Council Meeting -- Hansard -- 3 March 1999

FFICIAL RECORD OF PROCEEDINGS

Wednesday, 3 March 1999
The Council met at half-past Two o'clock

MEMBERS PRESENT:

THE PRESIDENT
THE HONOURABLE MRS RITA FAN, G.B.S., J.P.

THE HONOURABLE KENNETH TING WOO-SHOU, J.P.

THE HONOURABLE DAVID CHU YU-LIN

THE HONOURABLE CYD HO SAU-LAN

THE HONOURABLE EDWARD HO SING-TIN, J.P.

THE HONOURABLE ALBERT HO CHUN-YAN

THE HONOURABLE MICHAEL HO MUN-KA

DR THE HONOURABLE RAYMOND HO CHUNG-TAI, J.P.

THE HONOURABLE LEE WING-TAT

THE HONOURABLE LEE CHEUK-YAN

THE HONOURABLE MARTIN LEE CHU-MING, S.C., J.P.

THE HONOURABLE ERIC LI KA-CHEUNG, J.P.

THE HONOURABLE LEE KAI-MING, J.P.

DR THE HONOURABLE DAVID LI KWOK-PO, J.P.

THE HONOURABLE FRED LI WAH-MING

DR THE HONOURABLE LUI MING-WAH, J.P.

THE HONOURABLE NG LEUNG-SING

PROF THE HONOURABLE NG CHING-FAI

THE HONOURABLE MARGARET NG

THE HONOURABLE MRS SELINA CHOW LIANG SHUK-YEE, J.P.

THE HONOURABLE RONALD ARCULLI, J.P.

THE HONOURABLE MA FUNG-KWOK

THE HONOURABLE JAMES TO KUN-SUN

THE HONOURABLE CHEUNG MAN-KWONG

THE HONOURABLE AMBROSE CHEUNG WING-SUM, J.P.

THE HONOURABLE HUI CHEUNG-CHING

THE HONOURABLE CHRISTINE LOH

THE HONOURABLE CHAN KWOK-KEUNG

THE HONOURABLE CHAN YUEN-HAN

THE HONOURABLE BERNARD CHAN

THE HONOURABLE CHAN WING-CHAN

THE HONOURABLE CHAN KAM-LAM

DR THE HONOURABLE LEONG CHE-HUNG, J.P.

THE HONOURABLE MRS SOPHIE LEUNG LAU YAU-FUN, J.P.

THE HONOURABLE LEUNG YIU-CHUNG

THE HONOURABLE GARY CHENG KAI-NAM

THE HONOURABLE SIN CHUNG-KAI

THE HONOURABLE ANDREW WONG WANG-FAT, J.P.

DR THE HONOURABLE PHILIP WONG YU-HONG

THE HONOURABLE WONG YUNG-KAN

THE HONOURABLE HOWARD YOUNG, J.P.

DR THE HONOURABLE YEUNG SUM

THE HONOURABLE YEUNG YIU-CHUNG

THE HONOURABLE LAU CHIN-SHEK, J.P.

THE HONOURABLE LAU KONG-WAH

THE HONOURABLE MRS MIRIAM LAU KIN-YEE, J.P.

THE HONOURABLE EMILY LAU WAI-HING, J.P.

THE HONOURABLE CHOY SO-YUK

THE HONOURABLE ANDREW CHENG KAR-FOO

THE HONOURABLE SZETO WAH

THE HONOURABLE LAW CHI-KWONG, J.P.

THE HONOURABLE TAM YIU-CHUNG, J.P.

THE HONOURABLE FUNG CHI-KIN

DR THE HONOURABLE TANG SIU-TONG, J.P.

MEMBERS ABSENT:

THE HONOURABLE JAMES TIEN PEI-CHUN, J.P.

THE HONOURABLE HO SAI-CHU, J.P.

THE HONOURABLE JASPER TSANG YOK-SING, J.P.

THE HONOURABLE LAU WONG-FAT, G.B.S., J.P.

THE HONOURABLE AMBROSE LAU HON-CHUEN, J.P.

THE HONOURABLE TIMOTHY FOK TSUN-TING, J.P.

PUBLIC OFFICERS ATTENDING:

THE HONOURABLE MRS ANSON CHAN, J.P.
THE CHIEF SECRETARY FOR ADMINISTRATION

THE HONOURABLE DONALD TSANG YAM-KUEN, J.P.
THE FINANCIAL SECRETARY

THE HONOURABLE ELSIE LEUNG OI-SIE, J.P.
THE SECRETARY FOR JUSTICE

MR MICHAEL SUEN MING-YEUNG, J.P.
SECRETARY FOR CONSTITUTIONAL AFFAIRS

MR CHAU TAK-HAY, J.P.
SECRETARY FOR TRADE AND INDUSTRY

MR GORDON SIU KWING-CHUE, J.P.
SECRETARY FOR PLANNING, ENVIRONMENT AND LANDS

MR NICHOLAS NG WING-FUI, J.P.
SECRETARY FOR TRANSPORT

MR DOMINIC WONG SHING-WAH, J.P.
SECRETARY FOR HOUSING

MRS KATHERINE FOK LO SHIU-CHING, J.P.
SECRETARY FOR HEALTH AND WELFARE

MR RAFAEL HUI SI-YAN, G.B.S., J.P.
SECRETARY FOR FINANCIAL SERVICES

MR JOSEPH WONG WING-PING, G.B.S., J.P.
SECRETARY FOR EDUCATION AND MANPOWER

MR KWONG KI-CHI, G.B.S., J.P.
SECRETARY FOR INFORMATION TECHNOLOGY AND BROADCASTING

MISS DENISE YUE CHUNG-YEE, J.P.
SECRETARY FOR THE TREASURY

MR LAM WOON-KWONG, J.P.
SECRETARY FOR THE CIVIL SERVICE

MR STEPHEN IP SHU-KWAN, J.P.
SECRETARY FOR ECONOMIC SERVICES

MR BENEDICT KWONG HON-SANG, J.P.
SECRETARY FOR WORKS

MR DAVID LAN HONG-TSUNG, J.P.
SECRETARY FOR HOME AFFAIRS

MRS REGINA IP LAU SUK-YEE, J.P.
SECRETARY FOR SECURITY

DR EDGAR CHENG WAI-KIN, J.P.
HEAD, CENTRAL POLICY UNIT

CLERK IN ATTENDANCE:

MR RICKY FUNG CHOI-CHEUNG, J.P., SECRETARY GENERAL

PAPERS

The following papers were laid on the table pursuant to Rule 21(2) of the Rules of Procedure:

Subsidiary Legislation	L.N. No.
Specification of Arrangements (Government of the Republic of Mauritius Concerning Air Services) (Double Taxation) Order	43/99
Clubs (Safety of Premises) (Exclusion) (Amendment) Order 1999	45/99
Immigration (Amendment) Ordinance 1999 (6 of 1999) (Commencement) Notice 1999	46/99
Air Pollution Control (Petrol Filling Stations) (Vapour Recovery) Regulation (L.N. 379 of 1998) (Commencement) Notice 1999	47/99
Public Health and Municipal Services Ordinance (Public Pleasure Grounds) (Amendment of Fourth Schedule) (No. 2) Order 1999	48/99
Public Health and Municipal Services Ordinance (Public Pleasure Grounds) (Amendment of Fourth Schedule) (No. 3) Order 1999	49/99
Designation of Museums (Amendment) Order 1999	50/99
Merchant Shipping (Safety) (High Speed Craft) Regulation (L.N. 111 of 1998) (Commencement) Notice 1999	51/99
Business Registration (Amendment) Regulation 1999	52/99
Food and Drugs (Composition and Labelling) (Amendment) Regulation 1996 (L.N. 80 of 1996) (Commencement) Notice 1999	53/99
Hong Kong Sheng Kung Hui Ordinance (Cap. 1157) (Commencement) Notice 1999	54/99
Church Body of the Hong Kong Sheng Kung Hui Ordinance (Cap. 1158) (Commencement) Notice 1999	55/99
Hong Kong Sheng Kung Hui Foundation Ordinance (Cap. 1159) (Commencement) Notice 1999	56/99
Mutual Legal Assistance in Criminal Matters (New Zealand) Order (L.N. 376 of 1998) (Commencement) Notice 1999	57/99

Sessional Papers

No. 101	─	Consumer Council Annual Report 1997-98
No. 102	─	Draft Estimates for the year ending 31 March 2000; Volume IA and Volume IB - General Revenue Account
No. 103	─	Draft Estimates for the year ending 31 March 2000; Volume II - Fund Accounts

PRESIDENT (in Cantonese): Honourable Members and public officers, this is the first meeting of this Council in the Year of the Rabbit. Spring marks the beginning of a new year. I should like to take this opportunity to wish every one of you good health and good luck with your work; I also hope that we could all give full play to our ability to serve the people of Hong Kong with all our heart and might in the year ahead.

WRITTEN ANSWERS TO QUESTIONS

Submission of Building Plans in Electronic Form

1. MR EDWARD HO (in Chinese): Will the Government inform this Council whether it has studied the feasibility of allowing the construction industry to submit the building plans to the relevant authorities for approval by electronic means; if so, the expected completion date of the study; if not, whether it has any plan to conduct such a study?

SECRETARY FOR PLANNING, ENVIRONMENT AND LANDS (in Chinese): Madam President, in 1997, the Buildings Department commissioned a consultant to conduct a feasibility study on the submission of building plans and documents to the Department in electronic format. A pilot system was developed in October 1998 upon completion of the study. The system uses CD-ROM to record building plans.

The Buildings Department is now conducting trial tests on this pilot system. The tests are scheduled for completion by end 1999. The Department will then decide whether and if so how the pilot system can be developed into a fully operational system.

Rapes or Indecent Assaults Cases

2. MISS CHOY SO-YUK (in Chinese): Will the Government inform this Council:

(a) in respect of each of the past three years:

(i) of the detection rates of reported rapes or indecent assaults;

(ii) among such crimes, the percentages of cases in which the victims were aged 16 or below;

(iii) among the rapes or indecent assaults cases, the percentages of cases which occurred in public housing estates; whether there has been an upward trend; and

(b) whether it has studied the relationship between the architectural design of public housing estates and rapes and indecent assaults which occurred in the public housing estates; if there is such a relationship, of the remedial measures to be taken by the authorities?

SECRETARY FOR SECURITY (in Chinese): Madam President, as regards part (a) of the question raised by the Honourable Miss CHOY So-yuk, we provide the following figures:

	The number of reported rape or indecent assault cases	Detection rate (%)	Percentages of cases of reported rape or indecent assault in which the victims were aged 16 or below	Percentages of cases of reported rape or indecent assault occurred in public housing estates (%)
1996	1 300	68.5	34.5	6.1
1997	1 188	73.6	33.4	5.7
1998	1 304	69.4	35.2	6.7

From the figures above, we can see that in the past three years there was no increasing trend in rape or indecent assault cases which took place in public housing estates.

