Hong Kong budget 2017 as it happened: Paul Chan announces HK$92 billion surplus
Fiscal reserves estimated to hit HK$952 billion by March 2018
Newly appointed financial secretary Paul Chan Mo-po has given his maiden budget announcement – the last one under Chief Executive Leung Chun-ying’s administration.
Follow the latest updates and read about how the speech unfolded – including one legislator being kicked out of the chamber – below:
2.08 – Democratic Party adds criticism
The Democratic Party is also disappointed with Chan’s maiden budget.
Chairman Wu Chi-wai says: “The government’s surplus is larger than last year’s, but Paul Chan is only following John Tsang’s approach of giving out sweeteners.”
Lawmaker Hui Chi-fung, from the same party, says: “[The budget] hasn’t mentioned tax allowance for parents taking care of children ... [Chan] also stopped short of explaining how to tackle problems that will be caused with an ageing population.”
1.44 – Scorn over lack of help for the poor
Liberal Party leader Felix Chung Kwok-pan says Paul Chan has done too little to alleviate the needs of the poor as well as the middle class.
“I thought he would have some new thinking, but I’m disappointed that he is even more conservative than his predecessor John Tsang,” Chung says.
“We proposed that the government create new tax allowances, but none of the proposals was accepted.”
1.09 – Exco convenor chips in with praise
Executive Council convenor Lam Woon-Kwong says: “We can’t really refuse this budget as... the financial secretary has fairly distributed [resources] on medium- and longer-term measures.
“The financial secretary only had a short time to prepare for the budget, and yet it is so comprehensive. This is not an easy achievement.”
1.02 – Chief secretary praises ‘forward-looking’ budget
Chief Secretary Matthew Cheung Kin-chung lauds the budget as “well balanced, pragmatic and forward-looking”.
“It makes the best use of government resources in boosting the economy and improving people’s livelihoods,” Cheung says.
“I hope the Legco can approve it as soon as possible.”
1.00 – Chan’s boss gives the thumbs up
Chief Executive Leung Chun-ying issues a statement saying he backs the fiscal approach outlined in the budget.
“These initiatives will enable the current-term government to further fulfil its pledges including supporting the development of innovation and technology, increasing land supply, alleviating poverty, caring for the elderly, supporting the disadvantaged and improving the livelihood of the grassroots,” the statement reads.
“I very much agree with the objectives and approach to public finances raised by the Financial Secretary in the budget – to mobilise resources effectively, develop the economy and improve livelihood to build a fair, just, caring and inclusive society that embraces pluralistic values, as well as to invest for the future, turning Hong Kong into a low-carbon, more liveable, smart, resilient and sustainable city.”
12.59 – Hopeful closing remarks
Chan appeals to Hongkongers to work together to mobilise resources effectively to build a fair, just, caring and inclusive society that embraces pluralistic values.
“What are our expectations of the government nowadays? What is our ideal way of life? How can we attain a sense of well-being?” Chan asks.
He says many Hongkongers – in particular the young – would answer: “Happiness in life is not about earning a living, but about having the freedom to pursue higher ends.”
Chan says he believes those young people want to have room and opportunities to realise their dreams, and to have a decent place to live. He says they want to preserve nature and cultural heritage, as well as enriching their lives with art and culture.
“Born and raised in Hong Kong, I love this city as much as all of you do,” Chan says, as he ends his maiden speech.
“I strongly believe that Hong Kong people have the courage, wisdom and ability to overcome all difficulties. Together, we can rise to the challenges ahead and scale new heights, while sustaining the legend of Hong Kong.”
12.58 – Tearful wife
Chan’s wife, Freida Hui, is tearful as she leaves the public gallery after listening to her husband’s speech.
She refuses to say whether she was touched or happy, or whether her husband did a good job, or if he should seek reappointment.
12.57 – ‘Broadly balanced’ finances, but Chan calls for vigilance
Chan forecasts an annual surplus in the operating account for the coming five financial years.
But he notes that “there will be a small deficit in the consolidated account in 2020-21 and 2021-22”.
He says: “Taking all these into account, the fiscal position will be broadly balanced in the next five years.
“However, pressure on government expenditure is considerably high in the face of an ageing population, a shrinking workforce, economic volatility and the government’s long-term commitments. We ought to be prudent and vigilant about the long-term sustainability of public finances.”
12.56 – Warning on capital works spending
Capital expenditure is forecast to be HK$107.2 billion for the coming year, including HK$86.8 billion for capital works, Paul Chan says.
The expenditure is expected to remain at a relatively high level in the next few years, he says, because a number of projects are now at their construction peaks and a series of other projects will start soon.
He also calls for an end to the Legco filibustering which has held up some infrastructure projects.
“I appeal to members to stop frustrating deliberations on funding proposals by filibustering tactics,” he says.
