Hong Kong Chiefs Warn Of Deteriorating Economy

by Mary Swire, Tax-News.com, Hong Kong

15 October 2001

Following Hong Kong Chief Executive Tung Chee-hwa's Policy Address last week, which was criticised in many quarters as offering insufficient assistance to the SAR's floundering economy and its poorer citizens, both Mr Tung and Financial Secretary Antony Leung Kam-chung used speeches later in the week to underline the seriousness of the budgetary situation.

The Chief Executive told hundreds of business executives and foreign diplomats at a post-Policy Address luncheon at the Convention and Exhibition Centre that they should prepare for an "unexpectedly large" Budget deficit this financial year. Mr Tung said: "Our earlier forecasts have to be significantly revised. More jobs will disappear before they reappear. Government revenue will fall short of its target, whereas expenditure will rise in part because we will need to spend more to take care of the greater number of people who need to be taken care of in this downturn."

Mr Tung said it would have been irresponsible to offer a larger package of support than the $15bn he had proposed, and told companies that continuing their investment into skilled people was the best thing they could do to help themselves and the SAR. "My challenge to all the corporate chiefs sitting here today is: please redouble your efforts", he said, "We share the same vision to make your company a better knowledge-based company starting right now."

The Chief Executive insisted that by working together, business and the Government could surmount the crisis: "The times are indeed rough, but I am sure that none of us are daunted. Together we can, and we will, overcome all the adversities. A better Hong Kong is in sight. In fact, a better Hong Kong is every day in the making," he said.

For his part, the Financial Secretary warned during a radio phone-in programme that Hong Kong will face a record budget deficit this financial year. Mr Leung refused to give any estimate but he pointed out that government revenue was expected to fall sharply. Last month, however, he raised the possibility that as much as $78 billion of forecast revenue might not be collected, with shortfalls in such revenue areas as land premiums, investment returns from reserves, and a possible delay in the privatisation of the second batch of Mass Transit Railway Corporation shares because of volatility in the stock market.

Currently the official deficit forecast is $3bn, with the deficit after five months at the end of August running at $49bn. Revenue is mostly collected at the end of the year, but Mr Leung's warning suggests that the out-turn may be worse than the previous record deficit of $23bn in 1998/99.

In replies to questions, the Financial Secretary said it would be inappropriate for Hong Kong to match the substantial package of tax cuts announced last week by Singapore. Mr Leung said Singapore was facing a more acute economic problem than Hong Kong. He also pointed out that the city state did not provide welfare security. The Financial Secretary said the measures mapped out in the policy address were appropriate for the SAR.

Despite his insistence that the government was responding appropriately to the developing problems, Antony Leung said he would step down as finance chief if the people of Hong Kong thought he was not doing a good job. But he said it was unfair for the public to blame the Government for the economic downturn. "The most important thing is whether what I do is good or bad," said the Secretary, "If the public says 'Ah Chung' is not doing well, or Mr Tung says 'Ah Chung' is not doing well, I would be the first one to disappear," he said, referring to himself by his nickname.

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