Budget Proposals 20052006

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Budget Proposals 2005/2006

• Democratic Party
• 15, Nov, 2004

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Contents

• Current economic situation
• Budget Objective
• 1. Balanced budget by prudent and flexible
  financial management
• 2. Revitalize our economy
• 3. Improve infrastructure, planning, stabilize
  land supply
• 4. Create new jobs improve livelihood
• 5. Care for the disadvantaged eradicate poverty
• Response to the questions raised by FS

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Current economic development

• Estimated economic growth
• 2004/2005
• Government7.5
• Banking and investment sector6.5 to 8
  (Appendix 1)
• 2005/2006
• Banking and investment sector 4 to 5
• Unemployment Rate
• 6.8

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1. Balance Budget by prudent and flexible
financial management

• Postpone the target date to balance the books to
  2009/2010
• Revenue
• A. Re-appropriate additional investment income of
  the Exchange Fund
• B. Securitize government Assets
• C. Government bonds to finance infrastructure
• D. Increase non-livelihood related Government
  fees Charges
• E. Naming right of public facilities for
  additional income
• F. Urge UN to repay the handling fee of Vietnam
  boat people
• G. Tax

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A. Re-appropriate additional investment income of
the Exchange Fund

• Appropriate extra investment income of HKEF to
  general revenue account
• Allocation of existing investment income of HKMA
• Treasurys share ? Government revenue
• Investment Income Ex Treasurys share?
  Accumulated surplus
• Suggest
• Increase the amount transferred to government
  general revenue with maximum not exceeding 30
  billion

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A. Transfer investment income of HKEF to general
revenue

• Records of HKMAs investment income over the past
  3 years
• According to DPs suggestion, Governments share
  will be 30 billion every year

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A. Re-appropriate investment income of HKEF to
general revenue
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B. Securitize government fixed assets

• Set up Real Estate Investment Trust (REIT) for
  government fixed assets, like multi-storey
  government car parks
• revenue from government multi-storey car parks in
  2002 164 millions
• Float the following government-own-enterprises
• Hong Kong Airport Authority
• 40 billions
• Hong Kong Mortgage Corporation
• Revenue after tax in 2003 379 millions
• 6 billions
• Tradelink
• MTR Corporation
• After merging of MTRC and KCRC, the total assets
  of the new company will be increased

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C. Government bonds as financial tools

• Singapore
• Official foreign reserves S175 billions
  (10/2004)
• Estimated budget deficit in 2004/05 S700
  millions
• Government outstanding debt S72.7 billions
  (10/2004)
• T-bills S19.2 billions
• Government bonds S53.5 billions
• Reasons to issue government bonds
• Establish a liquid government bond market -
  benchmark for corporate debt market
• Provide an investment alternative with little or
  no risk of default for investors
• Encourage the development of skills relating to
  fixed income financial services in Singapore

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C. Government bonds as financial tools

• Taiwan
• Foreign Exchange Reserves US235 billions
• Estimated budget deficit in 2004/05 NT270.1
  billions
• Government outstanding debtNT3448.3 billions
• 33.54 of GDP

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C. Government bonds as financial tools

• no conflict between fiscal reserves and issuance
  of government bonds
• issue 80 billions in the coming 4 years
• make a total outstanding debt at 100 billions
• Pros
• increase the short-term government revenue
• stimulate the development of retails bonds market
• income earned by issuing new bonds can be used to
  pay the fully yielded bonds
• fund the infrastructure, for example, cross
  border railways and Hong Kong- Zhuhai-Macau
  Bridge

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D. Government fees charges

• Freeze government fees that have direct impact on
  peoples livelihood, such as water fee and
  tuition fee
• Increase Government fees that are not directly
  related to peoples livelihood, such as gun
  license according to cost recovery principle
• Should be dealt with case by case

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E. Naming right of public facilities for
additional revenue

• Offer the naming right of public facilities to
  the public by auction
• Examples of public facilities
• Government buildings
• Culture Centre
• Sport stadiums
• Parks and etc

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F. Urge UN repay handling fee of Vietnam boat
people

• Take appropriate action to urge the United
  Nations to repay 1.162 billion for handling
  Vietnamese boat people

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G. Tax

• Reduce salary tax
• Revert, in 2 phases from 05/06, the measures
  introduced to increase salary tax in 03/04 back
  to that in 02/03, that is
• personal allowance 108,000
• tax bands 35,000
• marginal tax rates 2, 7, 12, 17

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G. Tax

• Introduce a progressive profit tax structure with
  two tax bands
• Abolish the standard rate of 15 of salary tax
• Introduce Green taxes, such as recycling taxes
  e.g. tyre tax
• Study the pros and cons of abolishing estate duty
• Introduce a progressive three-bands rates
  structure
• Rates charges are according to the ratable value
  of the premises
• Ratable value lt 5000 Rates charges 4.5
• 5000 lt Ratable value lt 15000 Rates charges5
• Ratable value gt 15000 Rates charges5.5
• Sales tax should be introduced at the current
  economic and fiscal situation
• Introduce unemployed dependent parents allowance
  for parents above 55