On part (b) of the question, although the Housing Authority (HA) has not conducted any study on the relationship between the architectural design of public housing estates and rapes and indecent assaults which occurred in public housing estates, the HA places much emphasis on improving security measures to deter crimes, including rape or indecent assault offences. In 1994, the HA decided to further improve the security measures of all public housing estates (excluding redevelopment blocks). It spent $400 million in three years to improve the related facilities for 938 blocks of public housing estates. The improvement works were completed in mid-1997. Currently, all Harmony and Trident Blocks of public housing estates under the management of the Housing Department are installed with a comprehensive security system. This system includes security counter with security guard on duty round-the-clock at the main entrance lobby, security gates at all entrances including rooftop exits, doorphone system at main door entrance and closed-circuit television (CCTV) in all lift cars and rooftop exits. To allow more time to solve the technical difficulties encountered in installing this comprehensive security system in the remaining 600-strong blocks, these 600-strong blocks are all installed with a relatively simpler security system. This system includes the installation of CCTV in all lift cars and of the Electronic Patrol Monitoring System at all critical locations for patrol guards to patrol during the period from 8 pm to 8 am daily so as to deter crime.

In 1998, the HA reviewed the security measures of the public housing estates. It approved appropriation of $488 million to upgrade the aforementioned relatively simpler security system for the 600-strong blocks within four years. All these public housing estates will be installed with security systems similar to those of Harmony and Trident blocks after the completion of the improvement works by March 2002.

For some estates in districts of high crime rate, "Special Waiting Areas" are also being provided during the period from 8 pm to 8 am to arrange security guard to accompany late home comers to return homes so as to strengthen the safety of these late home comers.

It must be emphasized that although there has been no increasing trend in reported rape or indecent assault cases occurring in public housing estates, figures do show that there is a marked decrease over 30% in the overall crime rate in public housing estates after the installation of the security system. We hope that the four-year plan of the HA since 1998 to improve security measures of the public housing estates would further deter crimes.

Import of Meat

3. MR WONG YUNG-KAN (in Chinese): Regarding the import of meat, will the Government inform this Council whether:

(a) it knows if there are any international covenants prohibiting the transport of chilled pork and chicken from infected areas to other areas for sale; and

(b) there is any legislation in Hong Kong prohibiting the import of chilled pork and chicken from infected areas; if not, the reasons for that?

SECRETARY FOR HEALTH AND WELFARE (in Chinese): Madam President,

(a) To the best of our knowledge, there is at present no specific international covenants prohibiting the transport of chilled pork and chicken from areas infected by animal and poultry communicable diseases to other areas for sale.

(b) The Department of Health regulates the food safety and hygiene standard of imported meat through the Imported Game, Meat and Poultry Regulations made under the Public Health and Municipal Services Ordinance (Cap. 132). The Director of Health considers a number of factors including the state of veterinary health and the hygiene standards of the farms, slaughterhouses and processing plants and so on of the exporting countries when deciding whether import of chilled pork and chicken from a specific country/place is permitted. Whenever appropriate, the Director of Health refers to guidelines issued by international authoritative agencies such as the World Health Organization, the Food and Agriculture Organization of the United Nations and the Codex Alimentarius Commission, for establishing the appropriate regulatory and inspection mechanism. If there is evidence that the imported chilled pork or chicken from a specific place may pose an infectious risk to public health, the Director of Health has the power to prohibit such imports.

Outreaching Dental Service for the Elderly

4. MR LAW CHI-KWONG (in Chinese): It is reported that while 97% of the elderly living in residential care homes are suffering from various dental diseases, the outreaching dental service for the elderly, which commenced last year and was tentatively scheduled to last for one year, might have to terminate when the period expires later this year due to funding problem. In this connection, will the Government inform this Council whether it will consider providing outreaching dental service for the elderly on a permanent basis; if so, the specific details of the plan; if not, the reasons for that?

SECRETARY FOR HEALTH AND WELFARE (in Chinese): Madam President, the current government policy on dental services is to, through publicity and education, improve people's oral health by promoting their oral hygiene awareness, and facilitating the proper use of oral care services. The Department of Health provides emergency dental services to the general public, including the elderly population, through 11 government dental clinics. We have no plans to separately provide outreaching dental services for the elderly.

According to our understanding, the outreaching dental service referred to in the question is conducted by the Faculty of Dentistry of the University of Hong Kong. It is a four-year pilot project funded by an external grant. Under the project, a dental care unit was established in July 1998 to provide dental services to people in need and to promote oral health for the prevention of oral diseases. The unit is focusing its service on the elderly at present. While the elderly will continue to be the main group of the unit's clientele, the unit plans to broaden its service scope to cover other patient groups with dental needs.

Privatization and Corporatization of Government Departments

5. DR RAYMOND HO (in Chinese): It is reported that many civil servants in the professional grades have applied for transfer to other departments because of their concern over the scheme to privatize or corporatize their departments. In this regard, will the Government inform this Council:

(a) of the number of civil servants who have transferred from departments which are proposed for implementing such scheme (including the Housing Department (HD) and the Water Supplies Department (WSD)) to other departments over the past two years, with a breakdown of the government departments and the ranks involved; whether it is aware of the reasons for applying for transfer;

(b) whether it has assessed the effects of such scheme on the duties of relevant posts and on the morale of serving civil servants; and

(c) whether the departments concerned will consult their staff on the implementation of such scheme; if so, the details of that?

SECRETARY FOR THE CIVIL SERVICE (in Chinese): Madam President, it is not uncommon for civil servants to seek transfer to other departments or grades for career development purposes. We do not ask individual officers for their reasons for transfer.

In the past two years, the Government has not corporatized or privatized any government departments. As regards the two departments named in the question, the HD has undertaken a consultancy study exploring opportunities for greater private sector involvement in the Housing Authority's activities. The WSD has also commissioned a consultancy study on the feasibility of private sector participation in the provision of water supply services. It is premature to conclude at this stage that these studies will lead to the wholesale privatization or corporatization of the departments concerned. Nevertheless, I list below the number of departmental grade officers who transferred to other departments in the past two years for information:

	1997	1998
Housing Department	83	114
Water Supplies Department	147	186

A breakdown of transferred officers by rough grade groupings is at Annex. The number of officers transferred out of the HD and WSD in 1998 constitutes 1% and 3% respectively of the total departmental establishment. The corresponding service-wide figure is 2%.

In considering whether or not to pursue any particular corporatization or privatization exercise, the Government will take into account all relevant considerations, including the morale of serving civil servants.

If and when there is any corporatization and privatization proposal, staff would be duly consulted, especially on transfer and redeployment arrangements. As regards the cases of the HD and WSD, the Departments have maintained close dialogue with staff, through regular consultative channels and special meetings, when consultancy studies are contemplated and before any view has been taken on proposals to privatize or corporatize. Further briefings and consultation sessions will be arranged when recommendations are available.

Annex

Departmental Officers transferred to other grades

(a)	Housing Department	1997	1998
	Professional grades	8	17
	Matriculation grades	34	23
	Technical and Technician grades	22	62
	Workmen	2	0
	Others	17	12
	Total	83	114
	Departmental Establishment (as at 1 April)	11 781	11 698
(b)	Water Supplies Department	1997	1998
	Professional grades	3	1
	Technical and Technician grades	80	87
	Workmen	46	72
	Others	18	26
	Total	147	186
	Departmental Establishment (as at 1 April)	4 794	4 776

Review of Tender Procedures

6. MRS SOPHIE LEUNG (in Chinese): Regarding the Government's procedures for procurement of stores and services through tenders and selection of project contractors, will the Government inform this Council:

(a) of the respective normal time required from preparing tender documents to selecting the suppliers, service providers or contractors; and

(b) whether the relevant procedures will be reviewed to improve efficiency; if so, the scheduled timing of such a review; if not, the reasons for that?

SECRETARY FOR THE TREASURY (in Chinese): Madam President, with regard to part (a) of the question, the period of time from drafting the documents for a tender to awarding the tender varies according to the nature and complexity of tenders.

For the procurement of goods and services other than construction services, it normally takes about three months to prepare the relevant tender documents. A longer period may be required for the procurement of some complicated equipment or computerized systems. For the procurement of construction services, the preparation of tender documents may take from four to nine months after detailed design work is completed.

A tender notice is published in the government Gazette following the finalization of the relevant tender documents. Where tenders are covered by the Agreement on Government Procurement of the World Trade Organization (WTO GPA), namely, goods or services contracts with an estimated value higher than $1.43 million and construction contracts valued at $55.11 million or more, it normally takes about three and a half months from the Gazette notice to the award of the tender. This period is made up of some six weeks for prospective suppliers and service providers (including construction services) to prepare and submit their tenders, and another six to eight weeks to evaluate the tenders received and seek approval from the relevant authorities for the award of the contract to the recommended tenderer. Where tenders fall outside the WTO GPA, the normal period may be shortened by about three weeks.

With regard to part (b) of the question, the guidelines and procedures for government procurement are reviewed periodically in the light of experience. A major overall review was conducted in 1997, and various measures have been introduced to enhance efficiency and speed up processing. For example, to expedite the preparation of tender documents, departments have been asked to standardize, where appropriate, tender documents, including drawings, specifications and conditions of contract. Standardized tender documents now exist for the procurement of goods and services other than construction services, and for the building of public sector schools. The Works Bureau has also installed a computer database management system for retrieving performance records of tenders for construction contracts, thus speeding up the evaluation of construction tenderers.

Drop in Charitable Donations

7. MR NG LEUNG-SING (in Chinese): It is learnt that charitable donations raised by the Community Chest so far this year have dropped significantly compared to the same period last year. In this connection, will the Government inform this Council whether:

(a) it has assessed the effects of the drop in donations on the social welfare agencies which receive funding support from the Community Chest in terms of their revenue and service delivery; if so, the details of the effects; if not, the reasons for that; and

(b) it is necessary to provide additional subvention to such agencies; if so, the details of it?

SECRETARY FOR HEALTH AND WELFARE (in Chinese): Madam President,

(a) Together with its 140 member agencies, the Community Chest has, for nearly 30 years, complemented the work of the Government in the provision of welfare services with generous donations from the public. Whilst government subvention is given to non-governmental organizations (NGOs) to provide essential welfare services to meet our policy objectives and priorities, sponsorship from charitable funds such as from the Chest, is used mainly to support unsubvented innovative or pilot projects or to enhance subvented services.

Over the years, the Community Chest has made a valuable contribution to welfare development in Hong Kong using donations obtained through community-wide appeals. In the current financial year, $202 million will be allocated by the Community Chest to its member agencies in accordance with its own priorities and assessment of the services. This is around 4% of the recurrent government subvention for direct welfare services. In 1970, in the early years of the Chest, the allocation of Chest funds to its selected services was almost 50% of the recurrent government subvention to welfare services. So, with the passage of time, the Government's contribution to funding direct welfare services in Hong Kong has increased very significantly.

Whilst the recent economic downturn is likely to result in reduced income for the Chest, the extent of any possible reduction of its allocation to member agencies has yet to be finalized. We understand that the Chest is considering a number of ways to sustain its current level of support to member agencies. The Chest is also reviewing its allocation policy, particularly in respect of enhancement to services already in receipt of government subvention. It also intends to use some of its reserves to help member agencies during this period.

