The budget was one of 'right choices'. Facilitating talent inflow was a right choice. Seeking more yuan business for Hong Kong was a right choice. No reduction of tax rates and no one-time rebate were right decisions. Not reducing the already narrow tax base was another right decision. Still another right decision, and one which was courageous, was the decision to initiate by mid-year consultations on a goods and services tax.
Hong Kong is coming off two years of strong economic performance that drove revenue well beyond expectations, and beyond what was needed to plug the hole in the annual budget. To put it in perspective, the last time the city had two stellar years back to back was in 1986-87. Given community pressures, now we are enjoying a booming economy, these right decisions regarding taxes are all the more remarkable.
For the business community, any budget that does not raise taxes is good. While one might have hoped for more spending restraint - recurrent public expenditure is slated to rise $14.7 billion in 2006-07 and by $44.8 billion, or 17.9 per cent, over the next five years - we sympathise with the financial secretary since Hong Kong's fiscal politics do not lean in that direction, and the needs are varied, from medical-care reform to education reform.
Broadening the tax base is essential for Hong Kong's sustained competitiveness because we cannot forever count on revenue from the elite group of professionals and companies that form our tax base. When 82 per cent of the population falls outside the tax net, the only way to sustain the level of expenditure Hong Kong expects is through excellent economic good luck.
This is why we applaud the decision to press ahead with consultation on a GST. Given the timing of a consultation paper by mid-year and nine months to build a consensus, the go/no-go decision is going to come around the time of the 2008 Legislative Council elections. While that may seem risky, it does force candidates and parties to take a stand.
The chamber has not yet decided whether to take a stand, but it does believe consultations on what kind of GST might be best for Hong Kong is only prudent. There are many ways to make this new tax 'revenue-neutral', but let us leave the details and the debate to the consultation stage. We should be open-minded, and no matter how it comes out, the financial secretary is right there has to be tax reform.