,850
9.3 13,400144,000
15.5
2,550 8.9 13,850
10.5 16,400156,000
13.1
2,550
10.0 16,850
11.5 19,400168,000
11.4
2,550
11.0 19,850
12.4 22,400180,000
10.0
2,550
11.9 22,850
13.2 25,400192,000
9.0
2,550
12.7 25,850
13.9 28,400204,000
8.1
2,550
13.4 28,850
14.5 31,400216,000
7.5
2,550
13.9 31,350
15.0 33,900*226,000
6.9
2,350
14.0 31,850
15.0 34,200228,000
3.2
1,150
14.5 34,850
15.0 36,000240,000
-
-
15.0 37,725*
15.0 37,725251,500
Income level at which salaries taxpayers enter the standard rate zone.*
7 March 1990
All froWit
Stacon
HONG KONG LEGISLATIVE COUNCIL
Paragraph 117 (cont.)
EXAMPLES OF THE EFFECT THAT THE PROPOSED ABOLITION OF CLAWBACK ON ADDITIONAL
PERSONAL ALLOWANCE AND REDUCTION IN THE MARGINAL RATES OF TAX FOR THE FIRST
TWO TAX BANDS WILL HAVE ON SALARIES TAX AT VARIOUS INCOME LEVELS
Married person, with no children
Proposed tax payable Present tax payable
(Exemptio n level: $80,000) (Exemption level: $80,000)
Effective
Amount
Effective
Amount
Annual
Tax Saving rate
rate
Income
(B) -
(A)
(B) (A)
(%) ($)
(%) ($) (%) ($)($)
39.4 52
0.1 80
0.2 13284,000
41.8 316
0.5 440
0.8 75696,000
30.4 576
1.2 1,320 1.8 1,896108,000
25.0 900
2.3 2,700 3.0 3,600120,000
21.3 1,236
3.5 4,560 4.4 5,796132,000
19.5 1,660
4.8 6,840 5.9 8,500144,000
18.6 2,200
6.2 9,600 7.6 11,800156,000
16.6 2,500
7.5 12,600 9.0
15,100168,000
15.2 2,800
8.7 15,600 10.2 18,400180,000
14.3 3,100
9.7 18,600 11.3 21,700192,000
13.6 3,400
10.6 21,600 12.3 25,000204,000
13.1 3,700
11.4 24,600 13.1 28,300216,000
12.9 3,800
11.6 25,600 13.4 29,400220,000
12.1 3,800
12.1 27,600 13.8 31,400228,000
11.0 3,800
12.8 30,600 14.3 34,400240,000
9.9 3,800 13.5 34,600 15.0 38,400*256,000
7.6 3,000 13.9 36,600 15.0 39,600264,000
1.4 600
14.8 42,600 15.0 43,200288,000
-
-
15.0 44,100* 15.0 44,100294,000
Income level at which salaries taxpayers enter the standard rate zone. *
7 March 1990 HONG KONG LEGISLATIVE COUNCIL
EXAMPLES OF THE EFFECT THAT THE PROPOSED ABOLITION OF CLAWBACK ON ADDITIONAL PERSONA
ALLOWANCE, INCREASE IN CHILD ALLOWANCE AND REDUCTION IN THE MARGINAL RATES OF TAX FO
THE FIRST TWO TAX BANDS WILL HAVE ON SALARIES TAX AT VARIOUS INCOME LEVELS
Remarks
This group will not be required to presult of the abolition of clawback opersonal allowance and increase in callowance.
All taxpayers earning less than $354will benefit from the reduction in mrates.
With the abolition of the clawback -
taxpayers earning betweenand $220,000 will now recfull $14,000, rather than a additional allowance -
taxpayers earning over $2previously not entitled to allowance will be granted $14,000 unless they are chthe standard rate.
-
Standard Rate taxpayers will not bethe concessions.
996
Paragraph 117 (cont.)