(b) Whilst we recognize the Chest's invaluable contribution in the provision of complementary welfare services, we do not consider it appropriate for the Government to provide additional financial assistance to agencies concerned nor inject funds directly into the Chest at this juncture. The Government has already allocated a very substantial proportion of public funds to the welfare sector on an annual basis, in terms of capital and recurrent resources. In the financial year 1999-2000, the subvention for direct services will rise to $6.2 billion from $5.4 billion. Given the limited resources available, we must ensure that priority is accorded to subventing essential welfare services to those in need in line with our policy objectives. We also have different funding priorities from charitable funds, which may provide a valuable supplement by supporting new and innovative welfare services on a pilot basis, or by enhancing the level of provision already supported by the Government.

Processing Time for Liquor Licence Applications

8. MR HOWARD YOUNG: I have received complaints that the Provisional Municipal Councils take a long time to process liquor licence applications from hotels. As a result, at least one hotel which is applying for the liquor licence needs to resort to giving out free alcoholic drinks to its customers or asking them to bring their own alcoholic drinks. In this connection, will the Government inform this Council whether:

(a) it knows the reasons for the long processing time for liquor licence applications;

(b) it is aware if the delay has any adverse impacts on the operation of the hotels and on the reputation of the hotels and tourism industry in Hong Kong; if so, the details of them; and

SECRETARY FOR HOME AFFAIRS: Madam President, on the basis of information provided by the Urban Services Department (USD) and the Regional Services Department, the answers to the Honourable Howard YOUNG's questions are as follows:

(a) Under the current policy of the two Provisional Municipal Councils, a liquor licence will be issued provided:

(i) the premises have been issued with a general or light refreshment restaurant licence;

(ii) the applicant is a fit and proper person to hold the licence; and

(iii) the selling of liquor in the premises should not cause any inconvenience or nuisance to the neighbouring residents.

To ascertain if criteria (ii) and (iii) are met, comments will be sought from the police and the community. The timing for a liquor licence to be issued depends very much on the time taken by the applicant to obtain a restaurant licence as well as whether there are any objections to the application.

Normally, the time taken for processing applications for liquor licences with no objections from the police and parties concerned is two to three months. If any party raises an objection, the application will have to be referred to the Liquor Licensing Board of the respective Provisional Municipal Councils for decision, therefore requiring a longer processing time.

The Liquor Licensing Boards of the two Provisional Municipal Councils have not received any complaints from hotels about the long processing time for granting a liquor licence in the past few years.

(b) We are not aware of any such delay and any serious impact on hotel operations or image of our tourist industry.

(c) The two Provisional Municipal Councils have endeavoured to improve and streamline the application procedure in order to shorten the processing time for liquor licence applications. Since December 1995, a Provisional Licensing System has been introduced to issue provisional restaurant licences to premises upon compliance of essential health, fire and building safety requirements. A liquor licence may be granted upon issue of a provisional restaurant licence. With a view to exploring the possibility of further streamlining the licensing procedure, the USD has commenced an independent consultancy study on restaurant licensing which will be completed in May/June 1999.

Control over the Conveyance of Combustible Goods

9. MR LEE KAI-MING (in Chinese): On 28 January this year, an explosion occurred when a container truck driver opened the door of a container carrying polystyrene (commonly known as "foam plastic"). In this connection, will the Government inform this Council:

(a) whether it has investigated the cause of this incident; if it has, the findings of the investigation;

(b) of the measures in place to prevent inflammable chemicals from exploding in the course of conveyance; and

(c) whether it has any plan to review the relevant legislation and tighten up the control over the conveyance of combustible goods under category 9A prescribed in the Dangerous Goods (Application and Exemption) Regulations (Cap. 295 sub. leg.); if so, the details of it; if not, the reasons for that?

SECRETARY FOR SECURITY (in Chinese): Madam President,

(a) The container truck concerned was carrying polystyrene (commonly known as "foam plastic") and was parked in a container yard in Sheung Shui on the day of the incident. When the container truck driver opened the door of the container, the foam plastic inside exploded immediately. The Fire Services Department (FSD) has investigated the incident and questioned the driver afterwards. As both the container truck and the goods it carried were seriously damaged in the fire, the cause of the incident cannot be ascertained, but the possibility of human error or improper handling of the dangerous goods in that category is not excluded.

(b) The Dangerous Goods Ordinance and its subsidiary legislation vest in the Director of Fire Services, the Commissioner of Mines and the Director of Marine the powers to control the manufacture, storage, conveyance and use of various categories of dangerous goods in a safe manner.

The conveyance of dangerous goods in Categories 1, 2 and 5 (that is, explosives, compressed gases and substances giving off inflammable vapour) is regulated by the Dangerous Goods Ordinance (Cap. 295) and the Dangerous Goods (General) Regulations (Cap. 295 sub. leg.).

At present, all vehicles for conveying dangerous goods in Categories 2 and 5 are required to obtain permits or licences from the relevant authorities. In respect of vehicles for conveying dangerous goods in Categories 2 and 5, licences will not be issued unless they meet a specific set of fire safety requirements and standards to ensure conveyance safety.

As regards dangerous goods in Category 1, except with a removal permit issued by the Commissioner of Mines, no conveyance is allowed. The Commissioner shall prescribe the maximum load, safety measures, routes and so on taken by the vehicle.

Also, the FSD has already issued a "Code of Practice for Interim Measures on the Conveyance of Categories 3 and 4 Dangerous Goods by Vehicle" to provide guidelines on safe conveyance of such goods for goods owners, drivers, vehicle owners and truck assistants. Moreover, the Transport Department has issued a "Code of Practice for the Loading of Vehicles" to provide the trucking industry with guidelines on the safe transportation of goods.

(c) The FSD has reviewed the Dangerous Goods Ordinance and its subsidiary legislation and amendments to the Ordinance will be proposed to bring it more in line with existing international standards. The categorization, labelling, packaging, exempted quantity and penalties for dangerous goods were covered by the review.

The FSD has also commissioned a consultancy study on ways to tighten control over the conveyance of dangerous goods in Categories 3, 4, 6, 7, 8, 9, 9A and 10 (At present, only vehicles for conveying dangerous goods in Categories 1, 2 and 5 are required to obtain permits or licences from the relevant authorities). By making reference to the experience of overseas countries, we are studying ways to strengthen the industry's knowledge of conveying and handling dangerous goods properly in order to reduce occurrence of similar incidents.

The FSD will shortly consult the industry on the proposed amendments to the Dangerous Goods Ordinance and its subsidiary legislation. We plan to submit the proposed amendments within this year.

Use of Electrical Appliances within Petrol Filling Stations

10. MRS MIRIAM LAU (in Chinese): It is reported that the use of cellular telephones within petrol filling stations may cause explosion. In this connection, will the Government inform this Council whether:

(a) it has assessed the possibility of an explosion caused by the use of cellular telephones, microwave ovens and other electrical appliances within petrol filling stations; if so, the details of the assessment; and

(b) it will consider introducing legislation to prohibit the use of electrical appliances which may cause explosion within petrol filling stations?

SECRETARY FOR SECURITY (in Chinese): Madam President,

(a) The Government has set up an inter-departmental working group (members including representatives from the Fire Services Department (FSD), Electrical and Mechanical Services Department and Office of the Telecommunications Authority) to examine the possibility of an explosion caused by the use of cellular telephones, microwave ovens and other electrical appliances within petrol filling stations. All explosions (including those within petrol filling stations) are caused by the ignition of a sufficient collection of inflammable vapour by sufficient energy at the scene. To avoid such incidents, the FSD will issue safety requirements in considering applications for the operation of petrol filling stations, so as to prevent leakage of inflammable vapour from the petrol supply system and the accumulation of energy to dangerous levels within the safety area of petrol filling stations. The FSD has also issued requirements and codes concerning the safety and use of electrical installations in petrol filling stations. Reviews will be conducted as and when necessary.

Under the standard of BS6656:1991 of the British Standards Institute, the wave power created by cellular telephones is very low and is unlikely to cause any ignition. For this reason, the inter-departmental working group has initially concluded that the use of cellular telephones within petrol filling stations will not cause fire. As the public has expressed concern over the issue, the working group is making reference to the experience and standards of foreign countries to further assess the need and arrangements to regulate the use of cellular telephones within petrol filling stations.

It is reported that in order to improve customer services, petrol filling stations operators are planning to apply for the installation of microwave ovens in tuck shops of the stations. At present, neither any microwave ovens have been installed in tuck shops in the territory nor any applications have been received by the FSD. At the latest liaison meeting between the FSD and petroleum companies, representatives of the latter have also pointed out that in view of the large number of convenience shops in Hong Kong, there is little demand for microwave ovens in petrol filling stations. Therefore they will not submit any applications in the near future.

(b) At present, the Government regulates the safety standards and use of electrical installations within petrol filling stations through a licensing system under the Dangerous Goods (General) Regulations. It has also issued requirements and codes for petrol filling stations. Those in contravention of the relevant requirements will be prosecuted by the FSD under section 9B of the Dangerous Goods Ordinance. The maximum penalty will be a fine of $10,000 and a term of imprisonment of one month. The FSD will also consider revocation of the licence of the station.

In stipulating the safety requirements for a petrol filling station, the Government, in accordance with international standards, will divide the station into three zones, that is, zones where accumulation of inflammable vapour is common, possible or impossible. In the first two zones, all electrical installation, for example, pumps, fluorescent tubes, and so on, must be explosion-proof, fireproof and safe in themselves. However, the above standard is not applicable to general electrical appliances installed in the zone where inflammable vapour will not be accumulated (for example, tuck shops in petrol filling stations).

Staff Expenses Involved in Public Funded Items

11. DR TANG SIU-TONG (in Chinese): Will the Government inform this Council of the public funded items, apart from the Civil Service and subvented organizations and consultancy services contracted out, which use the civil service pay as the benchmark for calculating their staff costs, and the total staff expenses involved in such items in the past three years?

SECRETARY FOR THE TREASURY (in Chinese): Madam President, apart from those described in the question, only the estimates of expenditure under two subheads in the General Revenue Account are linked to civil service pay. These are Subhead 108 ─ Remuneration for special appointments under some heads of expenditure and Subhead 164 ─ Curriculum Development Institute under Head 40 Education Department. Generally speaking, officers employed under these two subheads are remunerated with reference to the civil service pay.

Officers remunerated under Subhead 108 include the Chairman, Public Service Commission, the Director of Audit, non-civil service staff of the Chief Executive's Office and the Central Policy Unit, and native-speaking English teachers of the Education Department. The total expenditure under this subhead for the past three years is:

1995-1996	1996-1997	1997-1998

$19.93 million	$24.51 million	$24.12 million

Subhead 164 is for the payment of salaries, gratuities and fringe benefits for those non-civil service staff employed by the Curriculum Development Institute as well as its general expenses. Expenditure under this subhead for the past three years is:

1995-1996	1996-1997	1997-1998

$52.66 million	$73 million	$91.66 million

Our Ledger Accounting Financial Information System does not provide for further breakdown of expenditure for staff remuneration under this subhead.