“Besides, we ought to minimise drastic fluctuations in the volume of construction to avoid affecting the jobs and livelihood of the construction sector and causing spillover to other trades, which could ultimately rock the economy.”
12.54 – Balancing act
Chan forecasts that from 2018-19 to 2021-22, growth of recurrent government expenditure is estimated to range between 5.3 per cent and 9.8 per cent per year, consistently higher than the average annual nominal economic growth of 4.5 per cent over the same period.
“Sustainability is an issue which deserves our attention,” he notes.
12.51 – 3 per cent average GDP growth from next year to 2021
The average GDP growth rate is forecast to be 3 per cent per annum in real terms from 2018 to 2021, broadly comparable to the trend growth of 2.9 per cent over the past decade. The underlying inflation rate is expected to average 2.5 per cent per annum.
Paul Chan says his forecast is based on the assumption that there will be no severe external shocks during that time, and says he has taken into account the impact on economic growth threatened by an ageing population.
12.50 – And one really big number
Paul Chan forecasts a surplus of HK$16.3 billion in 2017-18. Fiscal reserves are estimated to hit HK$952 billion by the end of March 2018. That is 37 per cent of Hong Kong’s GDP.
12.38 – More big numbers
Total government revenue for 2017-18 is set to be HK$507.7 billion, to which earnings and profits tax is estimated to contribute HK$208.9 billion, Chan says. Land revenue is estimated to be HK$101 billion of it.
Government spending for 2017-18 is predicted to be HK$491.4 billion, up 5.3 per cent on the revised estimate for 2016-17.
Recurrent expenditure will reach HK$371 billion, a year-on-year increase of 7.4 per cent.
In 2017-18, the estimated recurrent expenditure on education, social welfare and health care accounts for about 60 per cent of government recurrent expenditure, exceeding HK$210 billion in total.
12.33 – Private sector building boost
The private sector will on average build about 20,300 private flats each year in the next five years, Chan says, which would be an increase of about 70 per cent over the yearly average in the past five years.
In public housing, about 94,500 flats will be built up to 2021.
Of that 94,500, some 71,800 will be public rental flats and 22,600 subsidised flats for sale.
Chan says the 2017-2018 Land Sale Programme will comprise 28 residential sites in total – including 20 new sites – providing about 19,000 homes.
“To achieve the 10-year housing supply target, we must address the shortfall in land supply for public housing development. Through the Steering Committee on Land Supply, I will coordinate and supervise the work on land supply with a view to narrowing the differences as soon as possible in order that applicants who are waiting for public rental housing can be housed earlier,” he says.
On commercial land, this year’s land sale programme will include three business sites and one hotel site, Chan says, providing about 172,000 sq m of floor area and 550 hotel rooms respectively.
12.29 – Money for education
As expected, education is one of the speech’s key focuses. Chan will implement the free quality kindergarten education policy from the 2017/18 school year. That policy will increase the government’s financial commitment to pre-primary education by about HK$2.7 billion annually.
Chan decided to regularise the Study Subsidy Scheme for Designated Professions/Sectors from the 2018/19 academic year, increasing the number of places from about 1,000 per cohort to 3,000. It is expected that about 13,000 students will benefit from the scheme each academic year, involving an expenditure of about HK$850 million per year, Chan says.
Chan also proposes injecting HK$1.5 billion into the Continuing Education Fund in 2017-18, as well as raising the tax deduction ceiling for self-education expenses from HK$80,000 to HK$100,000.
12.15 – IT development
Chan announces he will set up a new committee to coordinate IT development and reindustrialisation in Hong Kong. The new tax policy unit will also explore tax deductions for IT spending, he adds.
To encourage private investment in local IT start-ups, the government is setting up a HK$2 billion Innovation and Technology Venture Fund. The fund will invest in local IT start-ups along with venture capital funds on a matching basis of about 1:2, he says.
“A start-up wave has emerged in recent years. With creativity, technology, knowledge, entrepreneurship and hard work, many young people have succeeded in starting their own businesses,” Chan says.
On financial technology, Chan says the Monetary Authority is developing a new, faster payment system, to be completed next year, to provide an interbank real-time payment platform.
12.02 – Bond markets
The government is studying with mainland authorities ways to facilitate further participation in the bond market by people on both sides of the border, Chan says.
This, he adds, is with a view to improving connectivity between markets, in addition to issuing different types of bonds to boost the Hong Kong bond market.
11.56 – Bridging the gap
For the Hong Kong-Zhuhai-Macau Bridge, which will go into use by the end of this year, the government is working with the Airport Authority and governments of the two other cities on a proposal to provide a two-way land-to-air shuttle bus to take passengers directly to the restricted area of Hong Kong airport for outbound flights, Chan says.