Married person, with two children
Proposed tax payable Present tax payable
(Exemption level: $104,000) (Exemption level: $100,000)
Annual
Tax Saving
Effective
Amount
Effective
Amount
Income
rate rate
(B) -
(A) (B) (A)
(%) ($) (%)
($) (%)
($)($)
100.0 66
-
-
0.1 66102,000
100.0 132
-
-
0.1
132104,000
69.7 184
0.1
80 0.2
264108,000
59.3 640
0.4
440 0.9
1,080120,000
45.5 1,104 1.0
1,320 1.8
2,424132,000
36.6 1,560 1.9
2,700 3.0
4,260144,000
31.3 2,076 2.9
4,560 4.3
6,636156,000
28.8 2,760 4.1
6,840 5.7
9,600168,000
25.6 3,300 5.3
9,600 7.2
12,900180,000
22.2 3,600 6.6
12,600 8.4
16,200192,000
20.0 3,900 7.6
15,600 9.6
19,500204,000
18.4 4,200 8.6
18,600 10.6
22,800216,000
18.0 4,300 8.9
19,600 10.9
23,900220,000
16.6 4,300 9.5
21,600 11.4
25,900228,000
14.9 4,300 10.3
24,600 12.0
28,900240,000
12.3 4,300 11.6
30,600 13.2
34,900264,000
10.5 4,300 12.7
36,600 14.2
40,900288,000
9.2 4,300 13.6
42,350 15.0
46,650*311,000
9.0 4,200 13.7
42,600 15.0
46,800312,000
3.6 1,800 14.5
48,600 15.0
50,400336,000
-
-
15.0
53,100* 15.0
53,100354,000
Income level at which salaries taxpayers enter the standard
rate zone
*
7 March 1990
EXAMPLES OF THE EFFECT THAT THE PROPOSED ABOLITION OF CLAWBACK ON ADDITIONAL PERSONAL ALLOWANCE,
INCREASES IN CHILD AND DEPENDENT PARENT ALLOWANCES AND REDUCTION IN THE MARGINAL RATES OF TAX FOR
Married person, with two children and two dependent parents
This group will not be reqof the abolition of clawbacallowance and increases inallowances.
All taxpayers earning less benefit from the reduction With the abolition of the cl- taxpayers earn$220,000 will $14,000, ratheadditional allo- taxpayers earnpreviously notallowance will$14,000 unlesthe standard ra
Standard Rate taxpayers concessions.
HONG KONG LEGISLATIVE COUNCIL
THE FIRST TWO TAX BANDS WILL HAVE ON SALARIES TAX AT VARIOUS INCOME LEVELS
Tax Saving
(B) -
(A)
(%) ($)
100.0 198
100.0 264
83.7 412
70.2 1,036
55.3 1,632
46.0 2,304
39.7 3,000
36.1 3,860
31.4 4,400
27.2 4,700
26.1 4,800
23.5 4,800
20.5 4,800
16.3 4,800
13.6 4,800
11.6 4,800
10.1 4,800
9.0 4,800
8.7 4,800
5.2 3,000
1.0 600
- -
Paragraph 117 (cont.)
Proposed tax payable Present tax payable
(Exemption level: $128,000) (Exemption level: $120,000)
Annual
Effective Amount Effective AmountIncome
rate rate
(B) (A)
(%) ($)
(%)
($)($)
-
-
0.2
198126,000
-
-
0.2
264128,000
0.1 80
0.4
492132,000
0.3 440
1.0
1,476144,000
0.8 1,320 1.9
2,952156,000
1.6 2,700 3.0
5,004168,000
2.5 4,560 4.2
7,560180,000
3.6 6,840 5.6
10,700192,000
4.7 9,600 6.9
14,000204,000
5.8 12,600 8.0
17,300216,000
6.2 13,600 8.4
18,400220,000
6.8 15,600 8.9
20,400228,000
7.8 18,600 9.8
23,400240,000
9.3 24,600 11.1
29,400264,000
10.6 30,600 12.3
35,400288,000
11.7 36,600 13.3
41,400312,000
12.7 42,600 14.1
47,400336,000
13.5 48,600 14.8
53,400360,000
13.7 50,100 15.0
54,900*366,000
14.2 54,600 15.0
57,600384,000
14.9 60,600 15.0
61,200408,000
15.0 62,100* 15.0
62,100414,000
Income level at which salaries taxpayers enter the standard rate zone. *
998 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 Paragraph 117 (cont.)
