ENG-1994 — Page 33

16

HONG KONG: A HARD-EARNED SUCCESS

market circumstances change. In the case of local telephone services, which will cease to be a monopoly next year, we have moved the Hong Kong Telephone Company Limited from a profit control scheme to a price-capping mechanism more appropriate to its position as a dominant carrier in a competitive market.

We are perhaps best known for operating a low-tax regime which minimises the burden on wealth-creators, and acts as a catalyst for hard work and new investment. Add to that financial policies which provide for a stable currency, a balanced budget in which public spending does not exceed economic growth and sound government financial management. We sometimes take these things for granted but the contrast with most of the rest of the world is staggering. Visitors are initially impressed on being told that salaries tax does not take away more than 15 per cent of a worker's salary; but they would be even more surprised to learn that only around two per cent of the working population pays the highest rate (15 per cent) in a progressive tax regime, with over half paying no salaries tax at all.

As I said in my 1994–95 budget speech, Hong Kong's taxes are low, simple and predictable. Indeed, the World Competitiveness Report 1992 estimated that Hong Kong's total tax revenue, at only 11.25 per cent of GDP, was the lowest of all 36 economies surveyed. That track record continues. Since I became Financial Secretary in 1991, we have abolished taxes on entertainment, cosmetics and soft drinks, as well as considerably reducing salaries tax.

As an interesting sidelight, the increasing need to communicate and to persuade the public and the legislature to accept budget proposals, has led to a considerable change in the style and content of the budget speech itself— and, in recent years, to a return to relative brevity. The text of the 1966 budget speech took up 31 pages in Hansard; this ballooned to 71 pages in 1980, before subsiding to 39 pages in 1994.

Our observance of the principles of free trade is generally recognised to be more complete than anywhere else in the world. This has served us well, and in my personal experience we are given some credit for it in trade negotiations, though it has to be said that domestic protectionist lobbies tend to loom larger in the minds of most opposing negotiators. As a US negotiator once said to me, somewhat cynically: "In Washington, goodwill plus 50 cents will buy you a cup of coffee." We are fierce champions of free trade, and enthusiastic supporters of the free trade aspirations of the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organisation, and of that relative newcomer on the scene, the Asia-Pacific Economic Co-operation (APEC) forum. I believe APEC has real potential to take free trade in the region another major step forward.

I have also spent much of my career, with other colleagues' strong support, in ensuring that here in Hong Kong, we operate a strictly level playing field, with open competition and no discrimination in favour of local companies, or indeed in favour of British or Chinese companies. Again, this is unfortunately not common in the rest of the world. This level playing field is most apparent in our rules for the award of government contracts, and the result is keen competition for contracts and, as a result, keen pricing. This approach also applies in other areas: for example, we do not introduce subsidies for industries or services to help protect Hong Kong businesses against outside competition.

Very occasionally during my time in the Hong Kong Government, we have come under pressure from some sector or other to intervene in the workings of the market of economic forces. For example, when labour-intensive manufacturing activities started moving across