Members present the president the honourable andrew wong wang-fat, O. B. E., J. P
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- MR LEUNG YIU-CHUNG
- MR HENRY TANG
DR LAW CHEUNG-KWOK (in Cantonese): Mr President, I have just circulated an article entitled Returning Wealth to the People for reference by Members again. I will clarify again the stand of the Hong Kong Association for Democracy and People's Livelihood (ADPL) on the concept of "returning wealth to the people". The wording of our official amendment today is to call upon the Government to consider "distributing immediately part of the accumulated fiscal surplus to the residents of Hong Kong on an equitable basis" and our proposal is that every permanent resident who lives in Hong Kong and is over 18 is to be distributed a consumption coupon worth $5,000. It is a consumption coupon, not cash. Our amendment is based on two concepts. First, our fiscal surplus is huge. Two Members have made reference to the same figures in this respect just now, that is, the Government has a surplus of over $140 billion in which the Land Fund has obviously not been included. The Land Fund is said to be about $85 billion, so the total surplus should be $230 billion. But the Government's total recurrent expenditure in the last two years was more than $120 billion. And in the past five years, each year's fiscal surplus as estimated by the Government inclined to be low. I estimate that in the past five years, about $50 billion of the surplus was outside the Government's estimates. In fact, if we refer back to the Financial Secretary's Budget in 1992, at that time he estimated that the surplus in 1995 would be only $78 billion but we have $150 billion now. Some Members have mentioned just now that both the Chinese and British governments have agreed that a surplus of $25 billion will be enough for the Government in 1997. In the 1980s, a government document on the Budget pointed out that the target for the fiscal surplus should be about 50% of each year's expenditure. Now the fiscal surplus has far exceeded this target. Should Members be interested to learn more about what an adequate fiscal surplus is, please refer to Chapter five of the book Hong Kong's Public Finance in the Latter Part of the Transitional Period by Dr TANG Shu-hung. The other concept is: to stimulate the economy, the most effective and immediate way must be to directly stimulate consumption. Many criticize that the ADPL's "handing out proposal" may result in the people saving up money instead of spending it which makes its effect of stimulating the economy very limited. In answer to that, we have now changed that into handing out consumption coupons. The restaurants or cinemas can cash these coupons at the Treasury after receiving them and this can thus guarantee that most of the money will be really spent here. As regards this proposal of consumption coupons, it is not the case that the ADPL has not considered this at the very beginning but that we want to put forward our concepts in a clear, simple and direct manner. Therefore, we did not put forward this proposal at first. Actually, to consider the ADPL's amendment fairly, one should compare it with the Honourable James TIEN's original motion directly. Our proposal is to spend $20 billion once and for all but, according to Mr James TIEN's motion, $6 billion of taxes will be deducted in the first year and the total taxes deducted in three years will be over $20 billion; if the taxes deducted in 10 years are added together, the total cost will be more than $70 billion. If one criticizes the ADPL's proposal as handing out free lunch, then the Liberal Party's proposal must be to hand out free dinner which is much heavier than ours. The second point is that Mr James TIEN's proposal will have a long-term impact on our stable tax system with low tax rates but our one-off proposal will not have any impact on our tax system. Thirdly, the Apple Daily criticizes my proposal again today. It reports that if even Mr LI Ka-shing and Mrs Anson CHAN can also be given $5,000, this would be very unfair. If someone finds the ADPL's proposal very absurd for it gives Mr LI $5,000, then Mr James TIEN's proposal of cutting the profits tax rate by 1.5% is even more absurd. I have estimated that a 1.5% cut in the profits tax rate will save Cheung Kong (Holdings) Limited with Mr LI Ka-shing as a major shareholder $0.2 billion in tax and Hutchison Whampoa Limited where Mr LI Ka-shing is also a major shareholder $0.16 billion in tax. Mrs Anson CHAN will save less but she will also save more than $40,000 in tax. If anyone opposes the ADPL's proposal of reducing tax, I will be at a loss. Actually, Mr James TIEN's proposal is basically gilding the lily and making the rich richer. Take salaries tax as an example. Among our three million working population, only about 1 million people have to pay tax and there are two million people who do not have to pay tax, and the taxes paid by 0.2 million people who have the highest income account for 75% of the total salaries tax. Obviously, if we only reduce the salaries tax, two million people who work but do not need to pay tax, tens of thousands of CSSA recipients and more than 100 000 unemployed or underemployed workers will not be benefited at all. We estimate that the ADPL's proposal will stimulate local consumption and be beneficial to our economic growth. Our economy will grow by 1.5% in the first year and 1% in the second year. I want to ask Mr James TIEN: If the taxes are reduced immediately as proposed by him, how will our economy be benefited in real terms in 1996? What are the concrete figures? For all Members who aspire to bring direct improvements to our economy and people's livelihood, although they have different views on the so-called fairness and the appropriate amounts to be returned, I request them to give our general orientation their support, and I call on them to oppose Mr James TIEN's original motion. We also support Mr CHAN Kam-lam's amendment. Thank you.