Distribution and Safe Use of LPG in Cylinders

12. MR FRED LI (in Chinese): Regarding the distribution and safe use of liquefied petroleum gas (LPG) in cylinders, will the Government inform this Council:

(a) of the number of distributors of LPG in cylinders each LPG supply company in the territory has;

(b) of the number of registered gas contractors in the territory, and the number among them who are also distributors of LPG in cylinders;

(c) of the measures adopted by the authorities in monitoring distributors of LPG in cylinders and registered gas contractors;

(d) given that some distributors of LPG in cylinders are not registered gas contractors, how the authorities can ensure that the LPG installations and appliances used by such distributors' customers will be checked at regular intervals and comply with safety standards; and

(e) whether the authorities will consider amending the relevant legislation to require that all distributors of LPG in cylinders shall be registered gas contractors, so as to safeguard public safety?

SECRETARY FOR ECONOMIC SERVICES (in Chinese): Madam President,

(a) There are five gas supply companies registered under the Gas Safety (Registration of Gas Supply Companies) Regulations to supply LPG in cylinders. These companies have a total of 258 LPG distributors. A single distributor may, however, distribute LPG in cylinders for more than one gas supply company. The number of distributors of each registered gas supply company, as supplied by the companies, is as follows:

Registered gas supply company	Number of LPG
	distributors

Caltex Oil Hong Kong Limited	55
China Resources Petroleum and Chemicals	50
Company Limited
Esso Hong Kong Limited	33
Mobil Oil Hong Kong Limited	66
Shell Hong Kong Limited	54

(b) There are 380 gas contractors registered under the Gas Safety (Registration of Gas Installers and Gas Contractors) Regulations, of whom 212 are also distributors of LPG in cylinders.

(c) The Gas Safety (Registration of Gas Supply Companies) Regulations provide that it is the duty of every registered gas supply company that has gas distributors to have in force at all times:

(i) a system of monitoring its gas distributors to ensure that the distributors are competent to handle LPG and that they are in possession of documents setting out the requirements and instructions relevant to their functions as a gas distributor; and

(ii) a system for training its gas distributors in the safe handling of LPG.

The activities of the gas distributors are governed by operating manuals which have been examined by the Electrical and Mechanical Services Department (EMSD).

As regards the monitoring of registered gas contractors, the EMSD undertakes random inspections of the work carried out by these contractors to ensure that high standards are maintained.

(d) As indicated in (c) above, it is the statutory responsibility of the registered gas supply company concerned to ensure that every one of their distributors of LPG in cylinders, whether or not he is a registered gas contractor, possesses all of the requirements and instructions relevant to his functions as a gas distributor and has the competence to handle LPG safely. The operating manuals provided by the registered gas supply company to the distributor include the arrangements to be made and the procedures to be followed by the distributor for the regular checking of the safety compliance of his customers' LPG installations and appliances. The EMSD has regular liaison meetings with the registered gas supply companies to discuss with them, among other things, the activities of their distributors and any areas where improvements may be required.

(e) A package of proposals aimed at strengthening the regulation of distributors of LPG in cylinders was considered by the Gas Safety Advisory Committee in November 1998. The question of whether all distributors of LPG in cylinders should also be registered gas contractors was one of the issues reviewed by the Committee. The Committee advised that a new code of practice setting out comprehensively the duties and responsibilities of distributors of LPG in cylinders should be prepared and that the new code should include, among other things, a stipulation that all distributors of LPG in cylinders should also be registered gas contractors. The EMSD is currently drafting the code of practice for further consultation with the industry and will consider in parallel the need for additional legislation in this area.

Development of Timber Trade

13. MR SIN CHUNG-KAI (in Chinese): A few years ago, the Government terminated the short-term tenancies (STTs) of a certain area of waters at Yam O, Lantau Island, which was then used for the storage of logs (commonly known as "log pond"), in order to make way for the development of the Lantau Link. In this connection, will the Government inform this Council of:

(a) the progress of discussions with the affected parties in identifying alternative sites suitable for log pond purposes;

(b) the plan in place to assist the timber trade to increase the total size of log ponds; and

SECRETARY FOR TRADE AND INDUSTRY (in Chinese): Madam President,

(a) In 1992, a number of STTs of log pond operations in Yam O Bay were terminated to make way for the North Lantau Expressway. Whilst the Government would normally not reprovision STTs on termination, 4.87 hectares was made available for log pond operation by STTs in addition to the 7.22 hectares not affected by the North Lantau Expressway, in an effort to meet the requirements of the log pond operators. In response to the log pond operators' request for additional storage space, the Government tried to identify new sites, but failed to find one that was acceptable to the log pond operators. In December 1994, the Government informed the log pond operators that the existing capacity at Yam O should be sufficient to cater for the requirement of the log pond operators in the foreseeable future. The Government has since stopped looking for additional sites for log ponds.

(b) There are no policy grounds for special treatment for the timber trade. The Government therefore has no plan to assist the trade to increase the total size of log ponds.

(c) The Government is committed to providing a business friendly environment for the operation and development of different economic activities. However, we do not have a policy of giving preferential treatment to facilitate the development of the timber trade.

Importance of Innovation and Technology for Economic Development

14. MR ERIC LI (in Chinese): It is reported that according to a survey conducted recently by the University of Hong Kong Social Sciences Alumni Association Limited, only 18% of community leaders supported the concept that innovation and technology should be the main emphasis in the territory's future economic development. In this connection, will the Government inform this Council of the specific plans in place to make the public recognize the importance of innovation and technology for the economic development of the territory?

SECRETARY FOR TRADE AND INDUSTRY (in Chinese): Madam President, we have taken note of the survey result quoted in the question. In fact, we understand that other organizations have also conducted opinion surveys on the subject of innovation and technology. Different surveys appear to have different results.

Nevertheless, the Government fully agrees that it is necessary to increase public awareness and recognition of the importance of innovation and technology to our long-term economic development. Indeed, the Government has been strengthening public awareness in this respect through various means. For example:

- The Industry Department organizes regular activities to promote public awareness about innovation and technology and Hong Kong's capabilities in this respect. One example is the annual Hong Kong Awards for Industry, which includes a category for technological achievements. A roadshow is conducted after each year's award presentation ceremony to showcase the achievements of the award recipients.

- The Government has, through the Industrial Support Fund, supported a number of initiatives to increase the public's understanding of innovation and technology. For example, the Technology Exhibition '97 held in 1997 attracted over 92 000 visitors and helped demonstrate Hong Kong's capability in technological development. We plan to organize a similar event in late 1999.

Looking ahead, one of the issues being studied by the Chief Executive's Commission on Innovation and Technology is how to increase public awareness about the importance of innovation and technology to productivity growth and competitiveness. The Commission will make recommendations in this regard in its Final Report to be released in mid-1999. In addition, we plan to continue to provide funding support to promotional projects on innovation and technology through the Innovation and Technology Fund when it is established.

Rising Crime Rate

15. DR DAVID LI: The number of reported crimes in 1998 rose by 6.8% as compared to 1997, especially in criminal intimidation cases relating to debt-collecting malpractices and quick-cash crimes such as pickpocketing and snatching. In this connection, will the Government inform this Council of the plans it has in place to deter such crimes?

SECRETARY FOR SECURITY: Madam President, although the number of reported crimes in 1998 increased by 6.8% when compared with 1997, it remained at a low level. Measured against the rise in population, the overall crime rate increased slightly by 3.9% in 1998. The overall crime rate is considerably lower than in many other metropolitan cities.

Despite the increase in the overall crime rate, it should be noted that a number of violent crimes continued to decrease in 1998. For example, robbery with genuine firearms decreased by 46.2%, homicide by 37.3% and serious narcotics offences by 23.5%.

There is, however, no room for complacency. We will continue to take vigorous actions to maintain law and order by deploying additional police officers to front-line operational duties, applying modern information technology to enhance police efficiency, and introducing new legislation to strengthen the legal framework for tackling crimes.

The Police Force takes a very serious view on the increasing debt collecting malpractices. A new police internal order has recently been introduced to ensure that such complaints are handled properly and thoroughly. Where allegations of a criminal nature are suggested, the cases would be referred to the Crime Investigation Team for investigation immediately. Where the nature and circumstances of a case requires, the case will be taken over by a higher level of investigation units. If it is established that the debt collection activity is an organized crime, reporting and investigation procedures laid down in accordance with the Organized and Serious Crime Ordinance (Cap. 455) will be followed. In addition, all possible steps will be taken to assure victims and witnesses of their safety.

Meanwhile, the Law Reform Commission (LRC) is examining the adequacy of the existing law to regulate debt collecting malpractices. The Administration will consider the need for legislation to regulate debt collection activities in the light of the findings of the LRC.

Regarding those quick-cash crimes such as pickpocketing and snatching, most cases took place in crowded public places and on public transport. The police will step up patrols at blackspots and continue to remind the public through publicity programmes to take care of their property.

In-service Training for English Teachers

16. MR YEUNG YIU-CHUNG (in Chinese): Will the Government inform this Council:

(a) of the details of the English language training programmes currently provided for serving English teachers;

(b) of the number of English teachers who took various in-service training programmes in each of the past three years, and the proportion of these teachers to the total number of English teachers;

(d) when it plans to launch English language training programmes to assist serving English teachers in attaining the standards set by the language benchmarks?

SECRETARY FOR EDUCATION AND MANPOWER (in Chinese): Madam President,

(a) The English language training programmes currently provided for serving English teachers fall into the following three main categories:

(i) short courses for enhancing the professional competence of primary and secondary school English teachers organized regularly by the Education Department (ED) (normally of half to one-and-a-half days duration);

(ii) full-time block-release courses provided by the Hong Kong Institute of Education (HKIEd) for serving primary and secondary English teachers (normally of 16 weeks duration). These courses are provided free of charge and substitute teachers are provided by the ED so that the schools can release teachers for full-time training; and

(iii) training courses organized by the school of professional and continuing education of various tertiary institutions for serving English teachers (with duration ranging from half-day to two weeks). Teachers who complete such courses may obtain a full or half refund of course fees.

In addition, with funding from the Language Fund, the ED commissioned the British Council to provide Primary English Teachers Oral Proficiency Courses for serving English teachers in primary schools in 1995-98. These 60-hour courses aimed at developing the communicative skills of teachers, improve teachers' pronunciation and their use of English through lectures and practice;

(b) According to the ED's records, the enrolment* of primary and secondary English teachers in various in-service training programmes over the past three years, and its proportion to the total number of English teachers are as follows:

	No. of teachers taking ED courses (para. (a)(i) above)	No. of teachers taking HKIEd courses (para. (a)(ii) above)	No. of teachers taking courses offered by the school of professional and continuing education of various tertiary institutions, with fee reimbursement (para. (a)(iii) above)	No. of teachers taking the Primary English Teachers Oral Proficiency Courses	Total enrolment*	Total no. of primary and secondary English teachers (percentage of teachers enrolled* in various courses)
School year
1995-96	6 400	319	160	960	7 839	13 780
						(57%)
1996-97	8 936	248	255	1 145	10 584	13 925
						(76%)
1997-98	6 302	251	330	595	7 478	14 159
						(53%)

* Statistics are compiled on the basis of enrolment as teachers may take more than one course.

(c) (i) In 1995-98, the Primary English Teachers Oral Proficiency Courses commissioned by the ED to the British Council for 2 700 primary teachers incurred a total expenditure of $3.25 million.