INCOME LEVELS BELOW WHICH SALARIES TAXPAYERS
ARE NOT REQUIRED TO PAY TAX
Present Proposed
($) ($)
No dependent parent
Single 39,001 39,001 Married 80,001 80,001 Married + 1 child 91,819 94,001 Married + 2 children 100,001 104,001 Married + 3 children 102,728 107,001
Including two dependent
parents
Single 59,001 63,001 Married 100,001 104,001 Married + 1 child 111,819 118,001 Married + 2 children 120,001 128,001 Married + 3 children 122,728 131,001
Including two dependent
parents with additional
dependent parent allowance
Single 64,456 69,001 Married 105,456 110,001 Married + 1 child 117,274 124,001 Married + 2 children 125,456 134,001 Married + 3 children 128,183 137,001
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 999 Paragraph 117 (cont.)
INCOME LEVELS ABOVE WHICH SALARIES TAXPAYERS BEGIN
TO PAY TAX AT THE MAXIMUM 25% MARGINAL RATE
Present Proposed
($) ($)
No dependent parent
Single 102,636 109,000 Married 143,636 150,000 Married + 1 child 155,455 164,000 Married + 2 children 163,636 174,000 Married + 3 children 166,364 177,000
Including two dependent
parents
Single 124,000 133,000 Married 163,636 174,000 Married + 1 child 175,455 188,000 Married + 2 children 183,636 198,000 Married + 3 children 186,364 201,000
Including two dependent
parents with additional
dependent parent allowance
Single 130,000 139,000 Married 169,091 180,000 Married + 1 child 180,909 194,000 Married + 2 children 189,091 204,000 Married + 3 children 191,818 207,000
1000 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 Paragraph 117 (cont.)
INCOME LEVELS AT WHICH SALARIES TAXPAYERS
ENTER THE STANDARD RATE ZONE
Present Proposed
($) ($)
No dependent parent
Single 171,000 191,500 Married 256,000 294,000 Married + 1 child 288,500 329,000 Married + 2 children 311,000 354,000 Married + 3 children 318,500 361,500
Including two dependent
parents
Single 226,000 251,500 Married 311,000 354,000 Married + 1 child 343,500 389,000 Married + 2 children 366,000 414,000 Married + 3 children 373,500 421,500
Including two dependent
parents with additional
dependent parent allowance
Single 241,000 266,500 Married 326,000 369,000 Married + 1 child 358,500 404,000 Married + 2 children 381,000 429,000 Married + 3 children 388,500 436,500
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 1001 Paragraph 117 (cont.)
ANALYSIS OF ESTIMATED SALARIES TAX YIELD (AFTER
BUDGET CONCESSIONS) BY INCOME GROUP IN 1990-91
Assessable
income group No. of Percentage of Tax Percentage of per annum taxpayers total taxpayers yield total yield ($) (%) ($M) (%)
50,000 & under 125,000 12.8 20 0.2 50,001 - 100,000 457,000 46.6 860 7.3 100,001 - 180,000 265,000 27.0 2,480 21.0 180,001 - 300,000 78,000 8.0 2,560 21.7 300,001 - 500,000 34,000 3.5 2,320 19.6 500,001 & over 21,000 2.1 3,560 30.2 Total 980,000 100.0 11,800 100.0
of 980,000 taxpayers, 75,000 (or 7.7%) are estimated to pay tax at the
standard rate of 15% in 1990-91. This small group of taxpayers, however,
will contribute about $6.7 billion or 57% of the total tax yield and is
composed of:
20,000 single persons with annual incomes of $191,500
or more;
36,000 spouses assessed separately and earning $191,500
or more per annum;
19,000 married couples earning $294,000 or more per
annum.
1002 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 Table 1
Consolidated Account Expenditure and Revenue
($ million)
Expenditure
General Revenue AccountCapital Works Reserve FundDevelopment Loan FundMass Transit Fund
Student Loan Fund
Revenue
General Revenue AccountCapital Works Reserve FundDevelopment Loan FundMass Transit Fund
Student Loan Fund
1989-90
Original Estimate
Revised Estimate
52,270
14,490
2,090
90
130 16,800
52,260
17,860
2,760
90
130 20,840
69,070
73,100
72,780
7,040
630
-
90 7,760
74,290
7,450
560
-
90 8,100
80,540
82,390
1990-91
Draft Estimate+
65,260
20,820
4,680*
90*
130* 25,720
90,980
82,680
5,160
670*
-
100* 5,930
88,610
Surplus/(Deficit)
Reserves
Opening balanceSurplus/(Deficit)Closing balance
11,470
61,510
11,470
72,980
9,290
61,510
9,290
70,800
(2,370)
70,800
(2,370)
68,430
* Subject to the approval of the necessary Resolutions by the Legislative Council, these Funds will be replaced by a new Capital Investment Fund and a Loan Fund on 1 April 1990.