Disregarding whether government policies will be affected, Members have cut the whole fiscal management strategy of the Government into pieces for the purpose of debating. This is obviously not a sensible approach to discussions and reasoning. If we analyse the motion more directly and take away its thin veil, we will see that this Council is actually: 1. wrongly treating tax revenue as the "common wealth" of the people which should be handed out among them, and even as a vehicle of political struggle; and 2. compelling the Government to adopt a deficit budget and to disgorge the huge fiscal reserves that have been accumulated. First of all, the people of Hong Kong have time and again confirmed that the main purpose of taxation is to keep expenditure within the limits of revenue as a means of ensuring a balanced budget. It is also most important that sources of revenue should remain stable if our public expenditure is to be prevented from going up or down drastically as a result of economic fluctuations. If Members focus their arguments only on "who the beneficiaries are", this Council will eventually lead the public away from our prudent and sensible approach to public financial management. At the end of the day, there will neither be any compromise nor consensus. For an accountable Legislative Council vested with so many powers, this approach is far too short-sighted. In the policy address, the Governor expressed the hope that Members can tell the public that they accept the principle under which the public expenditure of Hong Kong shall not exceed 20% of the Gross Domestic Product (GDP). His appeal seems to have achieved some success. At least, this Council has not expressed any disapproval of the idea that the Government should exercise tight control over its overall expenditure, or, it can be said that very few Members have spoken against the idea. For a Council as vocal as ours, such a silence may well be assumed to be tacit approval. If this assumption holds, then there will always be a "spell" that can tightly control our expenditure all the time, thus basically eliminating the possibility that public spending may rise drastically over a short period of time. What then remains is the worry that when this Council requests the Government to cut taxes without rocking the balance between expenditure and revenue, only three basic choices are left: 1. curtailment of services; 2. tax increases elsewhere as compensation for lost revenue; and 3. deficit budgets that necessitate the use of our fiscal reserves. I will now analyse these three choices one by one: Curtailment of services This is indeed a very good approach to financial management. Quite a number of Financial Secretaries in the past resorted to "slim" Budgets in times of economic adversities. We should be prepared to vary public expenditure flexibly as required by circumstances. Only by doing so can we ensure that public spending can attain a high degree of cost-efficiency and get value for money. But, this is also the biggest test of Members' courage. I hope that when they are advocating tax reduction, Members will also take a serious look at this approach to "house-keeping". Regrettably, with the exception of me, no other Members of this Council seem to share this view. I can therefore assume that Members do not want to see any cuts in expenditure. Tax increase elsewhere as compensation for lost revenue. Major tax revenue can be classified into three main types: first, the various types of government fees and charges; second, direct taxes such as profits tax and salaries tax; and lastly, proceeds from land sale and stamp duty. Members are now demanding the Government to freeze its fees and charges. But, they also want to cut direct taxes. As for land sale and stamp duty in this time of market adversity, the relevant accounting figures for last year which have just been released have indicated a drop in proceeds from land sale. Given all this, if this Council demands that direct taxes be cut, it will simply be impossible to make up for the lost revenue by increasing taxes elsewhere. Therefore, there is only one way out: a deficit budget. Deficit Budgets that necessitate the use of our fiscal Reserves In the 1995-96 Budget, there is already a deficit of $2.6 billion. What is more, proceeds from land sale and stamp duty have dropped, and profits tax and salaries tax are unlikely to increase substantially due to the economic situation this year. Unless expenditure items are delayed on a large scale, the deficit indicated in the Medium Range Forecast for 1995-96 soon to be published is bound to be even bigger. In the latter half of this year, the deficit may become still bigger with our freeze of fees and charges. In the Budget for 1996-97, there should be a surplus of about $6 billion. Deducting $2 billion worth of estimated revenue to be lost through the freezing of charges, the surplus will only be about $4 billion. In spite of this, there is still some room for us to make some sort of appropriate adjustments, in particular because the peak period of expenditure on infrastructure projects will have passed after 1996 and the proceeds from airport-related land sale and awards of franchise will start to generate tens