11.55 – Talking financial services
The finance chief says the government attaches importance to the development of the financial services industry, which he says contributes 18 per cent of GDP and employs more than 250,000 people.
He says the government will consult on tighter rules to fight money laundering and that he hopes a bill may be tabled to Legco in the middle of the year.
11.50 – Standing up for free trade
Paul Chan says Hong Kong is discussing with the central government how to expand and enhance the Closer Economic Partnership Arrangement between the city and the mainland, with the aim of achieving “concrete results” by the middle of this year.
The government will also continue free trade agreement discussions with the Association of Southeast Asian Nations as well as with Georgia and the Maldives under the “One Belt, One Road” initiative.
He notes recent signs of rising protectionist and anti-globalisation sentiments around the world.
“Some individual economies have advocated or even implemented trade protection measures,” he says. “Global economic growth remains weak and sluggish. Under such uncertainties in the macro environment, Hong Kong as a small and open economy should uphold the principle of free trade.”
11.47 – How to spend that surplus?
Paul Chan says the government will take a “forward-looking approach” to put the HK$92 billion budget surplus to good use.
The government will earmark HK$30 billion to strengthen elderly services and rehabilitation services for people with disabilities, he says. The government will also introduce measures to ensure the quality of residential care services and enhance community care services for the elderly, among other things.
It will reserve HK$10 billion for IT development.
In addition, HK$1 billion will be reserved for youth development, including allocating HK$700 million to the Education Bureau to, for example, strengthen efforts to promote vocational and professional education and training.
11.40 – ‘Long Hair’ vows to filibuster again
Having been ejected from the chamber during Chan’s address, Leung Kwok-hung says he protested because he disagrees with Chan’s argument on long-term spending.
“I heard him saying the government can only make long-term reform when it has stable and sustainable sources of revenue… but all we want are dental clinics in every district in the city, and a universal retirement protection scheme,” Leung says.
He says he will filibuster when lawmakers debate the budget in April.
“I hope the democratic camp can join me, because we are almost succeeding in getting a retirement protection scheme for our elderly,” Leung adds.
11.40 – Widening tax bands
Chan announces he will widen the tax bands for salaries tax from the current HK$40,000 to HK$45,000. The measure, Chan says, will reduce the tax burden for 1.3 million taxpayers. The government will also raise the disabled dependent allowance from the current HK$66,000 to HK$75,000 per year, and the dependent brother or sister allowance will also rise to HK$37,500 from the current HK$33,000 per year.
11.37 – One-off giveaways
Chan announces salaries tax rebates of 75 per cent up to HK$20,000, which will benefit some 1.44 million taxpayers. Likewise, the government will reduce profits tax by 75 per cent, subject to a ceiling of HK$20,000. Property rates will be waived for a year, subject to a ceiling of HK$1,000 per quarter for each property. And social security recipients will get an extra allowance of a month’s standard payment.
These will be one-off measures.
11.36 – The big numbers (including a HK$92 billion surplus)
Paul Chan announces some key figures:
Government income for 2016/17: HK$559.5 billion, 12 per cent higher than the original estimate. (Of that, land revenue is HK$50.8 billion,76 per cent higher than estimated.)
Government spending for 2016/17: HK$466.7 billion
Surplus: HK$92.8 billion
Fiscal reserve: HK$935.7 billion by March 31, 2017
The budget surplus for 2015/16 was HK$30 billion. Former finance secretary John Tsang last year forecast a surplus of HK$11 billion for 2016/17. Today’s announcement proves that prediction wrong.
11.30 – New tax unit announced
Continuing on his theme of fiscal responsibility, Chan announces a plan to set up a tax policy unit within the Financial Services and the Treasury Bureau.
“As a responsible government, we have to cope with the huge expenditure needs under different economic scenarios. We cannot propose a tax cut which erodes our revenue base. Neither can we adjust our tax rates frequently, as this would affect the predictability of our tax regime and dent investor confidence,” he says.
“We have to examine the international competitiveness of our tax regime and address the problem of a narrow tax base.”
He says this new unit will “comprehensively examine these tax issues from a macro perspective.”
11.23 – Spending growth can’t go on forever, Chan says
Many have suggested a fiscal reserve of more than HK$900 billion is just too much, says Chan, as he agrees the government should consider major tax cuts and step up its efforts to relieve hardship. But he stresses the government should avoid reckless commitments.
He says the current government’s spending growth is considerable: total expenditure has increased year after year from HK$380 billion in 2012-13 to more than HK$490 billion in 2017-18. The current government’s total and recurrent spending would have grown on average by 5.4 per cent and as much as 7.2 per cent per annum between those years, he says.
That compares with nominal GDP growth of 5 per cent and government revenue growth of 3.4 per cent for the same period.
He says spending growth can’t outpace GDP growth for long, without risking a structural deficit.
