Members present the president the honourable andrew wong wang-fat, O. B. E., J. P
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- MR BRUCE LIU
- SECRETARY FOR THE TREASURY
- MR CHAN KAM-LAM to move the following motion
- MR CHAN KAM-LAM
MR HOWARD YOUNG: Mr President, the crux of today's motion is about how to stimulate the economy and create more employment. I will be mentioning in the debate to follow that, in my view, the only people who can create more employment are either investors or consumers. I was very tempted to bring out some other issues which the Liberal Party did raise with the Financial Secretary when we visited him this week to talk about revenue measures for next year, which included my pet topics of reducing the hotel tax from 5% to 4% and doing something with the airport tax. However, since that is not within the purview of the original motion, I will not bore Members with that. But I would like to comment on the two amendments to Mr James TIEN's motion. First is the amendment by Mr CHAN which urges the Government to raise personal allowances on salaries tax. I believe this, in fact, is in line with what the Liberal Party did also suggest to the Financial Secretary this week. I have no problem with that. And in fact, had Mr CHAN's amendment been an addendum or attached onto Mr TIEN's original motion, that might even have been acceptable. However, he has taken away the major thrust of the original motion, that is, to reduce taxes. Therefore I shall not be supporting that amendment. Now, as for the second amendment, Dr LAW's amendment about distributing money, over the last few weeks, I have given a lot of thought to that. I mean, it strikes one as a novel idea and I do not think that one should just write it off completely since Dr LAW says there are precedents both in Singapore and, I believe, Alaska which have tried it before, although I believe the way that Singapore did it was just to boost up everyone's personal accounts in their central provident fund which is different. It is a different concept from what he is proposing today. I do not know what happened in Alaska. The only thing I can think of is maybe someone decided to encourage Eskimos to buy refrigerators in return for messing up the environment by pumping out the oil from underground. But I do not think that that sort of situation is applicable to Hong Kong. My feeling is that, if you were to suddenly inject $20 billion into the economy, would it stimulate the economy? Now, I did mention that I believe customers are people who can create employment. So, if you had coupons given to everyone, not only with just the rider that you must spend it, but you must spend it on something presumably ─ I think the easiest thing to spend it on is to either go to the races or buy some consumer goods, consumables, within a short period of time. Yes, I think the little knowledge I have of economic theory shows that it could stimulate purchasing and therefore stimulate the economy to some extent. But the other side of the coin is that, and this is even more common sense, to have a sudden injection in liquidity and spending, money spinning round the economy, will also fuel inflation. So I think one has to ask oneself which is the worse of two evils. Is it high inflation or is it the slowing down of the economy? I think over the past few years, more people have been concerned with high inflation, and with a lot of efforts it has been brought down somewhat. But I do believe that Dr LAW's suggestion, if implemented, would probably have a side-effect of fuelling inflation, which would probably offset more benefits we would have in stimulating consumer spending. I would add, though, that had he raised this idea in another context, not for sound economical reasons, perhaps 20 months from now, as a celebration of the inauguration of the Special Administrative Region, to make everyone feel good with a freebie all round － if that were put forward as a political move, then perhaps it would have more merit than it does today. With these remarks, Mr President, I support the original motion only and I will be voting against the two amendments. MR BRUCE LIU (in Cantonese): Mr President, even as I speak and count the votes that would come his way, I am almost certain that the amendment moved by Dr the Honourable LAW Cheung-kwok, a member of the Hong Kong Association for Democracy and People's Livelihood (ADPL) will not be able to escape the fate of being negatived. However, I believe that Dr LAW will lose only a battle but win the war because Dr LAW's amendment has successfully pointed out some of the problems inherent in the Honourable James TIEN's speech and the speeches of some other Members made during the debate. First, he pointed out the fact that Mr TIEN's motion was the icing on the cake and it would only make the rich even richer. Second, he pointed out that this was not the right time for Hong Kong to cut the profits tax because it remained a question whether this proposal was to be an one-off exercise or a long-term policy. If the tax revenue of the Government dwindled, how were we going to meet the expenditure on social welfare and on improving people's livelihood? It would seem that even Mr TIEN could not come up with good solutions