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HK trims civil service to rein in budget
By Gang Ji (Chian Daily)
Updated: 2004-03-11 09:02
The government of the Hong Kong Special Administrative Region is taking firm
measures to rein in its budget deficit which is expected to reach HK$49 billion
(US$6.28 billion), or 4 per cent of its GDP in fiscal 2003/04.
Hong
Kong's Financial Secretary Henry Tang presents his annual budget at
the Legislative Council March 10, 2004.[Reuters]
| In what is widely seen as an acceptable maiden budget speech Wednesday,
Financial Secretary Henry Tang proposed trimming government expenditures
progressively to HK$200 billion in 2008/09 from HK$217.4 billion this fiscal
year.
The major reduction is the cut in the size of the civil service. Tang said
the government will continue to reduce the size of the service from current
172,000 to 166,500 by the end of March in 2005 and further to 160,000 by
2006/07.
"I fully agree that the government should first put its own house in order by
containing expenditure stringently before considering tax increases," said Tang.
But there may not be any need to increase taxes because of the strong
recovery of the economy, which generates increased public revenues.
Hong Kong's economy is forecast to register a 6 per cent GDP growth this
year, as compared with 3.3 per cent in 2003. Riding on a GDP growth of 3.8 per
cent over a medium term, the government aims to eradicate the fiscal deficit and
even generate a slight surplus of HK$6 billion by 2008/09.
"In this year's budget, I propose no further increases in salaries tax,
profits tax or any other tax," he said.
"A substantial increase in profits tax and salaries tax simply for the sake
of financing the deficit could lead to a drain on capital and talent instead,
thereby undermining our competitiveness," he added.
Instead, he proposed introduction of goods and services tax (GST) in three
years. An internal committee has been set up to consider the implication of such
a tax on the overall economy.
According to a rough estimate, each single percentage point in the rate of
GST will yield revenues of about HK$6 billion a year.
"As regards the impact of GST on the economy, experience shows that in places
that have introduced this tax in recent years, its effects on prices are limited
and short-term," Tang continued.
He also proposed the issuing of government bonds to provide additional fiscal
flexibility. A maximum of HK$20-billion government bond will be issued to
finance infrastructure projects in 2004/05 financial year.
Sources said that the HK$20 billion government bond would have a maturity of
at least 5 years with a maximum coupon rate of 5 per cent per year. At these
terms, interest cost would amount to about HK$1 billion per year.
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