PRESS RELEASE

CE speaks on Goods and Services Tax

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Following is a transcript of the remarks (English portion) made by the Chief Executive, Mr Donald Tsang, on Goods and Services Tax at the Main Wing lobby of the Central Government Offices today (September 12):

The Executive Council has just held its first meeting after the summer recess. I would like to take this opportunity to explain the Government's position on the public consultation on the broadening of our tax base.

The Goods and Services Tax (GST) is an initiative put forward by the Administration and the Executive Council after serious deliberations. It is our consensus that our economy is picking up. Now is the best time to map out the initiatives to secure long-term growth for our economy and to prepare for our future, any future crisis. Of all the options considered, we believe that the introduction of a GST is the most practical one to ensure a stable source of public revenue.

Good medicine often comes as a bitter pill. Members of the public generally have reservations about the proposal for a GST. I understand that widening the tax net and broadening the tax base will never be universally welcomed, but I am also convinced that the Government should never refrain from doing the right thing even though it is unpopular. Evasion is never a way out. We have a responsibility to seek the best solutions to issues that Hong Kong is facing.

We must stay alert to the challenges that lie ahead, and Hong Kong is facing three fundamental challenges:

First, as an externally oriented economy, Hong Kong is vulnerable to external influences including surging oil prices and economic volatilities among our major trading partners, such as the United States. Though we have restored a fiscal balance ahead of schedule, the deficit we suffered in previous years can hardly be restored. With accelerating globalisation and the unavoidable cycle of boom and bust, we must be fully prepared for future crises or slowdowns.

Second, our population is ageing rapidly. One of every eight people in Hong Kong is aged 65 or above. In 25 years, about a quarter of the population will be senior citizens. Given that the salaries tax now accounts for nearly a third of total revenue, it is a very important part of our income, but the ageing population will mean there will be a reduction in the number of salaries taxpayers, and what is more, there will be a drastic rise in demand for healthcare and social welfare for the aged.

Third, spending on education, social welfare, public health and medical services now constitutes about 60% of our public expenditure. Expenditure in these areas is now all controlled but cannot be trimmed down substantially even in economic slowdowns. I have grave doubts we should trim down these expenditure items. Indeed, we are under growing pressure every day to increase spending in these critical areas.

In the 32 Policy Address consultation sessions I have chaired over the past month, some participants spoke in favour of the introduction of a GST and some against, while most requested further details on the implementation of the tax. We will continue to explain to the community what the initiative is about, including the compensation packages for the low-income and CSSA recipients and proposals on how the additional revenue likely to be generated by GST will be applied. In the remaining six months of the consultation period, we will keep our minds open and will listen to the views of all sectors of the community.

The Government could of course hide its head in the sand, pretending not to see the clear and present challenges that Hong Kong is facing. Taking a short-term political view, doing so could even help the popularity of the Government. However, as a Government with a long-term commitment to Hong Kong, we must formulate policies that can serve the real interests of the community, not those that look the most welcoming to the community. Similarly, people who oppose a GST owe it to the public to put forward sustainable alternatives to resolve these problems which are outlined.

Let me say this again. On the issues of broadening our tax base, maintaining a stable tax revenue and the introduction of a GST, the Government will keep an open mind to listen carefully to the views and proposals of all sectors of the community. Thank you very much.

(Please also refer to the Chinese portion of the remarks)

Ends/Tuesday, September 12, 2006
Issued at HKT 15:20

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