to these problems. Third, he pointed out the fact that the fiscal reserves of the Government was enormous. We have ignored this point in the past. The Government has to account to the public how the reserves can be satisfactorily used and it will also work out and set a figure as the reasonable amount of our fiscal surplus. Fourth, he pointed out that this motion was only aimed at lowering the tax revenue to be received by the Government, but where could the Government obtain adequate resources to meet the additional expenditure that might be incurred by Members' appeal to enhance social welfare and improve people's livelihood to be made in the upcoming debates. Some Members have just criticized the amendment moved by Dr LAW Cheung-kwok. Some of the criticisms are more or less personal attacks. I hope that these criticisms will not be made again. For example, some Members said that the payout scheme is a very stupid proposal. The implication in so saying is that all the governments in the world that implement this proposal are very stupid. Some Members also said that members of the public would not spend the money received but would only place it on deposit in the banks. These Members seemed to have turned a deaf ear to the speech made by Dr LAW who had specifically mentioned that using coupons will possibly solve the problem. Furthermore, some Members said that the amendment moved by Dr LAW is ineffective in stimulating the economy. These Members may have missed the point that, according to the ADPL's estimation, if coupons are distributed, it is estimated that Hong Kong's economy will grow by almost 1.5% in the first year and about 1% in the second year. Of course, Members may have paid no heed to the many merits of Dr LAW's proposal, including the fact that the proposal is simple and easy to understand, that it offers to the people of Hong Kong aged 18 or above fair treatment, and that they will be equitably benefited irrespective of whether they are rich or poor. I speak to supplement the speech delivered earlier by Dr LAW. I would like to reiterate here that the ADPL supports Dr LAW Cheung-kwok's amendment and Mr CHAN Kam-lam's amendment but opposes Mr James TIEN's motion. SECRETARY FOR THE TREASURY (in Cantonese): Mr President, immediately after this motion, this Council will have a debate on Hong Kong's economy which is a more general motion and the Financial Secretary will give his reply. It is no easy task to provide sufficient grounds for the motion which is now under debate and avoid repetition in the following one. However, to avoid repetition, I will focus on the two key points of this motion, namely, to advise the Government to reduce the profits tax and salaries tax immediately, or to make use of the fiscal reserve of Hong Kong to foster the development of the economy and to create more job opportunities. Let me talk about the principles of our fiscal policies first. The major fiscal policies adopted by the Hong Kong Government include the following: First, to maintain a simple and clear tax system with low tax rates; Second, to have a sufficient reserve to cope with the unexpected; and Third, having considered our financial conditions, to provide tax concessions for the people or the economic sectors which are most in need. I have to stress that these policies are not created unilaterally by the Government without justification and the legislature and the public are not forced to accept these principles. On the contrary, these policies have been worked out through close co-operation, frequent consultation and a number of amendments. Therefore, these policies are a representation of the public's consensus. I will speak on these policies one by one. First, as well all know, Hong Kong has adopted a tax system with low tax rates and therefore gained a reputation in the world. It is our belief that wealth should be kept in the hands of those who have created it. That is because according to our experience, people will create even more wealth in this way so that there will be economic growth for the community as a whole which will be beneficial to everyone. Considering that the present rate of profits tax is 16.5% and that of salaries tax is 15%, Hong Kong has the lowest tax rate among the major economies. That clearly shows the efforts we have made in this regard. Second, reserve. The Hong Kong Government in fact has a huge reserve amounting to $151 billion and this is looked on with admiration by the rest of the world. We think that it is most important to maintain a large reserve to ensure that we can cope with any economic fluctuations which may arise in the future. When the economy is suffering from a temporary downturn, the reserve will be able to provide us with sufficient protection so that there will not be any forced reduction on the funding which has been committed on public expenditure items. Maintaining a reserve can also greatly strengthen the public's confidence in the transition period. Certainly, when we consider developing the large-scale infrastructural projects which require a huge amount of capital investment, such as the new airport, the Airport Railway or the future Western Corridor Railway, the reserve will give us more options when we are working out the financing