(ii) The expenditure in providing in-service training for English teachers, including those for commissioning training programmes to tertiary institutions, subsidizing teachers in taking courses provided by the school of professional and continuing education of tertiary institutions, and hiring substitute teachers, are as follows:

School Year	Expenditure ($ million)

1995-96	66.2
1996-97	55.4
1997-98	58.9

Short courses provided by the ED are mainly held at the education resource centres and conducted by English inspectors of the ED. Staff costs take up a significant part of the total costs. As most of the inspectors are not working full-time on these courses, an estimation of the staff costs involved, based on a rough apportionment of their work, are as follows:

School Year	Staff Costs ($ million)

1995-96	11.2
1996-97	11.9
1997-98	10.0

The operating costs of the education resource centres are subsumed under the total expenditure of the ED. We do not have detailed breakdown of the costs of these centres incurred as a result of training courses for English teachers.

(d) Training programmes to help English teachers of junior secondary levels in attaining language benchmarks will be launched in 1999. Similar programmes targeted at English teachers of other levels will also be provided in due course.

Abuse of the CSSA Scheme

17. MR LAU KONG-WAH (in Chinese): In connection with preventing the Comprehensive Social Security Assistance (CSSA) Scheme from being abused, will the Government inform this Council:

(a) of the number of cases reported since the authorities set up a hotline last August for the public to report suspected abuse cases; the follow-up actions taken against these reported cases; and the number of cases among them proved to be abusing the CSSA Scheme; and

(b) whether the authorities will consider resuming the conducting of visits to the dwelling of each CSSA applicant when dealing with the application?

SECRETARY FOR HEALTH AND WELFARE (in Chinese): Madam President,

(a) The Social Welfare Department (SWD) set up a telephone hotline in last August for the public to report on suspected fraud cases. Up to the end of January 1999, a total of 3 059 cases were reported, of which 816 cases contained sufficient information for follow-up actions by the SWD. Upon receipt of these reports, the SWD referred them to the respective Social Security Field Units for investigation. After in-depth investigation, the SWD found that there was no evidence of fraud in 300 cases. 18 cases were established as fraud cases and they were referred to the police for prosecution. Another 24 cases involved over-payments due to misunderstanding on the part of the applicants and the SWD will seek refund from the recipients or deduct the overpaid amount from their future payments. The remaining 474 cases are still under investigation.

(b) The SWD will resume home visits for all new CSSA applications in the next financial year to strengthen the assessment of applicants' eligibility.

Working Hours of Judges and Magistrates

18. MISS EMILY LAU: In connection with the working hours of judges of the Court of Final Appeal, High Court and District Courts and magistrates of the magistracies in Hong Kong, and the waiting times for cases to be heard in these courts, will the executive authorities inform this Council whether they know:

(a) the average number of working hours and court hours of judges and magistrates of each tier of courts; and

(b) the average waiting times for cases to be heard in each tier of courts in the past 12 months and how these figures compare with the targets set?

CHIEF SECRETARY FOR ADMINISTRATION: Madam President,

(a) We have been advised by the Judiciary that a survey on judges' working hours and court hours is underway. The survey is expected to be completed in a few months' time.

(b) Annex A shows the average court waiting times in 1998. Apart from the Court of First Instance of the High Court, the target waiting times for each tier of courts were generally achieved.

Waiting times for cases in the Court of First Instance of the High Court have exceeded their targets for various reasons. Firstly, the workload in terms of the number of cases increased substantially. The number of civil cases increased by 45% from 24 374 in 1997 to 35 159 in 1998. Secondly, the complexity of the cases also gave rise to protracted hearings. For instance, with a number of complicated and protracted commercial fraud and criminal trials, 3 026 working days were set down for trial of 345 criminal cases in the High Court in 1998, compared with 2 586 working days for 343 criminal cases in 1997.

The Court of Final Appeal only commenced operation on 1 July 1997. No target had been set for 1998. For 1999, the court has adopted the following as its target waiting times:

Application for leave to appeal

Criminal	-		from notice of hearing to hearing	45 days
Civil	-		from notice of hearing to hearing	35 days

Substantive appeal

Criminal	-	from notice of hearing to hearing		100 days
Civil	-	from notice of hearing to hearing		120 days

Annex A

	1998 (Target)	1998 (Actual)
Average Waiting Time	(Days)	(Days)

Court of Appeal of the High Court

Criminal ─ from setting down of a case to hearing	50	38
Civil ─ from application to fix date to hearing	90	93

Court of First Instance of the High Court

Criminal Fixture ─ from filing of indictment to hearing	120	199
Criminal Running List ─ from setting down to hearing	90	98
Civil Fixture ─ from application to fix date to hearing	180	201

Average Waiting Time

Civil Running List ─ from setting down to hearing	90	51
Appeals from magistracies ─ from lodging of Notice of Appeal to hearing	90	113

District Court

Criminal ─ from first appearance of defendants in District Court to hearing	100	51
Civil ─ from application to fix date to hearing	120	92

Family Court

Dissolution of marriage ─ from setting down to hearing For undefended list For special procedure list For defended list (one day hearing)	56 35 120	61 31 67

Preliminary vetting of application for directions for trail	30	38

Issue of Decree Absolute	21	27

Approval of draft orders	7	8

Vetting of ex-parte applications	7	7

Vetting of petitions before filing	3	3

Average Waiting Time
Financial Applications ─ from filing of summons to hearing	120-150	77-88

Lands Tribunal ─ from setting down of a case to hearing

Appeal cases	100	32

Compensation cases	100	36

Building Management cases	100	44

Tenancy cases	60	46

Magistracies ─ from plea to date of trial

For defendants in custody	30-45	26

For defendants on bail	45-60	33

Coroner's Court ─ from receipt by the Coroner of a completed death report to hearing	42	39

Labour Tribunal ─ from filing of a case to first hearing	30	23

Small Claims Tribunal ─ from filing of a case to first hearing	60	39

Obscene Articles Tribunal ─ from receipt of application to classification	5	2

from referral by a magistrate to commencement of determination of the subject matter of a court case	21	15

Provision of Additional Working Berths

19. MRS SOPHIE LEUNG (in Chinese): It is learnt that in 1997, the number of river trade vessels operating between Hong Kong and the ports in the Pearl River Delta increased by 60% as compared to 1993, and the number of cargo vessels operating between Hong Kong and other mainland ports increased by 49%. In this connection, will the Government inform this Council whether it has provided additional working berths to meet the growing demand of such freight; if so, the number of additional working berths brought into operation in each of the past three years and their respective locations; if not, the reasons for that and whether it will consider increasing the number of working berths?

SECRETARY FOR ECONOMIC SERVICES (in Chinese): Madam President, the number of river trade vessels plying between Hong Kong and the Mainland has been on the rise over the past few years. In 1997, the number of river trade vessel movements between Hong Kong and the ports in the Pearl River Delta increased by about 60% as compared to that of 1993, and the number of cargo vessel movements between Hong Kong and other mainland ports also increased by around 45%.

At present, river trade vessels mainly use the eight public cargo working areas (the total length of the berths is about 7 760 m), some privately-run berths/terminals and three feeder berths at the container terminals for the loading and unloading of cargoes. Last year, 2.22 million twenty-foot equivalent units (TEUs) of containers were handled by river trade.

To cater for the increase in river trade activities as a result of the expansion of trade in the Pearl River Delta, Hong Kong's first dedicated River Trade Terminal (RTT) is being built at Area 38 in Tuen Mun. The RTT has an area of 65 hectares and can handle more than 10 million tonnes of cargoes (including 1.3 million TEUs and 9 million bulk cargoes) each year. The first operating area of the RTT, with 10 new berths and an operating length of about 525 m, started operation in October last year. When the whole RTT is completed at the end of this year, 50 more berths (with a length of about 2 475 m) will be provided. In addition, Container Terminal No. 9 at Tsing Yi, when completed in 2004, will have two feeder berths which can also be used by river trade vessels.

The volume of river trade cargoes is forecast to continue to increase in future. The Government will monitor the growth of river trade traffic and the operation of the RTT at Tuen Mun and provide new facilities to meet forecast demand.

Operational Safety of Refuse Collection Vehicles

20. MR LEE KAI-MING (in Chinese): On 3 February this year, while being left unattended by its driver who had got out to collect refuse, a refuse collection vehicle careered down a slope and injured a pedestrian. In this connection, will the Government inform this Council of:

(a) the details of this incident; and

(b) the measures in place to enhance the operational safety of refuse collection vehicles in the course of collecting refuse on the streets?

SECRETARY FOR HOME AFFAIRS (in Chinese): Madam President, on the basis of information provided by the police, Transport Department, Urban Services Department (USD) and Regional Services Department (RSD), the answers to the Honourable LEE Kai-ming's questions are as follows:

(a) At 8.50 am on 3 February 1999, the driver of a private-owned refuse collection truck providing private refuse collection service parked the vehicle northerly outside 18-20 Shan Kwong Road (peak of Shan Kwong Road) after setting the hand brake. He then alighted the vehicle for loading rubbish at the back while the engine of the refuse truck was still running. About two to three minutes later, the vehicle suddenly slipped forward and went downhill along Shan Kwong Road with nobody on board. After knocking down two traffic signs near Village Road, the vehicle ran down a woman who was in the middle of the Shan Kwong Road near Yuk Sau Street at the time. The vehicle further grazed along the eastern railings near Yik Yam Street and crashed into a building of Shan Kwong Road and finally came to halt after travelling for a distance of about 202 m. The woman sustained severe head injury in critical condition. Severe damage was caused to the vehicle, two traffic signs, 12 m long railings and the building at the point of impact. The weighting result of the vehicle after the incident revealed that the load of the vehicle was below the permitted gross vehicle weight of 11.7 tonnes. The police is still investigating the case.

(b) There is no special licensing requirement for both the vehicles and drivers engaging in refuse collection services. Refuse collection vehicles are treated as goods vehicles for registration and licensing purposes. After the incident of 3 February 1999, the Commissioner for Transport has issued a letter to all the owners of goods vehicles (including the refuse collection vehicles) to remind them of the importance of taking safety measures, drawing reference from the existing Code of Practice for the Loading of Vehicles.

Guidelines are issued by the USD and RSD in respect of the operation of refuse collection vehicles under their management. Before drivers are deployed to drive and operate a refuse collection vehicle, he will have to undergo training and pass a test, designed by both Departments in consultation with the Government Land Transport Agency. Refresher courses are also provided to the drivers. The USD and RSD have also reminded their own drivers to strictly observe the operational guidelines including safety precautions issued to them.

BILL

First Reading of Bill

PRESIDENT (in Cantonese): Bill: First Reading.

APPROPRIATION BILL 1999

CLERK (in Cantonese): Appropriation Bill 1999.

Bill read the First time and ordered to be set down for Second Reading pursuant to Rule 53(3) of the Rules of Procedure.

Second Reading of Bill

PRESIDENT (in Cantonese): Bill: Second Reading.

APPROPRIATION BILL 1999

FINANCIAL SECRETARY (in Cantonese): Madam President, I move that the Appropriation Bill 1999 be read a Second time.