of billions of dollars for the territory's budget. In the medium and long term, we do in fact have the means and ability to cut taxes. The only question is what the best timing should be. We should not strive to put in a strong showing in such a hasty manner. Instead, we must first ensure that the public can enjoy tax reduction with a sense of security. With such a broad analysis of the entire picture, it will not be difficult to choose between the amendment and the original motion. First, let us look at the amendment moved by the Honourable CHAN Kam-lam, the wording of which is neutral. Since the Government will in fact raise the personal allowance for salaries tax as "a matter of routine" every year, the passage of the amendment or otherwise will not matter that much at all. I therefore guess that Mr CHAN's amendment has been moved solely to counteract the motion moved by the Honourable James TIEN on a cut in profits tax. Since I support profits tax reduction as well as raising the personal allowance for salaries tax, I consider that the only choice that will entail no contradiction and inconsistency on my part is to support the original motion only. I therefore cannot support Mr CHAN's amendment. The "cake-sharing" proposal made by Dr the Honourable LAW Cheung-kwok to "put money back into the people's own pockets" will involve immense administrative costs if actually put into practice. And, for the purpose of preventing possible abuses and unnecessary lawsuits, we may even have to enact legislation to clearly define who should have the right to receiving money. The true spirit of the entire proposal in fact does not involve "returning" over-collected tax money. Rather, it is simply an act of "robbing the rich to relieve the poor", because the money may not necessarily be returned to "bona fide taxpayers", but may instead go to some other people who have actually never paid any tax at all. When the money is put into these people's hands at such a time of low consumption desire, it cannot possibly change the consumption behaviour. The most probable scenario will be that these people would simply save up the money in the banking system, which is already "flooded with funds". That being the case, it is doubtful whether we can still boost the economy, not to mention create more employment opportunities. There are lots of ways to "give out money". Asking the Hongkong and Shanghai Banking Corporation to print an additional 4 million banknotes each of a face-value of $500 may well be a more expedient method. However, in the case of Singapore, the only thing they do is to inject money into the central provident fund. I have mentioned time and again that the $10 billion intended for setting up an old age pension fund should be injected into the protection fund for the Comprehensive Social Security Assistance Scheme (CSSA) and a proposed provident fund. An additional $8 billion may as well be injected into the pension fund for the Civil Service. I believe that it will be a more reasonable way to make use of the $18 billion. I have just said that Hong Kong has the means to cut taxes. One international accountancy firm has recently referred to a survey report which shows that many international organizations do regard tax cuts as a major investment consideration. A report to be published by the Hong Kong Society of Accountants tomorrow will also tell of the same. I believe that tax cuts should be selective and we should target at those areas which are most suitable for tax reduction, such as the finance industry. Mr President, that is the end of my remarks. (Laughter) MR LEUNG YIU-CHUNG (in Cantonese): Mr President, first of all, I would like to respond to the Honourable James TIEN's proposal in regard to reduction of corporate profits tax. At the present moment, the economy of Hong Kong is entering a period of slow economic growth. We are faced with the relocation of a large number of factories from Hong Kong, closing down of small to medium scale enterprises and high unemployment rate. The situation can be regarded as extremely serious. On the surface, enterprises laying off their staff and factories closing down are closely related to the increasing operation costs. It would appear that reduction of corporate profits tax can help lower the operation costs of factories and thus stimulate investment from the entrepreneurs and create more employment opportunities. However, I would like to point out that in regard to the lack of investment initiative, apart from the three "high" factors, namely high land value, high rental and high inflation, it is to a great extent due to the uncertain political factors, which is the so-called "political market". Earlier, a foreign magazine reported that Hong Kong has already fallen from its first place as the most business-friendly city to the sixth place, which is mainly due to uncertain political prospects. We can thus see that the main reason for the lack of investment initiative is not related to taxation. Therefore, we think that the Liberal Party's proposal of reducing the corporate profits tax contains the following few points of doubt: Firstly, can the measure of reducing the corporate profits tax really stimulate investment? Who can guarantee