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2. Revitalize our economy

• Strive for a level playing field for business
  sector
• introduce fair competition law
• Reform the Competition Policy Advisory Group
  into the Fair Trading Committee
• Introduce competition in public utilities markets
• Set up an Energy Authority to formulate
  long-term energy policy of Hong Kong
• Introduce more competition in electricity, gas
  LPG and petroleum market, in order to lower the
  price
• Open sky
• Open up the fifth air right, allow overseas
  airlines to use HK airport as both transfer and
  terminal station in order to reduce the cargo and
  passenger charges

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2. Revitalize our economy (Cont)

• Develop Tourism
• Support the Concept Plan for Lantau, provided
  that the existing eco-system will not deteriorate
• Harmonize with PRD governments on measures to
  facilitate cross-border tourism
• grant visa-fee access to overseas visitors in
  Hong Kong to PRD region
• improve the cross-border infrastructure and
  transportation
• Develop the third international theme park

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2. Revitalize our economy (Cont)

• Industrial development
• Enhance the strength brought by CEPA
• Collaborate with PRD governments to promote CEPA
  and strengths of PRD by organizing PRD trade
  fair, in order to attract foreign direct
  investment
• Traditional industries
• Develop the Shenzhen River lagoon area as
  industrial estate and border industrial zone to
  attract investors to set up factories
• Develop high value added industries
• enhance the protection of intellectual property,
  so as to promote the development of high value
  added industries, such as technology,
  communications and bio-technology
• Innovation industry
• 200 tax concession on RD

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2. Revitalize our economy (Cont)

• Strengthen the financial infrastructure
• Lobby Beijing on QDII to relax the rules
  restricting Mainland residents from investing in
  HK
• Establish a statutory scheme of derivative action
• Small shareholders can seek redress from the
  Court on behalf of the company for market
  misconduct committed by the management and
  directors of the company
• Introduce a demerit points system for authorized
  sponsors and empower the HKEX to make
  retrospective claims from those who breach
  listing rules

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2. Revitalize our economy (Cont)

• Information Technology
• Establish the Software Centre of Excellence to
  enhance the competitiveness of local software
  industry
• Develop the second phase of action plan for the
  Digital Content Industry to accelerate
  production, distribution and marketing of Digital
  Content applications, both in domestic and
  overseas markets
• Offer 200 tax concession to high-tech based
  spin-off companies to stimulate RD activities in
  Hong Kong

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Recommendations on 2005/2006 expenditures
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3. Improve infrastructure, planning and stabilize
lands supply

• Lands and infrastructure
• Work with PRD to set up infrastructure to tie in
  with the PRD development
• Stabilize the provision of lands
• Maintain the Application List scheme as the
  land auction policy in the meantime
• Planning
• Reduce the plot ratio of newly developed town and
  downtown areas, so as to lower the population
  density
• Review the land use of the waterfront area to
  avoid damaging the view of the Victoria Habour
• Review the land use of the West Kowloon
  Reclamation zone

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3. Improve infrastructure planning, Stabilize
lands supply

• Transportation
• Build Hong Kong-Zhuhai-Macau Bridge. Railways
  should be included in the project so as to
  connect the railway system of West PRD region
• Set up Bridges and Tunnels Authority, acquire
  Tai Lam Tunnel and Route 3, manage the use of
  tunnels and expressways in order to ease the
  traffic congestion problem.
• Maritime facilities
• Construct Container Terminal 10 to strengthen the
  competitiveness of local logistic sector

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4. Jobs livelihood

• Jobs creation
• Seize the opportunity of the construction of Hong
  Kong-Zhuhai-Macau Bridge to generate jobs for
  local workers
• Set up a support system to help young people to
  enter the job market. Measures include practical
  training within the university curriculum,
  cadetship places for secondary school leavers
• Allocate resources to upgrade the quality of
  middle-aged workers.
• Provide more subsidies to young people for
  continuing education

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4. Jobs livelihood (Cont)

• Housing
• Prioritize property development plans along
  railways
• Revive the selling of HOS and PRH in an orderly
  manner
• Reserve adequate resources for the re-housing
  needs of urban renewal projects and clearance of
  rooftop dwellers
• Allocate more resources to Building Management
  Resources Centres to provide professional
  assistance on building management, formation of
  owners corporations and repair works
• Subsidize voluntary agencies to assist setting up
  of owners corporations and provide knowledge of
  building management

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4. Jobs livelihood (Cont)

• Education
• Implement small class teaching to upgrade the
  quality of education
• promote curriculum reforms to encourage
  pluralistic development and creativity
• Stop further reduction of university funding and
  continue to subsidize associate degrees and
  post-graduate courses
• Allocate more resources for minorities and new
  arrival children, to help them assimilate into
  the local mainstream education system

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4. Jobs livelihood (Cont)

