Press Release - March 07, 2001
Hong Kong registered GDP growth of 10.5 per cent in 2000 - the highest since 1987.

The Financial Secretary, Mr Donald Tsang also announced today (Wednesday) that the economy was expected to grow steadily in 2001, with GDP forecast to grow by 4 per cent in real terms. The trend GDP growth rate for 2001-04 is also expected to stand at 4 per cent a year in real terms.

Presenting his 2001-02 Budget to the Legislative Council, Mr Tsang said there would be a small overall deficit of $3 billion in the next financial year.

For 2000-01, Mr Tsang expected the overall deficit to increase to $11.4 billion, from the $6.2 billion forecast in his last Budget Speech. This was attributable to a shortfall of $21.4 billion in estimated revenue due to lower collections from various sources such as land premia, returns on investments and proceeds from the partial privatisation of the Mass Transit Railway.

The rate of deflation also slowed down in 2000, and zero inflation is expected for 2001.

Mr Tsang said that in overall terms, Hong Kong's growth should moderate in 2001.

"On the downside, I expect our economic performance to be affected by the rapid slowdown in the US economy, continued stagnation in Japan and slower growth in domestic demand in East Asia. On a positive note, we should stand to benefit from steady economic growth in the European Union and sustained vigorous growth of the Mainland economy. In particular, China's coming accession to the World Trade Organisation will give us new impetus," he said.

Mr Tsang expected to see improved employment prospects and modest increase in wages, but he pointed out that there were no grounds for complacency.

"Increasing globalisation means we are, more than ever, prey to adverse political and economic events elsewhere and we must be alert to any potential dangers," he explained.

Mr Tsang has proposed for 2001 what he described as a deliberately conservative Budget.

It comprises five new expenditure initiatives such as the establishment of a fund of $300 million to subsidise the training initiatives of small and medium enterprises.

There are seven revenue proposals including raising the salaries tax deduction for self-education expenses from $30,000 to $40,000, reducing the stamp duty on stock transactions from 0.225% to 0.2%, raising the Air Passenger Departure Tax from $50 to $80 and making modest increases in duties and charges on consumer items such as tobacco, some alcoholic beverages, driving licence and vehicle fees and parking meter charges.

Mr Tsang said the increases would help to improve the government's fiscal position without prejudicing economic growth and undermining people's livelihood. He said the new departure tax would still be the lowest in the region for international flights and did not expect the increase to affect tourism or airline business.

The Financial Secretary said he had considered raising salaries and profits tax but decided against it.

Explaining his Budget strategy, Mr Tsang said economic recovery had just taken root and the economy should be allowed time to further consolidate.

He cautioned that although overall fiscal balances were expected for the next four financial years, the operating accounts would remain less than satisfactory. For the 2000-01 outturn, an operating deficit of $19.2 billion is expected. The 2001-02 Estimates also forecast an operating deficit amounting to $16.6 billion. And, operating revenue is expected to fall short of operating expenditure until 2004-05.

He stressed that without knowing whether the series of operating deficits was cyclical or structural in nature, the Government must seek to maintain sound financial fundamentals by exercising strict control over expenditure and taking appropriate measures to raise revenue.

The Task Force headed by Secretary for the Treasury is now examining the changes in revenue receipts in recent years and is expected to release its findings later this year on whether there are structural problems with the Government's accounts. The Advisory Commitee on New Broad-based Taxes will also be making recommendations on the suitability of introducing new taxes in Hong Kong.

"I must stress that our objective remains to keep a simple and predictable tax regime with low tax rates," Mr Tsang said.

On economic development, Mr Tsang highlighted the need to seize the opportunities presented by China's accession to the WTO and the development of its Western Region, to upgrade Hong Kong's human capital and to hone our strengths as a centre for international finance and high-value-added services.

Mr Tsang said Hong Kong must step up co-operation with Guangdong, especially the Pearl River Delta, capitalise on the different strengths and turn them into a competitive advantage for the region.

He said the Government would help to speed up cross-border flows by the deployment of an additional 100 immigration staff, expanding border facilities to increase vehicle capacity by 70 per cent and introducing the latest technology to speed up customs and immigration clearance.

For the longer term, the Government will initiate a comprehensive assessment of cross-boundary traffic volumes, to strengthen infrastructural links with the Mainland and introduce a regional transportation network with intermodal interchanges.

To promote business opportunities, the Trade Development Council will provide special support for small and medium enterprises seeking to start up or expand their businesses in Guangdong. The Government will consider setting up an Economic and Trade Office in Guangdong and in May, the Financial Secretary will lead a high-level delegation of government officials and local businessmen to major cities in Western China.

Mr Tsang also announced a number of Government initiatives to attract skills from the Mainland. They include a revival of the Admission of Mainland Professionals Scheme whereby Hong Kong employers would be able to bring in professionals with specific disciplines to meet immediate operational needs. The scheme will not be subject to any quota and will apply in the first instance to the IT and financial services sectors.

The Immigration Department will work with the Chinese authorities to simplify procedures for Mainland residents coming to Hong Kong for business and training. And, the Government is devising a scheme that will allow Mainland students in Hong Kong universities to remain for employment upon graduation.

Mr Tsang said the Government will continue its efforts in promoting tourism and developing IT, and will spare no efforts in improving Hong Kong's financial infrastructure and corporate governance.

The Financial Secretary said Hong Kong had become more competitive than before the financial crisis. On the external uncertainties which Hong Kong may face in 2001, he said: "We should be able to withstand any economic fluctuations that may arise so long as we are properly equipped.

"I leave my post of Financial Secretary confident in the future of Hong Kong," he concluded.