INTRODUCTION

2. It has been a year since I presented my 1998 Budget in this Chamber. At that time I believed that by now we would have largely overcome the economic difficulties which first beset us in the final quarter of 1997. I was optimistic that the storm waves washing over our shores in the aftermath of the Asian financial crisis would have subsided and that, despite some occasional turbulence, all typhoon warnings would have long been lowered.

3. In the event that has not proved to be the case. The storm has lasted longer and spread wider. It was more severe than anyone had expected. Few, if any, sectors of the local community have been left untouched by its passing. During 1998, external demand for our goods and services weakened dramatically, the Hong Kong dollar came under acute speculative pressure, asset prices dropped sharply and unemployment surged.

4. Since the middle of the year, interest rates have come down again, stock prices have rebounded somewhat and property prices have stabilized. The package of tax concessions presented in my last Budget will by now be having their desired effect. The $30 billion package of special relief measures which we announced last June has also helped. But these small rays of sunshine are of little comfort to those unfortunate members of the community who, try as they may, are unable to find jobs.

5. Hong Kong is facing a major challenge. Many companies have downsized or closed down. Many people have suffered a pay freeze, a pay cut or even unemployment. The immediate task of the Government is to relieve, as far as possible, some of the pain caused by the economic adjustment. Our medium term objectives must be to strengthen our economic foundations, enhance the robustness of our markets and maintain the health of our public finances. We should, above all, see the present crisis as an opportunity to remove structural obstacles, seek to maximize the strategic advantage of Hong Kong's geographical location and prepare ourselves for the new millennium.

6. This year, I have consulted more widely than ever in an effort to establish how this Budget could help meet the community's expectations. I have sought views and invited suggestions from Members of this Council, from the Chairmen of the Provisional District Boards, from academics and the media, from business associations and from professional bodies. I have visited shopping arcades to get a better and more personal feel of the impact of the economic adjustment on small businesses and on people's livelihoods. To gauge the public mood better, I have also paid particular attention to the findings of the many telephone surveys and opinion polls. In addition, I have read the many letters I have received from individuals telling me their very personal experiences and expressing their views about the state of our economy. The motion debate in this Council on 10 February has forcefully reminded me of Honourable Members' expectations. I wish to thank all those who have shared their feelings with me on the Budget.

7. The Government is acutely aware of the pain suffered by the community. We are deeply concerned. Even in the best of times, the community takes a keen interest in the annual Budget and the Government's revenue and expenditure proposals. This year, understandably, that interest is even more intense. Nobody expects the Budget to be a cure for all our ills. But most people hope that the Government can at least provide some way of relieving the worst of their pain. I must also be sure that any action I take now works towards our longer-term interests. A "quick fix" now at the expense of our longer-term economic health would be the worst possible thing for Hong Kong.

8. The views I have obtained consistently demonstrate that the Hong Kong public are mature and rational. They are eager to see the Government encourage consumption and stimulate economic growth. Yet, at the same time, they fully understand that there is a limit to how much the Government can do. They recognize that the Government is facing a dilemma: they want us to keep taxes low to provide relief, while at the same time sustaining public services and continuing to invest to meet our social and economic needs. They also support the principle of our living within our means, and believe that maintaining a balanced budget is a laudable objective.

9. These are the thoughts which have been uppermost in my mind in framing the proposals before Members this afternoon.

10. I will begin by detailing our economic performance in 1998.

THE HONG KONG ECONOMY

Economic Performance in 1998

11. As an open economy with elaborate trade and investment links with the rest of East Asia, Hong Kong was hit hard by the regional financial turmoil which engulfed the Region and swept beyond it. During 1998, the harsh external environment, coupled with speculative attacks on our currency and stock markets, put the Hong Kong economy to its most arduous test in recent times.

12. Consumer spending declined for the first time since the 1974 Oil Crisis. Fortunately this decline abated somewhat towards the end of the year, as sentiment improved with the rebound in the stock market and more stable property prices. For the year as a whole, consumer spending fell by 6.6% in real terms.

13. Overall investment receded in 1998, after achieving double-digit growth for four years in a row. To some extent, this was caused by the fall in public sector construction following the completion of the Airport Core Programme. In the first half of the year, private sector construction still showed solid growth. But this slackened considerably in the second half of the year as the property market slump dampened developers' confidence and curtailed building activity. Higher interest and the uncertain business outlook also held back expenditure on machinery and equipment. Taking all these components together, investment spending for the year dropped by 5.8% in real terms.

14. Externally, our exports to the United States and Europe grew, but this growth was unable to compensate for the marked shrinkage in our exports to East Asia. The growing volume of Mainland products being shipped out directly from mainland ports instead of through Hong Kong also trimmed our export performance. As a result, total exports of goods dropped by 4.3% in real terms. This was made up of a 7.9% fall in domestic exports and a 3.7% fall in re-exports.

15. Inbound tourism was weak in the first half of the year. Intensive promotion and price reductions by operators in the tourist industry helped recover some of the lost ground in the second half of 1998. The net outcome was a decline of 14% in real terms in total tourism receipts for the year as a whole. The setback in regional demand also meant that our exports of financial and other business services were subdued. Overall, exports of services fell by 6.6% in real terms for 1998 as a whole.

16. As domestic demand weakened, our imports also declined, resulting in a large reduction in the visible trade deficit. Coupled with a still sizeable invisible trade surplus, our overall trade balance improved to a small surplus last year, from the deficits recorded in the preceding three years.

17. The end result was a fall in Gross Domestic Product (GDP) in 1998 of 5.1% in real terms; this contrasts sharply with the 5.3% growth in 1997. The decline in GDP accelerated up to the third quarter of last year, but slowed down in the fourth quarter as local financial conditions turned more stable.

18. Amidst all these setbacks, the remarkable flexibility and adaptability of Hong Kong businesses and the Hong Kong workforce were evident. To maintain greater competitiveness, many businesses took decisive action to achieve greater economy and efficiency and to reduce costs. This, together with the rates rebate, the freeze in government fees and charges, and the public utility companies' restraint in adjusting charges, caused consumer price inflation to ease sharply throughout the year and to turn slightly negative towards the year-end. For 1998 as a whole, the Composite Consumer Price Index rose by only 2.8%, the lowest since 1981 when this Index began.

Economic Outlook for 1999

19. Looking forward, the external environment could still be difficult in 1999. The United States may not be able to sustain last year's robust consumer demand created partly by its strong stock market performance. Brazil has recently suffered from financial instability which may yet spill over to other economies. A good part of Europe is still under the shadow of Russia's earlier financial fall-out. In East Asia, although financial conditions appear to have stabilized, domestic demand remains weak. The pace of economic revitalization in Japan will be the key to regional recovery, but that revitalization remains elusive.

20. Demand in our major markets will be mixed in the near term. Imports by the United States, Europe and East Asia are likely to moderate or decline further. Competition for export business from within the region is expected to be very keen. But conditions within the region should improve in due course as the affected economies gradually bottom out. Taking these factors together, I forecast the total export of goods to decline by 3.7% in real terms this year, comprising declines of 5% for domestic exports and 3.5% for re-exports. As for the export of services, I forecast a 3% growth in real terms this year, anticipating a further recovery in tourism as well as in some other service areas.

21. Fortunately, economic growth in the Mainland, as both our number one market and our production hinterland, should continue to be robust in 1999, at a forecast of 7%. This will present wide-ranging business opportunities for Hong Kong.

22. In our domestic economy, some encouraging signs have emerged more recently. Liquidity has improved. Local interest rates have been trending downwards, not only as a result of cuts in United States interest rates but also because of a narrowing of the risk premium for the Hong Kong money market. Share prices have risen from their low of last August. The property market has also stabilized. In consequence, local economic sentiment has gradually improved.

23. At the same time, the public sector is progressively stepping up its infrastructure programmes which should boost local demand. But relatively high real interest rates, a cautious approach to lending by banks and corporate consolidation could still dampen investment in the private sector. In particular, building activity in the private sector is likely to remain slack in the near term. Overall, I expect investment spending to continue to decline this year by around 4% in real terms.

24. Concern over job security and wage cuts could still constrain consumer spending during the year. Yet the substantial tax concessions in my last Budget should help stimulate consumption. More stable asset markets should also have a positive effect on consumption. I forecast local consumer spending to resume a modest growth of 2.5% in real terms this year.

25. I expect the economy will still be slack in the early part of 1999, with a more visible pick-up in the latter part. I forecast overall GDP will grow by around 0.5% in real terms for the year as a whole. (Table 1)

26. On inflation, price pressures from external sources should remain subdued this year as world commodity prices trend downwards and inflation in our major supplier economies stays low. Domestically generated price pressures should subside further. The fuller effect of the significant decline in market rentals during the course of last year should filter through in 1999. Wages are likely to adjust further amidst a slack labour market. The freeze announced last year in government fees and charges and in a number of public utility charges will continue to render relief. Inflation could remain negative for some time. I forecast the Composite Consumer Price Index to fall by an average of 2% in 1999. This reduction in consumer prices helps contain the cost of living at a time when economic conditions are difficult. The easing in wages and rentals helps soften the cost of doing business, and consequently, enhances our competitiveness. (Table 2)

The Labour Market

27. Rising unemployment is now a major problem facing most economies in the region. Hong Kong is no exception. Since the third quarter of 1997, the seasonally adjusted unemployment rate in the local economy has jumped from a low of 2.2% to the latest 5.8%, and the underemployment rate from 1.0% to 3.1%. In absolute terms, the number of unemployed has more than doubled, to slightly over 200 000. Yet total employment has also increased, by around 110 000. The worsening in unemployment is due more to the increase in manpower supply than to any decline in the number of jobs in the economy. Unemployment has hit hardest the younger and older members of the workforce and those with lower education and skill levels. (Table 3)

28. This grave situation has made the work of our Task Force on Employment all the more important. Since its establishment in June 1998, the Task Force has devised a wide range of measures to ease unemployment and help job creation. We have advanced government projects, strengthened employment services, enhanced vocational training and employee retraining and tightened measures to combat illegal employment. Some 38 000 jobs were created in the second half of 1998. Over 30 000 people were placed in jobs through the Local Employment Service of the Labour Department last year. In addition, the training capacity of the Employees Retraining Board has been increased by 30%, enabling 78 000 people to benefit from retraining programmes during the current financial year. These efforts will continue in 1999. We estimate that the implementation of our policy initiatives and infrastructure projects will create about 122 000 jobs in the coming two years.

29. Along with the easing in labour market conditions, wages and household incomes have moderated. Median household income was down by 5.3% last year. For employees, wage reductions, though unwelcome, are clearly preferable to the loss of their jobs. Viewed from a macro perspective, moderation in wages is necessary and unavoidable in order to uphold our competitiveness against other economies in the region. It is however important that these wage adjustments are undertaken in a smooth and amicable manner aimed at preserving harmonious labour relations.

STRENGTHENING OUR FUNDAMENTALS

30. The dramatic reversal in our fortunes in 1998 is a timely reminder that growth should never be taken for granted. We must always strive to strengthen our fundamentals and improve our competitiveness. We need to face up to the challenges to our monetary, financial and securities systems. We need to embrace and grasp the opportunities presented by new technologies and we need to breathe new life into our tourism industry.