11.26 – ‘Long Hair’ expelled
Legislator “Long Hair” Leung Kwok-hung is expelled after running across the chamber holding props and chanting “Universal retirement protection!” at Chan.
Security guards had stopped him from approaching Chan.
11.19 – Spelling out fiscal policy
Paul Chan says he differs from his predecessor John Tsang in his approach to spending.
“People think when we have a huge surplus, the government should lower tax and launch more recurrent measures,” he says. “But our tax base is narrow.”
“When we launch new measures, we need to ensure the spending required can be sustainable,” he continues. “I give the comparison of a worker – when you get your yearly bonus, you won’t spend all of it.”
11.15 – Technology spending
Chan says the government has made substantial efforts to promote innovation and technology.
Since November 2015, when the Innovation and Technology Bureau was set up, the government has allocated more than HK$18 billion to help universities and industry in research and development, and to support start-ups.
11.12 – Public finance objectives
Chan says the government should play an active role as a “facilitator” when it comes to public money. “Only by doing so can we build a caring, just and pluralistic society, helping Hong Kong develop as an even more liveable, sustainable and vibrant city,” he says.
He lays down three goals for the government: first, to be “appropriately proactive” in developing the economy and improving livelihoods; second, to be forward-looking and invest continuously for the future of Hong Kong; and third, to use public money to build a fair and just society, noting that there is still a big wealth gap.
He says the government has devoted substantial resources to improving people’s livelihoods over the past four years. The recurrent expenditure on social welfare has increased by 71 per cent in five years, from $42.8 billion in 2012-13 to $73.3 billion in 2017-18, resulting in a decrease in the poverty figures, he says.
He says: “We should create capacity for both development and environment, and enhance competitiveness so that our economy and society can develop in a sustained manner and our living environment can keep improving.”
11.11 – Inflation forecast
Chan forecasts inflation for this year will be 1.8 per cent. He says the government has introduced measures to curb property speculation and has been increasing land supply. The government will keep an eye on the risk posed by the US plan to raise interest rates, he says.
11.10 – Job market healthier, but house prices still rising, Chan says
Chan says the number of tourists has increased recently, and that if that trend continues the retail sector should be set to stabilise. He says there are favourable conditions in the job market and rising earnings. Other favourable trends, he says, include sustained increases in infrastructure and other building works, which should provide momentum for domestic demand.
He tempers his earlier prediction of improving growth by warning of the uncertain external environment and changes to interest rates may affect capital flows.
The local property market is getting even more exuberant, meaning high prices for flats, which are out of tune with the local economy, he says.
11.09 – And growth ‘set to get bigger’
Chan estimates GDP growth for 2017 will be between 2 per cent and 3 per cent.
11.05 – Economic growth at 1.9 per cent for the year
Chan says the city’s GDP grew 1.9 per cent in 2016. That is more or less the same as the forecast by John Tsang Chun-wah, whose estimate last year was between 1 per cent and 2 per cent. Chan says economic growth picked up over the year, from 1 per cent in the first quarter to about 3.1 per cent in the fourth.
11.02 – Chan gets personal
The financial secretary starts his budget speech biographically. He says: “I was born to a poor family in the 60s. At that time Hongkongers only needed shelter and to be well fed in order to be happy.
“But after the rapid economic growth in the 80s and 90s, and two periods of financial turmoil, Hongkongers are no longer happy with just that… Young people need to have hope in their future, and middle-aged people don’t want to worry about their competitiveness, and the elderly don’t want to fret about retirement.”
He goes on: “I will try my best. But our resources are not unlimited. No single budget can fulfil everyone’s wishes.”
11.01 – Finance chief heckled
As Chan enters, League of Social Democrats legislator “Long Hair” Leung Kwok-hung chants “Introduce universal retirement protection! Stop white elephant works! Build more hospitals and public housing!”
Legco president Andrew Leung Kwan-yuen tells him to quiet down.
11.00 – It begins
Chan enters, to address Legco
10.55 – Chan’s fan
Paul Chan’s wife, Frieda Hui Po-Ming, is in the Legco public gallery to support her accountant-turned-minister husband.
10.46 – Chan arrives
Paul Chan Mo-po enters the Legco chamber, on an unusually quiet morning, to make the final preparations for his maiden budget speech.
10.20 – FTU protests pre-speech
About 40 members, including several district councillors, from the Federation of Trade Unions urge Financial Secretary Paul Chan Mo-po to give out sweeteners his in maiden budget.
Their proposals include a tax allowance to help parents with education fees, especially in poorer families. Hong Kong children enjoy free primary and secondary education, but have to pay in kindergarten.
The federation’s former legislator Tang Ka-piu also criticises the government for underestimating its surplus in recent years.
“The government should share its wealth with the people appropriately since it is going to have a huge surplus again this year,” Tang says.