+ Before revenue measures.
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 1003 Table 2
Transfers between Funds
($ million)
General Revenue Account
Expenditure
Revenue
Surplus
Transfer (1)
Surplus/(Deficit)
Funds
Expenditure
Revenue
Deficit
Transfer (1)
Surplus
Surplus/(Deficit)
(1) Transfers
General Revenue AccountCapital Works Reserve FundDevelopment Loan FundMass Transit Fund
Student Loan Fund
Capital Investment FundLoan Fund
1989-90
Original
Estimate
Revised
Estimate
52,270
72,780
52,260
74,290
20,510
(17,740)
22,030
(17,710)
2,770
4,320
16,800
7,760
20,840
8,100
(9,040)
17,740
(12,740)
17,710
8,700
4,970
11,470
9,290
(17,740)
8,800
8,900
40
-
-
(17,710)
8,800
8,900
-
10
-
-
1990-91
Draft
Estimate+
65,260
82,680
17,420
(22,940)
(5,520)
25,720
5,930
(19,790)
22,940
3,150
(2,370)
(22,940)
18,320
-
-
-
4,100*
520*
* Subject to the approval of the necessary Resolutions by the Legislative Council, these Funds will replace the Development Loan Fund, the Mass Transit Fund and the Student Loan Fund on 1 April 1990.
+ Before revenue measures.
1004 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 APPENDICES
Page
A. Medium range forecast 1989-90 to 1993-94 1005-1015
Forecasting Government's expenditure and
revenue in the period up to 1993-94 and setting
these forecasts in a historical context.
B. Trends in Consolidated Public Sector expenditure 1985-86 to 1993-94
Showing the past and projected allocation of resources between programme areas.
1016-1031
C. Contingent liabilities 1032
Setting out the more significant contingent
liabilities of Government.
D. The recurrent cost implications of major new or improved services to begin in 1990-91
Listing new items selected by the Chief Secretary's Committee for implementation in 1990-91.
E. Major capital works projects to begin in 1990- 91
Listing projects each with a project cost of $100 million or above budgetted to begin in 1990-91.
1033
1034-1035
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 1005 Appendix A
MEDIUM RANGE FORECAST 1989-90 TO 1993-94
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 revenue measures are developed and is a reflection of the financial consequences of policy decisions. The MRF is updated regularly.
2 The MRF is presented in three sections:
(I) Forecasting assumptions and budgetary criteria.
(II) The MRF for 1989-90 to 1993-94.
(III) Commentary on the MRF in relation to budgetary criteria.
1006 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 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 historical 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 51/2% in real terms.
Inflation
5 The inflation rate rose in 1989 but is expected to fall. Over the forecast period the average year on year assumption has been increased to 61/2% (from 6% in the previous Medium Range Forecast). It is emphasised 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.
—estimated cash flow arising from new commitments resulting from policy initiatives.
—the expected pattern of demand for individual services.
—the trend in yield from individual revenue sources.
—new revenue measures in 1990-91.
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 where necessary and appropriate.
8 The following are the more important budgetary criteria:
—Total cash flow surplus/deficit
As a general aim, a cash flow surplus is sought so that in the long term adequate reserves are maintained. —Operating surplus/deficit
A substantial element of capital expenditure must 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, over a period the aim is to contain capital expenditure growth within overall expenditure guidelines, i.e. within the trend assumption as to GDP growth but allowance is made for unavoidable expenditure on exceptional projects. Allowance is also made for a number of major projects due to start in the forecast period. In planning the size of the capital programme regard is 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 21/2% in the size of the civil service is adopted.
—Revenue policy
The projections reflect the revenue measures introduced in this year's budget. Account is taken 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.
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 1007 Appendix A—Contd.
SECTION II—THE FORECASTS
9 The current MRF is summarised 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 emphasised that the forecasts are based on trends and, therefore, the actual results of any individual year may vary significantly from the trend assumption.