that the money saved from the tax reduction will be invested in Hong Kong? Who can guarantee that the entrepreneurs will use the money saved from tax reduction to create new employment opportunities? Or will it be only be opportunity taken by the investors to reap more profits? What if they will not re-invest when the tax is reduced? As regards the investors' present proposal to reduce the corporate profits tax, I think that they are indeed insatiably greedy! As a matter of fact, not a few investors in the past closed their businesses due to uncertain political prospects. With 20 months to go before the arrival of 1997, reduction of corporate profits tax can indeed help those businessmen or investors to reap more profits and then leave for good. And by that time, we, the grassroots people, will have suffered double losses because we will be unable to obtain the entitled social services due to reduced government revenue on one hand, and yet still unable to find a job on the other. Secondly, when we ask the Government to collect less revenue or to increase public expenditure, we are actually asking the Government to take more money out of the treasury. How can we guarantee that the money will be properly used? How can we ascertain that the money can really work towards economic growth? The proposal of reducing the corporate profits tax will not only affect government revenue, but will also provided an excuse for the Government to expand the incidence of indirect tax. The victims, at the end of the day, will be the employees and the grassroots people who form the majority of the community. Therefore, the argument that corporate profits tax is unrelated to the interests of employees is totally ungrounded! Besides, I would also like to respond to the amendment moved by Dr the Honourable LAW Cheung-kwok. "Restoration of wealth to the people" is originally a financial management principle which every government need to follow. The question is how to go about "restoring wealth". As at 1995, the fiscal surplus of the Hong Kong Government is $150 billion. It would in fact not be very much to withdraw $20 billion from that surplus. However, we have to take note of one point: Faced as they are with the existing socio-economic situation ─ uncertain political prospects and unclear economic environment ─ how strong will the consumption incentive of the Hong Kong people be? Even if everyone spends money, would this bring more employment opportunities to society? And how many jobs would this create? To those who do not have financial or livelihood problems, the lump sum of $5,000 granted would in fact be unnecessary; to those who have financial or livelihood problems, the lump sum would not provide any timely help ─ then what meaning would this have? Especially when it cannot narrow the gap between the rich and the poor, how would it be beneficial to society? Even if the consumption incentive of the public is stronger than we expected, the whole proposal fails to address the most fundamental and important worry that bedevils the Hong Kong economy. It fails to touch upon the core of the problem at all. The Hong Kong economy is facing slow economic growth for the moment and it is possible that there will be negative growth in the future. One of the main reasons is that the Hong Kong Government has long failed to devise and have in place a long-term economic policy. It has never adopted any remedial measures to deal with the problems arising from industries' large-scale relocation out of Hong Kong, and the closing down of many small to medium-size enterprises. On the other hand, during the industrial restructuring of Hong Kong, the Hong Kong Government never buckled down to developing the local labour market in order to cope with the needs of industrial restructuring. Therefore, in the long run, the Hong Kong Government must make good use of the existing abundant fiscal reserve to improve the human resources of Hong Kong, that is to say, to improve basic education, to strengthen research in science and technology and labour training, to improve the existing employees' retraining programme and to help redevelop the small to medium-size enterprises, in order that the Hong Kong workers will be able to adjust themselves to economic restructuring and that more employment opportunities can also be created. Furthermore, a portion of the existing fiscal reserve can also be allocated to finance the setting up of an unemployment assistance fund with a view to alleviating the pressure of the unemployed. On the other hand, the raising of personal allowances for salaries tax can, in the short run, alleviate the pressure of the grassroots people due to economic downturn. Thus, I hope that Members of this Council can support the Honourable CHAN Kam-lam's amendment which urges the Government to make good use of its fiscal reserve and to raise the personal allowances for salaries tax with a view to promoting economic development and creating more employment opportunities. Thank you, Mr President. MR HENRY TANG (in Cantonese): Mr President, I do not know whether Members will agree that tax concession is in fact a way of accumulating wealth among the people. I have no idea whether the Financial Secretary will