• Medical and Health
• Shorten the waiting time for specialist
  out-patient services
• Grant half fee remission to the aged and
  chronically ill patients of public health
  services, and prevent them from delaying to seek
  medical services because of financial
  difficulties.
• Around 200 millions
• Oppose pegging medical fees with costs or impose
  itemized charging. We strive for a review of the
  privately purchased medical items
• Endow seed funds to improve primary health care
  services, including out-patient services, so as
  to reduce public health expenditure in the long
  run
• Review the health care financing system and work
  out feasible policy options, in order to resolve
  the problem of a worsening budget deficit in the
  public health care sector

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4. Jobs livelihood (Cont)

• Youth
• provide venues and opportunities, including
  setting up public access channels for young
  people to express themselves and develop
  pluralism as well as creativity.
• Improve subsidized business starter program to
  enable more young people to develop creativity
  and start their own businesses
• Provide adequate social workers to help young
  people to resist the temptation of unhealthy
  influences from peers to take drugs
• Promote life value education to nurture young
  people to treasure their own lives as well as
  others, to avoid violence and suicide
• Women
• Set up a maintenance council to collect, deliver
  and recover unpaid maintenance to ensure that
  divorced women and their children get the
  maintenance they deserve

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4. Jobs livelihood (Cont)

• Civil Servants
• Reduce surplus civil servants by Voluntary
  Retirement Scheme
• Make the Audit Commission an independent body and
  accountable to the Legislative Council to ensure
  effective monitoring of government departments
• Review the policy on civil service pay and
  benefits and ensure that the provision of various
  allowances is justified and in line with present
  day circumstances

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4. Jobs livelihood (Cont)

• Environmental protection
• Provide tax concessions, industrial lands and
  related measures, for instance, Recycling Park,
  low rent policy and long term tenant, to promote
  the development of recycling industry

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4. Jobs livelihood (Cont)

• Human Rights Judicial System
• Promote international treaties and local laws, so
  as to protect people of different genders, races
  and sexual inclination from being discriminated
  and ensure they enjoy equal opportunities
• Relax the means test to enable needy peoples
  access to legal services
• Allocate more resources to the Judiciary to avoid
  unreasonable delay and lengthy court proceedings
  and litigation
• Strengthen the training of bilingualism and the
  use of Chinese in court and other legal services
• Enhance human rights and civil education by
  providing more resources to NGOs

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5. 5. Care for disadvantaged eradicate poverty

• Social Welfare
• Oppose cutting of CCSA of elderly and disabled
• Establish a poverty line
• Set up an inter-departmental working group to
  work out a comprehensive policy for eliminating
  poverty
• Convene a Summit meeting on eradicating poverty
• Formulate a 10-year plan for the development of
  Hong Kongs social welfare policy

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5. Care for disadvantaged eradicate poverty
(Cont)

• Elderly Children
• Retirement Protection Scheme
• Elderly at the age of 60 or above will be
  entitled to an allowance to ensure a reasonable
  standard of living
• Help poor children and prevent cross generation
  poverty
• Establish a Children Development Subsidy to
  subsidize children of CSSA recipient families an
  extra 3000 to participate in extra-curricula
  activities. The estimated budget is 300 million
• Revive child care allowance, subsidies for
  eye-glasses for CSSA children recipients. It will
  cost about 30 million

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Response to the questions raised to the public

• Q3 4. Goods Services Tax
• Q5. Estate Duty
• Q6. Capital Gains Tax
• Q7. World-wide Tax
• Q8. Duty on Alcoholic Beverages
• Q9. Green taxes
• Q10. Tunnel Tolls

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Q3 4. Goods Services Tax

• Should not introduce this tax NOW, because it
  will
• affect the economic rebound at the moment,
  especially for the retail sector
• make the tax structure of Hong Kong more
  complicated

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Q5. Estate Duty

• The government can study the pros and cons of
  canceling this duty, whether
• the measure can attract investment in Hong Kong?
• the extra income from the measure will reach 1.5
  billion, in order not to increase the burden of
  tax payers?
• So that both targets are achieved

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Q6. Capital Gains Tax

• DP has reservation because it will
• make the tax structure of Hong Kong more
  complicated
• affect the normal development of the property
  market

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Q7. World-wide Tax

• DP believes that it is not feasible because
• tax rate of Hong Kong is already very low.
  World-wide tax will not increase the tax income
  of HK
• administrative cost will be increased
• the tax structure of Hong Kong will become
  complicated

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Q8. Duty on Alcoholic Beverages

• Should remain the same

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Q9. Green Taxes

• Overseas countries
• tax on electronic products (Belgium)
• tax on plastic bags (Ireland)
• tax on waste (various countries)
• Others
• Ozone depletion chemicals (US)
• Extraction of underground water (Holland)
• Solid waste
• Aircraft noise
• Hong Kong can consider introducing appropriate
  green taxes
• Suggest the government to commission a
  comprehensive study on green tax in other
  countries

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Q10. Tunnel Tolls

• increase in tolls cannot solve the traffic
  congestion problem of HK Habour Tunnel
• From the perspective of traffic management
• Maintain the existing fare level
• Set up a Bridges and Tunnels Authority and manage
  the traffic by fare adjustment

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Appendix 1 Economic Growth
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Appendix 1 Economic Growth