Operating Statement (before budget revenue measures) Table 1
Revised
Estimate
Forecast
1989-90
1990-91
1991-92
1992-93
1993-94
$m
$m
$m
$m
$m
Recurrent expenditure
Other non-recurrent
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
49,260
1,050
63,010
930
73,200
600
83,200
600
95,000
300
50,310
68,460
63,940
76,590
73,800
86,000
83,800
96,200
95,300
107,600
18,150
4,950
12,650
5,240
12,200
5,100
12,400
4,900
12,300
4,400
23,100
17,890
17,300
17,300
16,700
Capital Expenditure and Financing Statement Table 2
Revised
Estimate
Forecast
1989-90
1990-91
1991-92
1992-93
1993-94
$m
$m
$m
$m
$m
Capital expenditure
General Revenue Account
Capital Works Reserve Fund
Other funds*
Bond issue repayment
Total capital expenditure
950
17,860
2,980
1,000
1,320
20,820
4,900
—
1,400
24,900
4,200
—
1,600
26,000
4,700
—
1,800
30,000
6,000
—
22,790
27,040
30,500
32,300
37,800
Capital revenue
General Revenue Account
Capital Works Reserve Fund (land sales and interest)Other funds*
Total capital revenue
880
7,450
650
850
5,160
770
900
5,300
900
900
5,300
1,100
900
5,300
1,100
8,980
6,780
7,100
7,300
7,300
Capital financing (deficit)
(13,810)
(20,260)
(23,400)
(25,000)
(30,500)
* Development Loan Fund, Mass Transit Fund and Student Loan Fund. Subject to the approval of the Legislative Council these three funds will be replaced by a Capital Investment Fund and a Loan Fund on 1 April 1990.
1008 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 Appendix A—Contd.
Consolidated Cash Flow Table 3
Revised
Estimate
Forecast
1989-90
1990-91
1991-92
1992-93
1993-94
$m
$m
$m
$m
$m
Capital financing (deficit)
Operating surplus before budget revenue measures
Consolidated cash surplus/(deficit) before budget revenue measures Add: Effect of budget revenue measures*
Consolidated cash surplus/(deficit) after budget revenue measures Reserve balances at 1 April
Reserve balances at 31 March
(13,810)
23,100
(20,260) 17,890
(23,400)
17,300
(25,000)
17,300
(30,500)
16,700
9,290
—
(2,370)
3,090
(6,100)
3,500
(7,700)
4,200
(13,800)
5,000
9,290
720
(2,600)
(3,500)
(8,800)
61,510
70,800
70,800
71,520
71,520
68,920
68,920
65,420
65,420
56,620
* Including impact of interest on balances. No new measures after 1990-91 are assumed.
11 These tables relate to Government's overall finances. They provide no breakdown of the transfers between General Revenue Account and the various funds through which, for operational reasons, the Government controls its finances.
12 The projections of capital expenditure include anticipated equity investment in statutory bodies in respect of infrastructural projects proposed in the Port and Airport Development Strategy (PADS). Expenditure by Government on such projects is included in the figures for the Capital Works Reserve Fund.
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 1009
1010 HONG KONG LEGISLATIVE COUNCIL 7 March 1990
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 1011
1012 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 Appendix A—Contd.
19 After a period of high staff growth in the late 1970's and early 1980's, the rate of growth has stabilised from about 1983-84 onwards. As a result of an exercise to delete vacant posts, nil growth in establishment was achieved in 1989-90 and the growth in 1990-91 will be held to the target rate of no more than 21/2%.
Consolidated Public Sector Expenditure in the Context of the Economy
20 For monitoring purposes, the Government's own expenditure is consolidated with the expenditure of other public bodies such as the Urban Council in order to compare total Consolidated Public Sector expenditure with the size of the economy.
21 The results of this comparison are set out in Table 4 and the historical and forecast relationship between GDP and Consolidated Public Sector expenditure is illustrated in Diagram 6.