Hong Kong's Monetary Regime

31. The financial turmoil has brought our monetary regime into sharp focus. Let me deal with this subject in greater detail.

32. Since October 1983, Hong Kong has followed a linked exchange rate system. Our system is based on one devised in the 19th century, and usually referred to as a currency board. In those days, transactions were settled using notes and coins. As money increasingly takes on an electronic form, the traditional currency board system must be upgraded. We have continued to upgrade our monetary arrangements over the past decade, but no one should misinterpret this process as a departure from the core principles of the traditional currency board.

33. Last September, we introduced technical changes to our monetary arrangements which followed on from, and were an integral part of, our incursion into the stock and futures markets to deter market manipulation. These revised arrangements allow local banks unlimited access to the Hong Kong Dollar Discount Window of the Exchange Fund, using their Exchange Fund papers as collateral. Consequently, the impact on interest rates will be much reduced when international speculative capital switches rapidly into or out of our currency as it is effectively countered by a much bigger pool of Exchange Fund papers held by the local banks. As a result we have the benefit of reduced volatility in interest rates, at the cost of some fluctuation in the level of our foreign reserves. By building upon the foundation of a traditional currency board and incorporating essential modern day features, we have strengthened and improved our monetary regime. I have entrusted the task of introducing further technical improvements to the Currency Board Operations Sub-committee of the Exchange Fund Advisory Committee, the minutes of which are published in keeping with the high degree of transparency which we espouse in our monetary arrangements.

34. Regardless of the measures we ourselves can take, we have to recognize that Hong Kong is an international financial centre. Our monetary regime is closely intertwined with international markets. When global finance has outgrown the international financial architecture, Hong Kong as an open economy can never be completely immune to unrestrained manipulative activities on a global scale, targeting individual markets. That is why we have argued forcefully for the upgrading of the global financial architecture.

Exchange Fund Investment in Local Equities

35. Next, I would like to discuss the investment strategy of the Exchange Fund. Following our incursion into the stock market last August, the Exchange Fund acquired a substantial Hong Kong equity portfolio. We have undertaken to review this level of holding, having regard to the requirement of the Exchange Fund to hold a portfolio of liquid US dollar assets that will provide at least a 100% backing for our monetary base. That took the form of a comprehensive review of the Exchange Fund's overall investment strategy.

36. That review has now been completed. The Exchange Fund Advisory Committee has accordingly approved the adoption of a revised investment strategy for the Exchange Fund. The Hong Kong Monetary Authority (HKMA) will publish full details today. Our present holdings of local equity amounts to 17% of the Exchange Fund. The new strategy requires us to bring this down to 5%. I will be asking the Exchange Fund Investment Limited to advise me on how best this should be done without causing any disruption to the market.

Strengthening Supervision of the Banks

37. Weaknesses in the banking systems in parts of the region were one of the main reasons why the Asian turmoil was so widespread. In Hong Kong, our banking sector has emerged from the crisis in remarkably good shape. However, we cannot afford to be complacent. Our banks must tighten their own risk management systems. In turn, our banking supervision must adopt a "risk-based" approach. We need to develop a greater capability to identify and quantify the risks faced by individual banks and to assess the quality of their policies, procedures and controls for coping with those risks.

38. The HKMA commissioned a consultancy study on the strategic outlook for the banking sector and the implications which this has for the regulatory and supervisory frameworks in Hong Kong. The recommendations in the consultancy report were published last December. They involve major issues which require careful study. The HKMA has embarked on a full consultation on the proposals. They include, for instance:

o promoting the abolition of the remaining Interest Rate Rules;

o simplifying the current three-tier structure of authorized institutions ─ licensed banks, restricted licence banks and deposit-taking companies ─ into two tiers; and

o relaxing the qualifying requirements for foreign banks to conduct banking business in Hong Kong, and allowing them to set up more than one branch.

There is also the suggestion that we revisit the issue of deposit insurance.

39. We will proceed deliberately, taking full account of comments received. The financial world around us is changing rapidly. Hong Kong cannot afford to be left behind if we want to remain vibrant and retain our position as a leading international financial centre.

Developing the Debt Market

40. In highly developed financial markets, companies as a matter of routine raise funds through the issue of debt instruments and savers generally regard these instruments as a conventional form of investment. By contrast, Asia suffers from a marked absence of deep and liquid debt markets and the alternative source of business finance that these markets can provide.

41. The recent crisis has highlighted this. In many parts of the region the uncertain economic outlook and over-reliance on volatile short-term capital flows resulted in a credit crunch. Loans dried up, even for healthy enterprises. Fortunately, the sound and prudent management practices of our banks in Hong Kong have protected us from much of the adverse impact. But, even here, companies have experienced reduced access to bank credit. Development of the debt markets both domestically and in the region would provide more stable and flexible financing for local businesses. It would give a greater depth to our financing structure as an international financial centre. I regard this as a pressing priority.

42. To strengthen Asia's bond markets, we have to work with other principal centres in the region to create the right market environment. Hong Kong is playing a leading role in co-ordinating an APEC initiative on developing bond markets and we will take an active part in promoting the sound financial development of the entire Asia Pacific Region.

43. To promote the development of the local debt market, we will list Exchange Fund Notes on the Stock Exchange of Hong Kong in the second half of 1999, and allow the use of Exchange Fund paper as margin collateral for trading in stock options and futures. The listing of Exchange Fund Notes will enhance their liquidity in the secondary market, enlarge the investor base to include retail investors and contribute to the development of a retail debt market. This will pave the way for the listing of Hong Kong dollar bonds issued by government-owned corporations, such as the Mass Transit Railway Corporation, and eventually to the listing and trading of corporate bonds on the exchange.

44. It is also important for us to encourage reputable overseas companies, especially mainland enterprises, to obtain funding through the issue of debt paper in Hong Kong denominated in either Hong Kong dollar or foreign currencies.

45. Meanwhile, we are promoting the integration of the various clearing and settlement systems in the region so as to improve their efficiency and reduce transaction costs. We must also improve our credit rating capabilities within the region in order to establish fair and reliable market benchmarks for the full range of Asian debt instruments.

Reforming the Securities and Futures Markets

46. For many securities and futures markets 1998 was a stormy year. Market stability has become a subject of much rethinking among policy makers, market regulators and academics around the world. In Hong Kong, we responded in the Report on Financial Market Review published in April 1998. Last September, I announced a further 30-point programme to strengthen the discipline and transparency of our securities and futures markets to make them less susceptible to cross-market manipulation. These measures have largely achieved their purpose. I have asked the Financial Services Bureau together with the Securities and Futures Commission (SFC) to see through the implementation of the remaining measures.

47. The financial turmoil has awakened the world to the regulatory lacunae between domestic laws and international flows of capital and investment. Just as we are finding solutions to cope with such developments, we should be equally alert to the increasing challenges brought to us by globalization. I believe Hong Kong must respond to these challenges. We need to reform our securities and futures markets in three main areas.

48. First, we need to embrace state-of-the-art technology to remain in the premier league of world financial centres. An immediate and critical task is to consolidate and integrate the clearing services on one platform so as to enhance the efficiency and competence of the overall risk management systems in our financial markets. The clearing systems are not only facilitators of trading activities, but serve a most crucial public utility function for the whole financial services sector. The enhancement of this critical infrastructure calls for a much stronger and better co-ordinated steer by the Government, as is demonstrated in the quantum advance in the banking settlement system through the establishment and operation of the Real Time Gross Settlement system by the HKMA. I shall appoint a Steering Committee on the Enhancement of the Financial Infrastructure to be chaired by the Chairman of the SFC to report in six months' time with specific recommendations for action and an implementation timetable. The Committee will also look at the infrastructure requirement for straight-through processing, e-commerce through Internet trading and a fully scripless market for Hong Kong.

49. Second, we need to undertake a comprehensive reform of the regulation of our securities and futures markets. This new framework should include much clearer regulatory objectives and strengthened supervisory and investigative powers for the SFC, as well as the establishment of an independent Market Misconduct Tribunal. We need, as well, to bring in new regulations on Internet trading and to streamline the licensing regime for market intermediaries. In the next few months, the Financial Services Bureau and the SFC will consult the public and the market further on these ideas. To implement this major reform, I expect to introduce the necessary legislation into this Council before the end of this year.

50. Third, we need to modernize the structure governing our exchanges and their associated clearing houses to make them more efficient, more market driven and better able to respond to global competition. This would best be achieved through demutualizing the exchanges and clearing houses, consolidating them into a single market operator, which will eventually operate in the form of a listed commercial entity. This move will separate ownership from trading rights and enhance competition. It should in turn lead to greater market innovation and cost efficiency. These proposals carry profound, long-term implications for our markets. Their implementation demands vision and commitment from market leaders, the Administration and the legislature. A Policy Paper being published today will give full details of the proposals. It will set out clearly the major milestones for the reform and the timeframe in which I expect it to happen. The first and most critical step will be for the two exchanges to agree to arrangements for their demutualization and merger within seven months. I have asked the Secretary for Financial Services and the Chairman of the SFC to follow up with the exchanges and the clearing houses immediately and to prepare the necessary legislation.

51. These reforms are substantial and their implications far-reaching. Some of the proposals are controversial and I do not underestimate the difficulty and resistance ahead. In proceeding we need to balance the interests of various stakeholders. However, the status quo is not an option for Hong Kong. We must be prepared and be committed to confront and overcome the challenges we face. I strongly believe that the reforms I have just outlined will prepare fertile ground on which our securities and futures markets will continue to flourish. Our mission to excel as an international financial centre must prevail.

Upgrading the Quality of Insurance Services

52. Insurance ─ and in particular life insurance ─ has experienced rapid growth in the past decade. This trend is expected to continue as the penetration rate of life insurance increases with the changing attitudes of society and upon the implementation of the Mandatory Provident Fund Scheme.

53. To enhance the standards of service in Hong Kong and to assure the public of the quality of insurance intermediaries in protecting their interests, we will implement an Insurance Intermediaries Quality Assurance Scheme. This Scheme will require intermediaries, including insurance agents and brokers, to be adequately trained and qualified through publicly held examinations. This will be a condition for registration or authorization. Renewal of the registration and authorization will be subject to further professional development programmes. I have asked the Commissioner of Insurance to work closely with the insurance industry on the detailed qualification procedures. The first public examination will be held in the third quarter of 1999, and the Scheme will be fully implemented in early 2000.

Developing Industries, Technology and Information Services

54. High value-added and competitive industries are an integral part of a healthy economy. Within the framework of a free market where intervention is kept to a minimum, it is the rightful role of the Government to provide an appropriate environment and suitable infrastructure to promote, facilitate and support our manufacturing and service industries. In his policy address last October, the Chief Executive set out the target of developing Hong Kong into an innovation centre for Southern China and beyond, and put forward specific initiatives to achieve the target.

55. Furthermore, we are undertaking a fundamental review of our strategy and policies for attracting foreign investment into Hong Kong. The review will look at how best to promote Hong Kong internationally and how to improve the administrative structure within the public sector for handling foreign investment. We are consulting widely with the business community, existing and potential inward investors and other local stakeholders. The review will be completed in three months.

