Footnote to a final Macleod Budget
THIS week Legco members will be debating the 1995-96 Budget proposals. The 1995-96 Appropriation Bill will be the Financial Secretary's final one, and while the Liberal Party would like Sir Hamish to retire with accolades, the interests of the public permit otherwise.
The two main themes that have been repeated throughout the past four Budgets are maintaining adequate reserves and reducing inflation. What is 'adequate' or 'strong' reserves? This question has been asked many times and neither the Financial Secretary nor the Secretary for Treasury has yet given a convincing answer.
When the Financial Secretary gave his maiden Budget speech, he forecast that reserves would stand at $71.6 billion by the end of March 1997, 'a reasonable cushion against the contingencies of the next five years'.
Four years later, his forecast for reserves as at March 31, 1997, was $151.26 billion. The Financial Secretary called $71.6 billion reasonable, and has aptly described our reserves of $151.26 billion as impressive and a very reassuring cushion. There is no getting away from the fact that $152 billion in reserves is more than adequate. Indeed so much so that the Government ought to practise what it preaches and leave money in taxpayers' pockets since any government should only tax what is necessary to meet its expenditures.
The Liberal Party is disappointed that the Financial Secretary did not accept our proposal to reduce the salaries and profits tax from 15 per cent to 14 per cent and from 16.5 per cent to 15.5 per cent respectively.
Before assuming any reduction in revenue, let us look at the past year when profits tax was reduced by one per cent. Despite this, revenue from profits tax actually increased by $8 billion. Furthermore, with Hong Kong earning the dubious distinction of being one of the most expensive cities in the world, the reduction in salaries and profits tax would go some way towards making this place attractive to international and local investors. We estimate our proposed reduction based on the 1995/96 Estimate will cost about $3.5 billion.
Secondly, we were again disappointed that the Liberal Party's proposal for a housing allowance to reduce burden on home providers for mortgage payments and rents was ignored. The Financial Secretary has stated that keeping the tax system simple was of prime consideration, but that could hardly be the reason for refusing to introduce a housing allowance while introducing a new allowance for the disabled.
Moving on, reducing inflation has been one of the main aims of the Financial Secretary. However, inflation remains steadily high and in the past four years it has only been lowered from 9.5 per cent to 8.5 per cent.
The reasons for inflation have not changed. The HK-US dollar linkage demonstrates that we are at the mercy of a weak US dollar. Our tight labour market is another factor driving up wages and hence increasing inflation which leads to more wage increases thus creating a vicious circle.
THE Government has to come up with a fair, reasonable and sensible policy to ensure that labour demands in our market are met while protecting the interest of our local workforce. The Liberal Party has never advocated indiscriminate importation of labour. Our position has always been to ease bottlenecks in sectors with an inadequate workforce. Last year, the Administration introduced the short-term measures recommended by the Task Force on Property Prices and Supply into our free market economy.
The Government's position that it is time for market forces to rectify themselves is welcomed. Indeed the Administration could assist in this process by removing these short-term measures. One example is to allow banks to decide their mortgage lending limit. Another is removing the restriction on the pre-sale of flats and the time for pre-sale as well as the re-sale of flats prior to assignment. Short-term measures by definition should stay short-term.
Finally, Sir Hamish's last Budget will be remembered as one that encouraged taxpayers to drink plonk as he has not reduced the duty on fine wines. And if one drinks enough one may also have many children and thus benefit from the additional allowance for the third to ninth child.