agree to it or not. However, should a caring government, when having sufficient reserves and tax revenue for general social expenditures, accumulate wealth in the people? Members are not shaking their head. Are they indicating disagreement or otherwise? The Liberal Party suggests that corporate profits tax be reduced to 15% from 16.5% and standard salaries tax be reduced from 15% to 13.5%. To avoid misunderstanding, I must clarify that we are not suggesting reducing the standard tax rate only. We are recommending that tax rate for all tax bands should be reduced by 1.5%. By clarifying this, there should not be any misunderstanding that we are appealing for tax break for the rich only and not other people. We also suggest that personal allowances be increased to $87,000. I believe these proposals are not too aggressive. The first two kinds of tax break would involve a loss of revenue of about $5 billion. Despite that, I believe the daily operation of the Administration would not be affected although the government revenue would be reduced by this amount. Mr President, presently our economy is slowing down and the inflation rate is high. All trades are shrinking. The shrinking of retail trade is to a great extent a chain reaction caused by the economic downturn suffered by our overseas trading partners. Hong Kong is an entrepot where there are numerous people engaged in trading. Faced with declining businesses, it is natural that people do not want to spend money. This reflects people's mentality of preparing for a rainy day. As a result, consumer trades such as retail, hotels and restaurants are those which bear the brunt of the economic downturn. The Government's fiscal philosopy should ensure that "money got from the people be spent on the people and wealth be returned to the people". Where the overall financial situation allows it, the Government is duty bound to take the lead in alleviating people's unnecessary expenditure burden. Tax concessions will leave more money in people's pocket. Besides saving the money up, people will spend it and boost the consumer market. In principle, I am optimistic with regard to the long-term economic development of Hong Kong. I do support a fiscal policy which emphasizes stability, low inflation rate and high economic growth. So I have reservations towards an inflationary economic policy. We must avoid subjecting Hong Kong to impacts, for doing so will result in a higher inflation rate, high consumption expenditure but a hollow-out economy. Mr President, I support the Honourable James TIEN's original motion and do not support the two amendments. Firstly, in regard to the Honourable CHAN Kam-lam's amendment which urges the Government to "make good use of its fiscal reserve", the wording is too vague that I do not know what Mr CHAN is driving at. In regard to his proposal of raising the personal allowances for salaries tax, I think no one will oppose it. However, Mr CHAN proposes to delete the words "seriously consider lowering the corporate profits tax and salaries tax immediately" from the original motion. This lets me down. I believe that a society needs to strike a balance between the interests of all sectors. Always considering the interests of the working class will make a person adopt a biased point of view. Will it be totally unacceptable to strike a balance and take the interests of the investors into account as well? This should not be the right principle. Mr President, Mr CHAN and most of the Members who are representing the working class seem to be too narrow-minded to understand others' difficulties. Last week, quite a number of Members from the labour sector did not support the proposal of freezing the government fees and charges on the ground that the charges concerned are only imposed on commercial institutions and are not related to people's livelihood. I was surprised to hear that. Are the investors not members of the public? Faced with a slackened economy, the investors have their difficulties too. It would be unwise for the Members to ignore the causes, give no quarters and create class conflicts. I have been of the opinion that the employers and the employees should co-operate with each other. As they are in the same boat, the investors should not be discriminated against. On the other hand, I appreciate and admire the Democratic Party for proposing, on its own initiative, a reduction of tax rates. Dr the Honourable LAW Cheung-kwok's proposal of distributing money is an innovative idea. Yet I do not understand why more employment opportunities can be created by doing so. Dr LAW previously suggested distributing $10,000. But he changed his proposal to $5,000 after being ridiculed by people. He seems to have no confidence in his own proposal. I have never heard of any economist agreeing that economic growth can be fostered by such "money-distribution theory". So I am glad that Dr LAW does not withdraw his amendment because I am very curious to know how many votes he can get besides the four votes from the Hong Kong Association for Democracy and People's Livelihood. Mr President, with these remarks, I support the original motion. Download 0.94 Mb. Share with your friends:
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