The economic rebound in 1999, which has extended into the first quarter of the new year (the last quarter of the Government’s fiscal year) has helped ease the budgetary challenges for 2000-2001. So, too, has the recovery in the securities markets and the stabilisation of the property market.

Higher levels of economic activity should have enhanced Government revenues and reduced the projected budget deficit for the 1999-2000 fiscal year from the original $36 billion forecast. Nevertheless, the SAR’s financial secretary remains concerned about future budget revenues and the need to fund the Government’s substantial, medium term expenditure plans, especially in new infrastructure projects.

This is understandable given the impact on Government revenues of the economic downturn which hit Hong Kong in the final quarter of 1997 and extended throughout 1998 and into the opening months of 1999. Moreover, the impact was particularly severe on the property market and, hence, saw a reduction in land revenues previously anticipated by the Government.

At the same time, the Government has been proceeding with large and costly infrastructure projects and these will continue to require spending allocations in the years immediately ahead. The advent of the Disney project with its substantial Government commitments of equity, loan funds and infrastructure spending, has added to these.

Successive financial secretaries over the past decade and half have also slimmed down the tax base, both by getting rid of some troublesome indirect taxes and by dropping potential tax payers out of the tax net altogether, especially the salaries tax net. This fiscal year, for example, there are estimated to be only 1.3 million salary tax payers out of a total workforce of almost 3.5 million. Furthermore only 5 per cent of them paid tax at the standard rate of 15 per cent.

In terms of overall revenues, the financial secretary will gain in the short term from the partial privatisation of the MTRC but this will have only a "one-off" impact. It is for these reasons that he has apparently decided to re-examine the Government’s revenue base to assess whether it fits with likely future revenue needs and whether Hong Kong needs a broader and more stable revenue source.

In its own Budget Submission for 2000-2001, which was delivered to the financial secretary on Nov. 12, the Chamber put forward a lengthy series of requests for tax changes, although it stressed that it did not expect them to be granted in one budget year. Almost all of them were aimed at making the tax system more competitive regionally, boosting Government policy commitments and increasing the level of certainty in the system.

Commenting on the issue of broadening the tax base, the Chamber said in its submission: "We therefore propose that (a) the Government consider reversing the policy of continually narrowing the base for collection of existing taxes (effectively dropping tax payers from the tax net) and (b) open up the debate on the need for a more broadly-based taxation system.

"In the past, the financial secretary has ruled out certain options as far as taxation is concerned. We believe that all options should be "on the table" as far as discussion and debate are concerned, especially in regard to likely future Government revenue needs and whether existing taxes also need to be reviewed. It is only in this way that the Government and the community can fully debate the issues involved and decide what is best for the future of the Hong Kong taxation system."