LCQ13: Financial position of Government
13.7.2022

Following is a question by the Hon Shiu Ka-fai and a written reply by the Secretary for Financial Services and the Treasury, Mr Christopher Hui, in the Legislative Council today (July 13): Question: It has been reported that the expenditure of the fifth-term Government increased substantially as compared to that of the fourth-term Government. In this connection, will the Government inform this Council: (1) of the three policy areas on which the expenditures (including non-recurrent expenditures and recurrent expenditures) of the fifth-term Government recorded the largest increases when compared with those of the fourth-term Government; (2) whether it has assessed if the expected effectiveness had been achieved under the circumstances of a substantial increase in the expenditures on the three policy areas involved in (1); if it has, of the details; if not, the reasons for that; (3) whether it has assessed if the substantial increase in the expenditures on the aforesaid three policy areas will impose a heavy burden on the finance of the current-term Government; if it has assessed and the outcome is in the negative, of the reasons for that; if the assessment outcome is in the affirmative, of the details, and whether the Government has plans to introduce measures on generating revenue and managing costs; if so, of the details; if not, the reasons for that; and (4) as there are views that the Government may increase tax revenue to make up for the substantial increase in the expenditures, whether it has assessed the negative impacts that such a proposal will have on small and medium enterprises as well as Hong Kong's overall business environment? Reply: President, The replies to the respective parts of the question raised by the Hon Shiu Ka-fai are as follows: (1) In monetary terms, the fifth term Government recorded the largest increases in expenditure in the three policy area groups (PAGs) of health, economic and social welfare as compared with the fourth term Government, from $71.1 billion ($B), $16.4B and $70.3B in 2017-18 to $162.8B, $106.7B and $120B in the 2022-23 Estimates. (2) In respect of the PAG of health, the growth in relevant funding is largely due to the additional provision for tackling the COVID-19 epidemic. The remaining increase is mainly due to adjustments for healthcare services having regard to population growth and demographic changes, including expenditure growth for the Hospital Authority (HA) to strengthen diagnosis and treatments of different diseases and for the Department of Health (DH)'s Elderly Health Care Voucher Scheme. In addition, the Government has increased funding to promote primary healthcare by setting up District Health Centres (DHC), with a view to improving the public's awareness and management of health risk behaviours and promoting early intervention to control diseases, thereby reducing unnecessary use of hospital services. The HA and the DH have been formulating annual performance targets and they have generally been able to achieve the performance targets, with the exception of the past two years when the service scale had to be adjusted from time to time in response to the COVID-19 epidemic. As for DHCs, the Government has engaged the Chinese University of Hong Kong to assess the extent to which the objectives of DHCs are met and the overall performance of various DHCs' services. The Government will take into account the result of this study and the operational experience of DHCs to enhance its operation model. For the PAG of economic, the increase in expenditure was mainly due to the introduction of the consumption voucher scheme (the Scheme) in 2021-22 and 2022-23 by the last term Government. The two rounds of consumption vouchers gathered extensive support from the public and various sectors. With the concerted promotion by the participating stored value facility operators and merchants, the Scheme was effective in boosting the market sentiment, stimulating local consumption and speeding up economic recovery. At the same time, the Scheme further promoted the use of electronic payment. The increase in expenditure on the PAG of social welfare was attributable to the improvement in social welfare and hundreds of new measures involved, covering areas such as elderly services, rehabilitation services, child care, family support, youth support, welfare planning, community participation and social security. All these measures aim to ensure provision of appropriate welfare assistance for those in need, and creation of a favourable environment for members of the public to realise their potential, achieve self-reliance and contribute to social well-being. The government departments and subvented organisations providing social welfare services and assistance are making good progress in pursuing their objectives in relevant areas. The Government will continue to monitor the effectiveness of the measures through indicators such as utilisation rate and the number of beneficiaries, and review the use of resources in the light of the implementation of various measures in a timely manner. (3) The Government has all along been adhering to the principles of exercising fiscal prudence, keeping expenditure within the limits of revenue and committing resources as and when justified and needed in public finance management. The last term Government increased expenditure on health, economic and social welfare mainly to address public aspirations, improve services and combat the epidemic, e.g. injections into the Anti-epidemic Fund and the launch of the Scheme. In fact, the Government has emphasised that expenditure should enter a consolidation period and implemented an expenditure reduction programme (ERP) in 2022-23, under which government departments were required to cut recurrent expenditure by one per cent without affecting livelihood-related spending. However, given the lasting effect of the recurrent expenditure reduction, the Government will not roll out any further ERP this year, otherwise the cumulative impact may disrupt departmental operations and in turn affect the delivery of public services. The Government will continue to examine carefully any new initiatives that will incur recurrent expenditure and strictly control the growth of the civil service establishment, so as to ensure that the long term financial commitments are commensurate with the increase in the revenue. At the same time, the Government will continue to explore different ways to broaden revenue sources. In this regard, the Government has raised the rate of Stamp Duty on Stock Transfers with effect from August 2021 which will increase revenue by around $12 billion per year. In the medium term, the Government will introduce a progressive rating system for domestic properties in 2024-25 to reflect the "affordable users pay" principle. In the long run, the Government will maintain the development and vibrancy of our economy and identify new areas of growth with a view to increasing revenue. Overall, the Government's current fiscal position is sound and healthy. In the face of the complex and volatile international political and economic environments, the Government will continue to exercise prudence in managing public finance and retain its financial strength to cope with unknown circumstances and needs. The Government will continue to adhere to fiscal discipline as stipulated in the Basic Law for Hong Kong's long-term development. (4) Our simple and low tax regime is one of the cornerstones of our success in maintaining Hong Kong's competitiveness and of utmost importance in bolstering our competitive edge. It is also closely related to our economy and people's livelihood. In view of the economic environment and impacts of the epidemic, businesses and individuals are generally under considerable financial pressure. The Government considers that this is still not the appropriate time to revise the rates of profits tax.