Consolidated Public Sector Expenditure in the Context of the Economy (Note 1) Table 4
Revised
Estimate
Forecast
1989-90
1990-91
1991-92
1992-93
1993-94
$m
$m
$m
$m
$m
Operating expenditure
Less: Grant to Regional Council
Capital expenditure
Less: Debt repayments
Equity investment
Total government expenditure
Add: Other public sector bodies
Total Consolidated Public Sector expenditure
50,310
(270)
63,940
(270)
73,800
—
83,800
—
95,300
—
50,040
63,670
73,800
83,800
95,300
22,790
(1,000)
(2,290)
27,040
—
(4,090)
30,500
—
(3,200)
32,300
—
(3,700)
37,800
—
(4,900)
19,500
22,950
27,300
28,600
32,900
69,540
14,060
86,620
17,020
101,100
18,800
112,400
20,900
128,200
21,100
83,600
103,640
119,900
133,300
149,300
Gross Domestic Product (calendar year) (Note 2)Growth in GDP
Money terms
Real terms
Growth in Consolidated Public Sector expenditure Money terms
Real terms
Consolidated Public Sector expenditure as a percentage of GDP (at current prices) (Note 3)
491,590
13.9%
2.5%
29.0%
13.0%
17.0%
552,550
12.4%
5.5%
24.0%
9.4%
18.8%
621,100
12.4%
5.5%
15.7%
8.3%
19.3%
698,100
12.4%
5.5%
11.2%
3.7%
19.1%
784,600
12.4%
5.5%
12.0%
4.5%
19.0%
Note 1 The Consolidated Public Sector expenditure comprises expenditure by the Hong Kong Housing Authority, the Urban Council 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 organisations, including even statutory organisations, 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. In particular, the projection for 1990 differs from the specific forecast for that year published in the '1990 Economic Prospects'.
Note 3 Caution should be exercised in interpreting these percentages as the Consolidated Public Sector expenditure is estimated on a fiscal year basis while the GDP is estimated on a calendar year basis.
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 1013
1014 HONG KONG LEGISLATIVE COUNCIL 7 March 1990
Appendix A—Contd.
22 Table 5 indicates the relationship between Consolidated Public Sector expenditure and Public Sector expenditure as defined for GDP purposes. The former has historically been used as a measure for control of Government's finances. For 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 Public Sector Expenditure and Table 5 Public Sector Expenditure as Defined for GDP Purposes
Revised
Estimate
Forecast
1989-90
1990-91
1991-92
1992-93
1993-94
$m
$m
$m
$m
$m
Total Consolidated Public Sector expenditure (from Table 4)
Add: Imputed rent (Note 1) and expenditure by other public sector bodies not included in total Consolidated Public Sector 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
83,600
8,920
(15,830)
(10,560)
(9,080)
103,640
9,250
(19,720)
(10,870)
(10,250)
119,900
10,690
(22,470)
(11,510)
(11,520)
133,300
11,250
(25,330)
(12,260)
(12,960)
149,300
12,560
(28,540)
(13,700)
(14,570)
57,050
22.9%
7.1%
72,050
26.3%
11.2%
85,090
18.1%
11.2%
94,000
10.5%
3.5%
105,050
11.8%
4.7%
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)
491,590
13.9%
2.5%
11.6%
552,550
12.4%
5.5%
13.0%
621,100
12.4%
5.5%
13.7%
698,100
12.4%
5.5%
13.5%
784,600
12.4%
5.5%
13.4%
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 organisations 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, differ from the corresponding figures for Public Sector expenditure as a component of the GDP calculated on a calendar year basis. Moreover, there is also a difference in the price increase assumptions used.
Note 7 The GDP growth rates for the years 1990 to 1993 (and the GDP figures thus derived) are the trend projections used for medium range budgetary planning purposes. Fluctuations from year to year in the level of economic activity and in prices are not taken into account. Thus, the growth rate in money terms of the GDP in 1990 differs 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.
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 1015 Appendix A—Contd.
23 Table 6 shows the sum to be appropriated in the 1990-91 Budget analysed between operating and capital expenditure and, after including expenditure from the various funds and by other public sector bodies shows the derivation of Consolidated Public Sector expenditure for 1990-91 given in Table 4.
24 The table also illustrates the effect of the budget revenue measures on the operating surplus, capital deficit and overall deficit/surplus position for 1990-91.
