Reducing taxes across the board (2013/11/20)

Deputy President, that the tax base in Hong Kong is too narrow is nothing new. During the British rule, the then Financial Secretary Piers JACOBS once proposed during his term of office that a wholesale tax be introduced in order to widen the tax base. But the idea was abandoned because of a lack of support. In 2006, the Hong Kong Government published a paper on reform of the tax regime and an important change proposed was to introduce a commodity and service tax. But that was shelved due to strong opposition from the public. The main sources of public revenue in Hong Kong are land sales, salaries tax and profits tax. A simple tax regime with low tax rates is adopted to maintain government expenditure. Under this tax regime, the Treasury still manages to hold a large amount of surplus and this is mainly attributed to the steady growth in our economy in recent years.

Deputy President, a responsible government cannot be complacent about the present situation and it must be prepared for difficulties ahead. There has to be long-term planning and an attempt to keep expenditure within the limits of revenues. I will now try to analyse public revenue from the principle of keeping expenditure within the limits of revenues. First, on land sales. In this financial year, for example, the estimated income from land sales is $69 billion. But as at November, the income from land sales is only $37.2 billion. Recently, the Government has launched a number of measures aimed at cooling off the property market and curbing property prices. As a result, the developers will tend to be conservative in bidding for land and it is estimated that in future, the income from land sales will decrease. The other item is income from salaries tax. With population ageing and more people reaching the retirement age and new entrants to the job market from the young people unable to fill the vacancies, the labour force will not be able to meet the needs, if there is no plan to increase the importation of foreign workers. It is estimated that in future the revenue from salaries tax would not be able to grow at a satisfactory pace. Lastly, on profits tax. Ever since 1979 when the Mainland began its reform and openin up, its economic development has been spectacular. As Hong Kong is placed right at the southern doorsteps of China, and coupled with the factor of the reunification, there are direct gains for Hong Kong. Moreover, the political situation in Hong Kong is stable, the legal system is sound and as business opportunities abound, local, foreign and Mainland investors therefore are willing to make investments in Hong Kong. As a result, tax revenue grows. But good times will not last forever and in recent years, Hong Kong has been engulfed in endless disputes and internal attrition. There are even people who propose to Occupy Central. Hence the investment sentiments have deteriorated. On the contrary, there is robust economic development on the Mainland and its financial system is growing sounder than before. In many major and large cities, people can find business opportunities. Recently, places like Qian Hai and Shanghai are made testing points for financial reforms of various kinds. Certain investors in Hong Kong will naturally increase their investments on the Mainland. This will certainly affect our revenue from profits tax.

Regarding recurrent expenditure, the estimate for the year 2013-2014 is $291.3 billion. Of this the expenditure on infrastructure project is as much as $70 billion. With the commencement of many major infrastructure projects, plus the constant rise in construction costs, it can be envisaged that in the next few years, the expenditure on infrastructure projects will only increase. As at the end of March this year, the amount of unpaid commitment for these infrastructure projects is more than $300 billion, which is about one half of the fiscal reserves. This is something we ought to pay attention to. In addition, with the proportion of elderly persons in our population rising, our spending on healthcare, social welfare, and so on, will rise drastically. According to government estimates, the population of elderly persons aged 65 or above will grow from 900 000 now to 2.1 million by the year 2030. If we work out projections from this proportion, we can see that the expenditure on "fruit grant" alone will soar to $32 billion. And we have not yet counted other expenditure items related to population ageing. We can predict that the pressure we feel in all kinds of public expenditure in Hong Kong will be very heavy.

Last week, the Government announced that our economic growth for the third quarter was 2.9%, and this is the first time in six quarters that growth has slowed down. As a result, the Government was obliged to revise the forecast on annual economic growth from 3.5% to 3%. This shows that given the global economic uncertainties, problems are beginning to emerge and the alarm has sounded. The economic slowdown will lead to instability in public revenues and given the ever-increasing expenditure, it is likely that the Government may have to face an imbalance in income and expenditure and the resurgence of a deficit. Therefore, the Government is duty-bound to prepare for the rainy days ahead and to take positive steps to study a tax reform and explore the possibilities of widening the tax base, in order to meet the challenges ahead.

Deputy President, as we face the problems of population ageing and insufficiency of healthcare services, I have the following suggestions to make on tax concession measures. People used to say, "It is rare for a person to reach the age of 70." Therefore, people who have reached 60 are regarded as old people and they are to retire from work. They will turn from contributors of government welfare to recipients. With advances in medicine and health information, most old people are physically and mentally very healthy. According to statistics, the average life expectancy of women in Hong Kong in 2011 was 86.7 years, while the average life expectancy of men in Hong Kong was 80.5 years. Hong Kong is the place in the world where the people can expect the longest life. It is estimated that by 2041, the average life expectancy of women in Hong Kong will be 90.8 years while that of men will be 84.4 years. Therefore, as seen from the health condition of people who are to retire now at the age of 60, they are perfectly able to serve the community for another five years. It is also mentioned in the consultation paper released by the Government on population policy that the workforce in that age bracket of elderly persons is less than 40%, which is 20% less than that of Singapore. Mrs Carrie LAM, the Chief Secretary for Administration, also considers that studies should be done on measures inducing retirees to re-enter the labour market. The Civil Service Bureau is now taking the lead to study the issue of extending the retirement age.

I would suggest that the Government, apart from taking the lead to defer the retirement age of civil servants, should also resort to tax concessions and provide incentives to encourage companies to hire people aged over 60. On the surface, the offer of tax concessions will lead to a fall in tax revenue. But given the present situation of a low unemployment rate, when elderly persons can make use of their rich experience and skills to go on creating wealth for society, this will not only increase revenue from salaries tax but also reduce reliance on public resources. It will also reduce the burden of the young people in supporting these elderly persons. Hence it will bring about many advantages like being beneficial to family harmony and promoting consumption.

Deputy President, at the end of last month the Government announced that a consultation exercise on voluntary medical insurance will commence at the end of this year. The proposals made include the introduction of tax concessions to encourage people from the middle class to switch to using private-sector healthcare services by taking out voluntary medical insurance. I agree with the concept in principle and I hope that the Government can extend the scope of tax concessions to include persons and companies which have already taken out commercial medical insurance.

There are many companies which in their attempt to retain their staff have offered medical insurance coverage to their staff. And there are many wage earners who in their wish to obtain greater protection have taken out medical insurance for themselves, too. Such kind of action should be encouraged. In places like the United States, Australia and Taiwan, tax rebate for medical insurance has long been adopted. The Government of the last term had also held consultation on healthcare reform. A similar suggestion on tax concession was also made, but it was left aside because no consensus on it was reached. In my opinion, the Government should not stop the consultation in this regard because of the setback. For if not, it will only lose the meaning of universal healthcare protection. This is unfair to those wage earners and companies which have taken out healthcare insurance. If the Government is determined to solve the problem of universal healthcare insurance, a serious review of a combination of the existing and future medical insurance policies should be undertaken. With tax concessions introduced, it is hoped that both wage earners and their employers will have different options to choose from and more individuals and companies will join such schemes on a voluntary basis in order to reduce the pressure on public healthcare resources.

Deputy President, for many years the Government has adopted a non-intervention policy and adjustments are left to market forces. As a result, the protection afforded to the disadvantaged groups remains inadequate, thereby intensifying social conflicts. In the face of challenges posed by population ageing, the Government is obliged to undertake a review of the existing tax regime and reduce certain tax items as appropriate in order to show support for the disadvantaged, hence preventing the wealth gap problem from worsening.

Deputy President, I so submit.