plans for these projects. Third, the policy of giving tax concessions. The Financial Secretary is now carrying out a comprehensive consultation exercise with Members of this Council to confirm their opinions about revenue priorities for the 1996 Budget. I do not wish to give any comments here because before the revenue forecast has been produced, it is difficult to ascertain the areas in which tax concessions can be given. However, I can point out that the method we have adopted in the past focuses on areas in which tax concessions are most needed and there will not be a lot of changes to this method. According to the principles which I have briefly introduced just now, I would like to examine whether the proposals of tax reduction in the motion can stimulate economic development and create more job opportunities. I believe everyone knows very well why companies making a lot of profits would welcome a reduction of corporate profits tax. Earlier on, some Members have questioned whether the companies which have paid less tax will spend the money thus saved on local investment or consumption. That is really doubtful and so we cannot expect to have any stimulation of economic development or more job opportunities. As regards companies making little profits or even incurring a loss, reducing profits tax will be of little use or even no use to them. Therefore, the argument that reducing profits tax will help to create more job opportunities is very dubious. It is not only ineffective to the unemployed, it will also aggravate their disappointment because it will raise their expectations and make them think that such tax reduction would help them resolve their problems. The situation regarding salaries tax is also similar. More than half or our working population actually do not have to pay any salaries tax and those who actually pay salaries tax of 10% or less, including those who do not have to pay any tax, constitute more than 96% of the working population. Therefore, reducing the standard rate will not be beneficial at all to 96% of the working population. It will only benefit the minority earning a high salary who is already paying tax at the standard rate of 15% of their total income. In the beginning, I have already pointed out that this standard tax rate is already very low and I do not think there are sufficient grounds to reduce this tax rate any further. In addition, I do not think there is any support for the argument that reducing the tax paid by this minority will actually help to stimulate the economic development of Hong Kong or to create more job opportunities. The question to be considered next is the costs of tax reduction. The final version of the motion tabled in this Council today does not contain any specific figures. It is certainly easy to ask for tax reduction without considering the costs involved. It is like ordering a meal from a menu without a price list. However, as we all know, there is in fact no free lunch. Hence, what are the costs involved? Can we afford to pay the costs? For example, when the Honourable James TIEN was putting this motion forward, he suggested that the corporate profits tax and salaries tax be reduced by 1.5%. I believe Members would know that the largest source of revenue of the Hong Kong Government comes from profits tax and salaries tax and it is estimated that this source would constitute about 40$ of the total income for 1995-96. If these two kinds of tax are reduced by 1.5% at the same time, it is estimated that the revenue which we will lose will amount to about $5.8 billion per year, which is equivalent to 3% of the total recurrent income and is almost five times the total amount of all kinds of tax concession given in the 1995 Budget. According to the medium range forecast (that is, for the year 1998-99), the loss in revenue arising from such concessions will exceed $26 billion. If the rates of all tax bands are lowered almost at the same time, as the Honourable Henry TANG suggested, the loss in revenue will even be greater. Without this huge amount of recurrent revenue, how can this steady tax system be maintained and how can the principle of keeping expenditure within the limits of income be followed? However, although I have put forward all these arguments, that does not mean that the Government should not consider any tax reduction. On the contrary, as I have explained earlier, we certainly believe that a tax system with low tax rates should be adopted and if there is room for any tax reduction, we would consider it in a positive light. However, the objective of adopting tax concessions should be to benefit those who are most in need or the economy as a whole. We certainly cannot reduce tax because of short-term political reasons. A government which will reduce tax because of short-term political interests today will also easily increase tax by a similar or even greater proportion because of political interests tomorrow. To make unpredictable policy changes will ring the knell of the reputation of cautious financial management which Hong Kong has strived to acquire. Clear and reasonable policies are the wishes of investors, not arbitrary policy changes. Investors would wish to know what will be the tax rate in five, seven or 10 years