25 The table can be read with Tables 1-4.
Relationship Between Consolidated Account and Table 6
Consolidated Public Sector Expenditure in 1990-91
Components of expenditure and revenue
Appropriation
Consolidated account
expenditure and revenue
Operating
Capital
Total
Expenditure
General Revenue Account
Recurrent account
Capital account
Plant, equipment and works
Other non-recurrent
Defence Costs Agreement
Subventions
Grant to Regional Council
Transfers to funds
Capital Works Reserve Fund
Works account
Development Loan Fund*
Mass Transit Fund*
Student Loan Fund*
Lotteries Fund
Housing Authority
Urban Council
Regional Council
$m
63,010
1,050
660
20
250
270
22,940
—
—
—
—
—
—
—
—
$m
63,010
—
660
—
—
270
—
—
—
—
—
—
—
—
—
$m
—
1,050
—
20
250
—
—
20,820
4,680
90
130
—
—
—
—
$m
63,010
1,050
660
20
250
270
—
20,820
4,680
90
130
—
—
—
—
88,200
63,940
27,040
90,980
Revenue
General Revenue Account
Direct taxes
Indirect taxes
Other revenue
39,400
20,810
21,620
450
220
180
39,850
21,030
21,800
Capital Works Reserve Fund
Development Loan Fund*
Student Loan Fund*
81,830
—
—
—
850
5,160
670
100
82,680
5,160
670
100
81,830
6,780
88,610
Surplus/(Deficit) before budget revenue measures Effect of budget revenue measures
Surplus/(Deficit) after budget revenue measures
17,890
3,140
21,030
(20,260)
(50)
(20,310)
(2,370)
3,090
720
Consolidated public sector expenditure
$m
63,010
1,050
660
20
250
—
—
20,820
680
—
130
240
11,590
3,230
1,960
103,640
* Subject to the approval of the necessary Resolutions by the Legislative Council these Funds will be replaced by a new Capital Investment Fund and a new Loan Fund on 1 April 1990.
1016 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 Appendix B
TRENDS IN CONSOLIDATED PUBLIC SECTOR EXPENDITURE
1985-86 TO 1993-94
INTRODUCTION
The purpose of this appendix is to present trends in Consolidated Public Sector expenditure over the period 1985-86 to 1993-94(1). It shows the actual and forecast recurrent and capital expenditure during this nine year period and expresses this in terms of nine main programme area groups:
Economic
Security
Social Services
Education
Environment
Community and External Affairs
Infrastructure
Support
Housing
Where appropriate programme area groups are further analysed by programme areas.
2 A key to the classification by programme areas is included in the annex to this appendix. Details of the individual heads of expenditure contributing to a particular programme area are provided in an index on pages 437-445 in Volume I of the 1990-91 Estimates. This index further provides details by head of expenditure of individual objectives which contribute to a programme area.
3 The analysis provided in this appendix shows how resources have been and are planned to be allocated to different programme area groups. The analysis therefore presents two perspectives:
Historical
—an analysis of the changes in the share of total expenditure on programme area groups and the balance between them over the last five years (1985-86 to 1989-90).
Forecast
—an analysis of the planned changes in the share of total expenditure on programme area groups and the balance between them over the five years (1989-90 to 1993-94). This forecast is made on the basis of current trends and expected commitments but does not take into account new or improved services not already planned(2).
(1) This analysis is expressed in Consolidated Public Sector expenditure terms as defined in Table 4 of Appendix A and includes expenditure of the Hong Kong Housing Authority, the Urban Council and the Regional Council.
(2) Planned changes take account of existing capital programmes, the recurrent consequences in terms of staffing and running costs of new capital assets once completed, underlying requirements of service and service improvements either already under implementation or to be implemented.
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 1017 Appendix B—Contd.
