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HONG KONG URBAN COUNCIL

After policies have been formulated, social services will develop according to

the plans and in the preset direction. There will be fewer fluctuations.

In face of natural increases in population and development of new towns, social services are important in that they help stabilize the society. Investment in social services today will bring forth in the future a stable, harmonious, knowledgeable and rational society and enhance its potentials in industry, commerce and trade. It is long-term investment and should be undertaken by the government and investors (the latter on gaining profits) as a duty to the people.

Existing social services have not even reached the minimum standards set by the government. As the government has come under pressure from various sides to balance revenue and expenditure, to increase spending on social services will be a departure from the trend. How can we solve the conflict? Now that the future of Hong Kong is settled, there are five factors which make me feel optimistic about the future economic development in Hong Kong:

(1) Capitalist societies are bound to experience fluctuations of the economy. In the years 1981-83, while many countries experienced economic recession, Hong Kong was able to keep the annual increase in gross domestic product at an average of 10 per cent. Now that the economies of Western countries are recovering, I can see Hong Kong's economy prospering in the near future.

(2) In the past ten years, Hong Kong has been able to keep its annual increase in gross domestic product at an average of 10.1 per cent (which is a world record). It shows that although Hong Kong does not possess large amounts of resources, it has made full use of its uniqueness to motivate economic development. This motivating force will continue. (3) The Chinese government's announcement at the 3rd Plenary Session of the 13th Central Committee of the Communist Party Congress to open up 14 coastal cities has increased other countries' confidence in China. This will improve trade relations between China and Hong Kong and encourage other countries to regard Hong Kong as a stepping-stone in their trade with China. Once again, Hong Kong will take up the role of an entreport.

(4) Investors in Hong Kong will calm down. They will not be as short- sighted as they or their predecessors were in the years 1979-82 when investors were only interested in investments that promised quick return of profits and were not happy to see investments in social services. They have now realized the importance of social services to their enterprises. (5) Now that the issue regarding 1997 is settled, the political shadow will soon disappear. What is more, China and Hong Kong are coming closer to each other. China has started to help stem the tide of illegal immigrants into Hong Kong, bringing the increase in population to come closer to the natural growth rate, thereby reducing the impact on social services.

HONG KONG URBAN COUNCIL

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Under the aforesaid circumstances, I wish to propose three ways of in- creasing government revenue for the introduction of social services:

(1) As fluctuations of the economy are inevitable, in the future when Hong Kong recovers from a recession, the government need not increase expenditure as it did in the years 1978–80, but should put the surplus revenue into a social services fund from which money can be drawn to subsidize social services projects in times of economic recession.

(2) In Asia, Hong Kong's gross domestic product is second only to Japan and higher than Singapore. Besides having a more efficient skilled and semi-skilled labour force than its competitors, Hong Kong also possesses skills that are of world standard for the production of medium- and high-priced commodities, sophisticated production equip- ment, the best transport and communication networks in the world and most importantly, no control on foreign exchange which makes possible the free movement of capital. Even more attractive is the fact that Hong Kong has the lowest profits tax rate in the world; for Japan, Hong Kong's opponent in Asia, it is 64 per cent; for Singapore, it is 40 per cent and for South Korea, it is 20-40 per cent. Last year when the govern- ment increased direct tax from 16.5 per cent to 18.5 per cent, there was not much reaction from the investors, giving the lie to the myth that increased taxation would scare off investors. Hong Kong may still increase its profits tax by at least an additional 2 per cent (about 0.8 billion dollars) vis-a-vis its Asian counterparts. Taking account of the furure development of Hong Kong, the government should carefully re- consider the issue and gradually increase the profits tax.

(3) The Sino-British Joint Declaration states that, to ensure the SAR government established after 1997 has a supply of land and money, half of the premium income obtained from future land transactions will be retained for the SAR government. This principle is very correct. But bearing in mind that a stable society to which people have a sense of belonging is beneficial to the future government, the Chinese and British governments should discuss the feasibility of allocating part of the fund put aside for the SAR government for investment in social services.

Conclusion Obviously the coming of 1997 has led to a more open Hong Kong government and a more democratic system. Closer relations between China and Hong Kong will have an influence on Hong Kong's economy and finance. As its future has been settled, Hong Kong will be striding forward on the road to a new era and a new society. Facing a new situation, Hong Kong should look at its social services policies from a different point of view and with a different attitude.

Thank you, Mr. Chairman.

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