under reasonable circumstances in order to estimate the returns of their medium term and long-term investment. If they have confidence in such returns, they will continue to invest in Hong Kong and provide more job opportunities for the people of Hong Kong. However, if the opposite occurs, they will have doubts about the policy of cautious financial management which Hong Kong has been adopting for a long time and they will not invest any more. Not only will there not be any new vacancies then, the present positions will also be affected. It will not resolve the problems which Members have in mind, it will only aggravate the situation. I will now turn to the question of reserve. In fact, how much is a sufficient reserve? The Financial Secretary has on other occasions pointed out that we cannot use a rigid formula to calculate how much reserve we should have. I can only say that considering the present level of reserve, we indeed have a sufficient reserve. However, let us not forget that we are moving into a critical era in Hong Kong's history. To a certain extent, the confidence of the public and the investors will be challenged. In other words, although it cannot be said that we are suffering from economic difficulties and we are not having the so-called "rainy days" when we have to use our reserves to meet the needs of emergency, we are already facing a period of time when we have to maintain stability. Under this situation, I think it is most inappropriate to reduce Hong Kong's reserve substantially and I do not agree to ignore the needs of individuals and to take out a large amount of money from the reserve and distribute it to all residents of Hong Kong. That is not a cautious way of spending the Government's money. If we implement this proposal, I cannot bear to contemplate what overseas investors' views towards Hong Kong will be. Not only can this move not stimulate economic development, I am afraid it would also bring about negative effects. It seems that the proposal to distribute money has not obtained the support of the community. To stimulate the economic development of Hong Kong, we should not be tempted by short-term stop-gap practices. We should focus on practical and effective measures, for instance, to increase productivity, effectiveness and competitiveness; to improve the infrastructure and to strengthen our manpower; to eliminate restrictions on growth and to provide better education and to make improvements in technology and so on, as some Members have pointed out earlier. We should concentrate our energy in these areas because they are the right paths towards future development. Later on, the Financial Secretary will discuss these questions in detail. Mr President, I would like to take this opportunity to thank Members who have spoken to express their unbiased views in the debate this afternoon. Being reasonable is a good quality of the people of Hong Kong. In working out the Budget, we will consider whether any adjustment has to be made to the tax rate, but at the same time, we have to consider the social, economic and financial situations of the time as well. The Financial Secretary is now consulting Members' opinions on the 1996 Budget. The work is now under way. Today I have heard different proposals by Members on the increase and reduction of various categories of tax and I certainly cannot respond to all of them. However, I can confirm that when we are working out the proposals concerning revenue, we will consider Members' opinions carefully to decide on any tax concession which is feasible. I would emphasize that we would provide assistance and support to the people or the economic sectors which are most in need according to our financial ability. However, we are not seeking short-term political benefits. Certainly, the results of our careful consideration will only be published in March next year when the Financial Secretary presents the Budget. The motion or the amendments today seem to be very attractive and popular, but in fact, these proposals are costly to implement and they cannot attain the goals of stimulation of Hong Kong's economic development and creation of job opportunities desired by Members. As the adage says, "It is only by giving up doing something that one can be more successful in completing what is intended to be done." Certainly we cannot harm the long-term interests of society for short-term political ends. We have to hold fast to what is good, we have to uphold the long-term interests of Hong Kong and resist the temptation of the present motion and amendments, and we have to stick firmly to the principle of prudent management of public finance. PRESIDENT: Mr CHAN Kam-lam has given notice to move an amendment to the motion. His amendment has been printed on the Order Paper and circularized to Members. I shall now call on him to move his amendment. MR CHAN KAM-LAM to move the following motion: "To delete "unfavourable economic and business conditions which Hong Kong is facing" and substitute with "slowing down of the economic growth, the high unemployment rate"; and to delete "seriously consider lowering the corporate profits tax and salaries tax immediately" and substitute with "make good use of its fiscal reserve and raise the personal allowances for