HISTORICAL PERSPECTIVE: THE MAJOR FEATURES
4 The changing share of expenditure on programme area groups from 1985-86 to 1989-90 is illustrated in the following table:
Consolidated Public Sector Expenditure by Programme Area Groups 1985-86 to 1989-90 Table 1
Programme Area Groups
Actual
Revised
Estimate
1985-86
1986-87
1987-88
1988-89
1989-90
%
%
%
%
%
(A) Economic
5.1
5.4
5.6
5.5
5.2
(B) Security
(1) Internal Security
(2) Immigration
(3) Other
12.6
0.8
1.3
13.1
0.9
1.4
12.8
0.9
1.1
12.5
0.9
1.1
11.8
0.9
1.0
14.7
15.4
14.8
14.5
13.7
(C) Social Services
(1) Social Welfare
(2) Health
5.8
8.5
5.8
9.1
5.9
9.3
5.9
8.8
5.8
8.7
14.3
14.9
15.2
14.7
14.5
(D) Education
16.7
17.5
17.1
17.5
15.9
(E) Environment
1.0
0.8
0.8
0.8
1.6
(F) Community and External Affairs
(1) Recreation, Culture and Amenities
(2) District and Community Relations
(3) Other
6.5
0.6
0.3
5.8
0.7
0.3
5.9
0.7
0.3
5.6
0.7
0.3
5.6
0.7
0.3
7.4
6.8
6.9
6.6
6.6
(G) Infrastructure
(1) Transport
(2) Land and Buildings
(3) Water Supply
4.7
6.2
3.0
4.4
6.2
3.3
5.3
5.2
3.3
4.7
5.6
3.3
5.0
8.6
3.3
13.9
13.9
13.8
13.6
16.9
(H) Support
14.2
13.2
12.7
11.7
11.5
(I) Housing
12.7
12.1
13.1
15.1
14.1
100.0
100.0
100.0
100.0
100.0
Total Consolidated Public Sector expenditure
$m
$m
$m
$m
$m
43,444
47,930
53,636
64,799
83,600
1018 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 Appendix B—Contd.
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 1019 Appendix B—Contd.
1020 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 Appendix B—Contd.
9 Consolidated Public Sector expenditure over the period increased by about 25% in real terms equivalent to an annual growth rate of about 6%. This compares with an average annual growth rate of GDP of around 8%.
10 Within the overall growth, some sectors have grown significantly in terms of expenditure. The Economic, Social Services, Environment, Infrastructure and Housing groups have grown at rates above the average.
Total Real Growth 1985-86 to 1989-90 %
Average Annual Growth Rate %
Economic 32 7.2 Social Services 31 7.0 Environment 107 29.9 Infrastructure 35 8.0 Housing 34 7.8
11 Within other groups, expenditure on District and Community Relations increased by 50%, on Immigration by 45%, on Health by 32%, on Transport by 37% and on Water Supply by 42%.
HONG KONG LEGISLATIVE COUNCIL 7 March 1990 1021 Appendix B—Contd.
FORCAST OF TRENDS IN CONSOLIDATED PUBLIC SECTOR
EXPENDITURE 1989-90 TO 1993-94
12 Table 2 shows Consolidated Public Sector expenditure over the period from 1989-90 to 1993-94 and the forecast share for programme area groups.
Consolidated Public Sector Expenditure by Programme Area Groups 1989-90 to 1993-94 Table 2
Programme Area Groups
Revised
Estimate
Forecast
1989-90
1990-91
1991-92
1992-93
1993-94
%
%
%
%
%
(A) Economic
5.2
5.7
5.2
4.7
4.7
(B) Security
(1) Internal Security
(2) Immigration
(3) Other
11.8
0.9
1.0
11.5
1.0
1.0
11.3
1.0
1.0
11.2
1.0
1.0
11.1
1.0
1.0
13.7
13.5
13.3
13.2
13.1
(C) Social Services
(1) Social Welfare
(2) Health
5.8
8.7
6.1
9.4
6.3
10.5
6.5
11.1
6.7
11.1
14.5
15.5
16.8
17.6
17.8
(D) Education
15.9
15.0
15.6
15.9
15.5
(E) Environment
1.6
2.1
2.8
2.6
3.4
(F) Community and External Affairs (1) Recreation, Culture and Amenities(2) District and Community Relations(3) Other
5.6
0.7
0.3
6.0
0.7
0.3
5.7
0.7
0.3
5.6
0.7
0.3
6.0
0.7
0.3
6.6
7.0
6.7
6.6
7.0
(G) Infrastructure
(1) Transport
(2) Land and Buildings
(3) Water Supply
5.0
8.6
3.3
4.7
6.7
3.3
5.2
6.9
3.6
4.9
6.6
4.4
4.8
5.6
5.7
16.9
14.7
15.7
15.9
16.1
(H) Support
11.5
13.5
12.0
12.0
12.0
(I) Housing
14.1
13.0
11.9
11.5
10.4
100.0
100.0
100.0
100.0
100.0
Total Consolidated Public Sector expenditure
$m
$m
$m
$m
$m
83,600
103,640
118,850
132,780
148,510
1022 HONG KONG LEGISLATIVE COUNCIL 7 March 1990 Appendix B—Contd.