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Looking Ahead to 2005

As we move forward with our new Legislative Council, and continued robust economic recovery, we need to redouble our efforts to make progress on the major issues facing Hong Kong.

Hong Kong is one of the world's most efficient and reliable places in which to do business. We have every reason to be proud of what we've accomplished, but we also need constantly to be aware that the competitive environment is changing, and policy makers in other jurisdictions are not standing still. In order to identify where work is needed to keep our strong status, we need a systematic study of how the SAR stacks up against London, New York and other major business and financial centers.

This was one of our recommendations to the Chief Executive prior to his Policy Address nine months ago. It is a project whose time has come. Benchmarking our regulatory environment makes sense, both to prove to potential investors the value we offer and to provide our policymakers with the facts they need to ensure that this remains the best place to manage businesses in the Asian half of the world. One example, currently under consultation, is our Estate Duty. While we understand the government's reluctance to give up a source of revenue (however small), the $1.5 billion this tax generates also serves to discourage individuals from using Hong Kong as a base from which to manage their personal assets.  The symbolic gain for Hong Kong as a financial center would be bigger, and the middle class would actually benefit, since the wealthy have had other ways to deal with this tax.

Among other issues we highlighted in our last submission were cross-border strategic co-operation, taking more forceful steps to protect the environment and tackling the twin challenges of rebalancing the budget and reforming the civil service. There is progress, good progress, being made in cross-border cooperation. The Greater PRD Business Council -- an initiative your Chamber has championed for more than two years -- is now operating energetically and we are seeing the emergence of an even broader, Pan-PRD concept. Recommendations for expanding CEPA have been submitted by us to the SAR Government, mainly for the service sectors, but we understand that more zero-tariff goods would be permitted next January. In fact, zero tariff documentation has been issued for more than $600 million worth of exports to the Mainland of China, and investor interest in newly liberalised sectors is high. More will be done next year, and the year after; this is an evolving agreement, and we shouldn't be discouraged if our highest expectations are not realised in the first 12 months.

However, in the next 12 months, we need to continue to be serious about addressing our fiscal deficit, where we believe a structural problem exists, which will not be resolved by rising economic growth alone. Progress is being made, and we expect to see further action in 2005. But despite budget cuts in many government departments more still needs to be done on reducing expenditure.

Last year we spent a record $206.7 billion on operating expenses, 2.7 percent more than in 2002-03, and rising faster. The dollar value increase in spending was double that of the year before, and is not projected to slow in the current fiscal year. Structural reform is necessarily slow, but it needs to be done. And, so we are encouraged by the moves toward implementing the long-delayed comparison of pay and benefits in the public and private sector.

We are acutely aware that we cannot balance the budget solely through cutting the pay of our fine civil servants. Broader actions are needed, including a review of departmental structures, a more up-to-date comparison of public and private sector pay, and greater use of the private sector. We should encourage more public-private partnerships, enabling government to better leverage off the excellent services available in the economy to reduce the overall cost of delivering services to the public. We have seen some initial pilot projects this year, and look forward comprehensively to putting private money and expertise to work in cooperation with the public sector.

On the revenue side, the government is currently undertaking a study on one of our long-held positions, that of broadening the tax base. Our economy has changed rapidly in recent decades and it is time for the tax system to catch up. We look forward to the outcome of that review, and will certainly be making our views known about the feasibility, desirability and fairness of any proposed changes.

Tax systems are based on legacies of what worked in the past, and need periodic review. The current government study is looking at the applicability of a goods and services tax (GST), and in anticipation that this will be broadly discussed in the coming year, your Chamber has initiated a series of programs aimed at educating members and the public at large about what the GST is (and is not), and how it works. While we have taken no position on whether a GST is right for Hong Kong -- indeed, we cannot until we see the details of what is being proposed -- we do feel that an informed membership will be better able to make the right decision when the time comes.

Finally, there is political evolution. In preparing our submissions for Chief Secretary Donald Tsang's task force, the General Committee's working group has put in long hours developing thoughts on the basic principles that should guide us as we move forward. As our ideas developed, we sought options that would best address the interests of all parties concerned while ensuring continued economic prosperity and stability. We believe Hong Kong should move forward on tasks such as support for institutions such as think tanks and political parties that will be needed to take us to the next level; broader civic education; encouragement of more political participation, and better working relations among the various parts of our political system to improve governance.  If Hong Kong does want universal suffrage at some future date in a gradual and orderly manner, we must start now on paving the road to that target.

As we prepare our recommendations for this year's policy address, please share with us your own opinions and priorities.

Anthony Nightingale
Chairman
HKGCC