salaries tax"." MR CHAN KAM-LAM (in Cantonese): Mr President, I move that the Honourable James TIEN's motion be amended as set out under my name in the Order Paper. Question on Mr Chan Kam-lam's amendment proposed PRESIDENT: Mr James TIEN, do you wish to speak? You have a total of five minutes to speak on the two amendments. MR JAMES TIEN (in Cantonese): I put forth this motion because the Hong Kong economy has shown signs of slowing down since early this year. As I have just said, the profit earned by all listed companies during the first six months of this year has slowed down to a considerable extent. Compared with the average profit over the past five years, it is slashed by half. During the first nine months of this year, the number of companies declared bankrupt is more than the total number last year. These are concrete examples showing that the Hong Kong economy is not good at all. To return to the subject, what does the Government collect taxes for? Of course, there is a saying that tax revenue is collected for future use. But if one cares about the future only but not today, then what about today? Today, we are facing a special problem. There will be reversion of sovereignty in 20 months. Reading all those overseas newspapers, I have never come across an article that expresses optimistic sentiments about Hong Kong. Some knowledgeable Americans and Europeans will ask me why I have not emigrated whenever they see me. No one will ask me whether there are plenty of investment opportunities in Hong Kong. In Vietnam, 10 years' tax grace period has been granted. Effectively, it is tax free and discussion of its tax rate is meaningless. But Vietnam is a developing country. We need not mention this country. Singapore is also trying to erode our competitiveness all the time. She urges companies round the world to establish their business there instead of investing in Hong Kong. In my opinion, the simplest and the most explicit way of placing the world's and the investors' focus on Hong Kong is the pitching of the level of taxation. The Secretary for the Treasury said that tax reduction will not stimulate the economy. A number of colleagues have also spoken on this. The Secretary said that should my motion be carried, it would cost the Government $5.8 billion in revenue. I am not asking the Government to cut the total expenditure of $180 billion by $5.8 billion. Instead, I am asking the Government to reduce its revenue by $5.8 billion. The Government said that to reduce the revenue will be a kind of free lunch. This is the first time I ever heard of such an argument. Now the Government is holding $150 billion in reserves. Besides, there is $400 billion in the Exchange Fund and the Hong Kong Monetary Authority is earning a 12% return for the Government. Returns from these sources will easily exceed $10 billion each year. By calculation, the return on the $150 billion will be more than $10 billion. Does one regard the $10 billion as money in one's pocket? Or can one regard it as the normal or recurrent income? In addition to that, we have corporate profits tax, proceeds from land auctions and other charges. Adding all these up, the Government can afford to expend $180 billion. We are not asking the Government not to spend the public money. This is the first point. I would have liked to talk about the second point. But as I have only five minutes, I would rather talk about the amendments proposed by the other two Members. We feel that my motion is able to take the business sector as well as the grassroots people into consideration. I am not proposing to cut only the corporate profits tax by 1.5%. Instead, I propose to cut both the corporate profits tax and the salaries tax. In regard to corporate profits tax, I would like to point out one thing. 80% of companies in Hong Kong are small-sized companies. The definition of small-sized companies is that they employ less than 20 staff. Most of these companies earn a few hundred thousand dollars a year. A 10% reduction from their original tax payable which amounts to several tens of thousand dollars will mean a saving of a few thousand dollars. So I consider tax cut will be helpful to the small-sized companies as well, not only the big syndicates. In regard to Dr the Honourable LAW Cheung-kwok's proposal of handing out $5,000, I will not go into details because many Members have criticized it. I only want to respond to one point he has made. He said that a tax cut of $5.8 billion in one year would amount to $58 billion in 10 years. At the very beginning, I have pointed out that tax cut will be for the short term, which means a couple of years, unless the South China Brokerage Company Limited considers that short term means 10 years. Assuming I refer to a couple of years, then three years later, we will have passed 1997. At that time, we will consider the economic situation again. If the unemployment rate is low and economic growth is high, we will support the Government readjusting the tax rates. Mr President, I so submit. Question on Mr CHAN Kam-lam's amendment put. Voice vote taken. THE PRESIDENT said he thought the "Noes" had it. Mr Frederick FUNG, Mr LEE Wing-tat and Mr IP Kwok-him claimed a division.
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