Expanding the Pool of Talent

56. Human capital is a critical ingredient in enhancing competitiveness and promoting the development of technology-based industries. In addition to implementing the initiatives outlined in the policy address, the Government will set up a special Task Force to review Hong Kong's immigration policy critically to facilitate the inflow of talent. In particular, the Task Force will consider how best to remove restrictions on scientists and highly-skilled technologists from the Mainland entering Hong Kong to work. The Task Force will bring together representatives from the Security Bureau, the Education and Manpower Bureau, the Trade and Industry Bureau, the Immigration Department and the Industry Department. Led by the Security Bureau, the Task Force will complete the review and put forward implementation proposals within six months. In doing so, the Task Force will take into account the recommendations of the Commission on Innovation and Technology, and ensure that our proposals will not affect the immigration policy of the Mainland.

The Cyberport Development

57. There is no question that, for Hong Kong to meet the challenges of the 21st century, it must adapt to the new forces of the Information Age. Technological advances such as digitalization and broadband networks are introducing new ways of doing business, transforming traditional markets and altering existing competitive advantages. The lesson is simple. Let us look at the facts. Internet users worldwide grew from 40 million in 1996 to more than 100 million in 1997, and are expected to increase further to 150 million in 1998. Internet traffic doubles every 100 days. Analysts are forecasting total electronic transactions for both business-to-business and retail of over US$400 billion by 2002. The growth rate is 40 times that of global GDP.

58. To respond to these mega trends, we must first of all identify our strengths and develop our own niche. We should exploit the strengths of our sophisticated telecommunications network, strong intellectual property rights protection regime, and the progress we have made in making electronic transactions secure. These have given Hong Kong an edge in developing information services. Second, having identified information services as our target, we must look for a development in this area which will upgrade our existing economic activities, create new products, and expose them to the electronic world market. Third, we must race against time. The speed with which the information technology sector is advancing and the emphatic efforts of practically all of our competitors in trying to carve out their own corners of the market demand a quick and decisive response.

59. With these considerations in mind, the Government proposes to develop a "Cyberport" in Hong Kong. The Cyberport will provide the essential infrastructure for the formation of a strategic cluster of information services companies. These companies would specialize in the development of services and multimedia content to support businesses and industries ranging from financial services, through trading, advertising and entertainment to communications. Already we can trade stocks, buy insurance and book air-tickets on-line; imagine that you can preview your travel destination, or even "walk" into a hotel room before making a reservation. These are but a few examples of the products that may be developed at the Cyberport.

60. A successful Cyberport will need to provide:

o a state-of-the-art optical fibre network, a broadband facility with high speed access to the rest of the world, plus offices and accommodation of the highest standard, so as to meet the requirements of top international information services companies;

o facilities such as media laboratories, high-speed computers for computer graphics design, multimedia equipment and studio facilities for common use by the more than 100 small to medium sized companies which we expect to become tenants of the Cyberport; and

o cyber-related educational, entertainment and retail facilities to provide a public interface, so that young and old can roam the Cyberport to learn about the technologies of the future.

61. The Cyberport development will have to rely largely on the expertise and entrepreneurial spirit of the private sector. It would not be right for the Government to design and construct it on its own as only the market knows what is needed for it to flourish. In order for Hong Kong to make a head-start on this project, we have entered into detailed discussions with the company from whom the idea originates. We will look to them to spearhead the project as partners with the Government as well as becoming one of the anchor tenants. I am extremely pleased that this venture has already attracted a number of international companies to express their strong interests in also becoming anchor tenants of the Cyberport.

62. The Cyberport will be located at Telegraph Bay, Pokfulam. It will be a $13 billion development, mostly from private investment, for commissioning in phases starting in 2002. It will generate more than 12 000 jobs in Hong Kong. Some 4 000 jobs will also be created in the construction industry while it is being built. But the benefits will not stop there. Smaller local companies will benefit greatly from working in close proximity with market leaders through the exchange of ideas and expertise in the latest technological advances and market trends. The Cyberport will also generate demand for support services such as accounting, legal and other back-office functions. Most important, the Cyberport will provide quality products to upgrade our current economic activities and enable us to reach out to the limitless cyber market.

Reviving Tourism

63. Tourism has long been a mainstay of the Hong Kong economy. In 1998, total travel and tourism receipts amounted to $55 billion, contributing 4% of our GDP.

64. The Government, together with the Hong Kong Tourist Association and the industry, are pursuing a number of important measures to consolidate our position as Asia's most popular tourist destination. As competition intensifies and tourists become more sophisticated and demanding, we realize Hong Kong cannot rest on its laurels. We are therefore pressing ahead with a number of new initiatives:

o the Government will grant a loan of $500 million over four years to the Ocean Park Corporation to support its Lowland Area Redevelopment This includes replacing Waterworld with a new theme area, "Adventure Bay". The Adventure Bay will house a new dolphinarium, a new water ride, and high quality food and retail services. We estimate that the redevelopment will boost annual patronage from 3 million to over 4 million;

o we are conducting a feasibility study on the construction of a "Fisherman's Wharf" in Aberdeen; and

o the Town Planning Board has given in-principle approval to a cruise terminal development at North Point proposed by a private sector developer.

65. What I have outlined is a worthy package to enhance the appeal of Hong Kong to our visitors. However, if Hong Kong could boast a major new attraction, something spectacular and world class, we would be able to attract large numbers of regional and international visitors who would not otherwise come here. One obvious possibility would be a prestigious theme park.

66. The Walt Disney Company of the United States is the world's leading operator of theme parks, and runs successful operations in California, Florida, Paris and Tokyo. Members will be aware from the media that the Government has for some time been engaged in preliminary discussions with the company over a possible investment in Hong Kong.

67. Our assessment is that the development of a Disney project in Hong Kong would bring substantial economic benefits. It would create thousands of new jobs within the theme park itself. Many of these jobs would be well suited to young people just starting work, or the middle-aged left unemployed by economic restructuring. In addition, by attracting new visitors to Hong Kong, by inducing existing visitors to stay longer, and by providing attractive new activities for local residents, such a theme park would help boost the economy and indirectly create many thousands of other jobs. And as visitors to Disney theme parks will know, the company is renowned for its innovation and use of technology.

68. Let me now report on the progress of our discussions. The two sides have reached a common understanding. We have confirmed in correspondence that, having identified a site and clarified our respective strong intention to move forward, we should now commence intensive negotiations with a view to determining, by 30 June 1999, whether a Disney project can be brought to fruition in Hong Kong. Because of the commercial sensitivity of the negotiations, it will not be possible to disclose contents of the discussions until we have reached a joint conclusion. However, I would like to make clear that the site we have in mind is on reclaimed land at North Lantau.

69. If the outcome of the negotiations is positive, we envisage signing a comprehensive project agreement later this year. Our target then would be to start work within a year to bring the first phase of the development to completion by the middle of the decade.

70. I am fully aware of and indeed share the public's excitement at the prospect of seeing Mickey and his friends in Hong Kong. However, I must caution that while we have made the first important steps, there is still much ground to cover. Much hard negotiating lies ahead. I assure Members that the Government is determined to bring this project to fruition provided mutually acceptable terms can be agreed. My colleagues and I will further advise Members as soon as we are in a position to do so.

ENHANCING PUBLIC SECTOR EFFICIENCY

71. I now turn to the public sector. At no time has the public sector ever retreated from the quest for improvement. Through a range of Public Sector Reform initiatives, the public service has become even more open and accountable. It has committed itself to cost-effectiveness and value for money and to cultivating a result-oriented and customer-based culture. I firmly believe that, like the rest of the community, the public sector should take full advantage of the recession to strengthen its fundamentals. This will help sharpen Hong Kong's competitiveness.

Progress of the Enhanced Productivity Programme

72. The Chief Executive announced in his 1998 policy address that the public sector would embark on an Enhanced Productivity Programme (EPP). Specifically, to ensure that we reap early benefits from enhanced productivity, we required departments and agencies to undertake new or improved services in 1999-2000 without giving them additional resources. I am impressed by our public servants' responsiveness to EPP and their enthusiasm in coming up with productivity gains of over $800 million in 1999-2000. The majority of these productivity gains will be used to improve public services. Let me quote a few examples:

o in health care, the Hospital Authority will perform 1 300 additional cataract operations a year, and shorten waiting times for first appointments in specialist out-patient clinics, and the Department of Health will increase the capacity of its general out-patient clinics and elderly health centres;

o in social welfare, there will be an additional 48 integrated child care centre places and we will increase the number of elderly in residential care receiving a dementia supplement; and

o in employment, we will enhance career advisory services to young people and increase inspections in the workplace to combat illegal employment.

73. This is just a selection of the new or improved services which we will be introducing in the coming financial year as a result of the gains made under the EPP. We are publishing today a booklet setting these out in more detail.

74. The EPP is not a slogan. It signifies the public sector's concerted efforts to secure lasting and sustainable improvements. There are specific targets to achieve at every stage of the EPP. By 2002-03, managers are required to reduce operating expenditure by a total of 5% without prejudicing the quality of services to the public. Concurrently, we will seek more fundamental reforms in the management and delivery of public services.

Civil Service Reform : A Commitment to Improve

75. We are committed to reforming the civil service system to cater for the ever-changing needs of Hong Kong and to take up the challenges before us. We will ensure that arrangements for recruitment, appraisal, reward and punishment as well as remuneration and retirement protection are reasonable and flexible, and in tune with good management practices both in the private sector and elsewhere. The Chief Executive accords a high priority to these reform measures, and has instructed the Chief Secretary for Administration and myself to supervise progress.

76. I will deal with the 1999-2000 pay adjustment for the Civil Service in a later section. Let me now outline the issues we are tackling regarding civil service salaries and conditions of service. At the moment, 189 000 civil servants and another 140 000 employees of government-subvented organizations are subject to the civil service or equivalent pay scales. Together, their salaries and benefits account for two thirds of total public recurrent expenditure. We need to pay public servants reasonably and sufficiently in order to induce suitable talent to join the service. But we must also prevent civil service pay outstripping private sector pay. Nor should we allow the growing head-count and rigid conditions of service to snowball into an unbearable burden on the public purse. To prevent this, we are taking a number of measures.

77. First, the Standing Commission on Civil Service Salaries and Conditions of Service (the Standing Commission) is conducting a detailed Benchmark Review to ensure that civil service pay at the entry point remains in step with the equivalent pay levels being offered in the private sector. When the outcome of the review is available in mid-1999, we will see whether the civil service entry pay for new recruits has to be adjusted. If the review reveals significant discrepancies between public and private sector pay levels, we may have to follow up with an overall pay level survey to ascertain the right level of civil service pay.

78. Apart from salaries, we need to critically re-examine the justifications for various job-related and non-job-related allowances paid to civil servants against present day circumstances and practices in the private sector and elsewhere. We shall take immediate steps to formulate a new set of fringe benefits for new recruits, covering benefits such as housing, leave, local education allowance and medical benefits. We shall tighten the rules governing the payment of overtime and acting allowances. And we shall invite the Standing Commission and the Standing Committee on Disciplined Services Salaries and Conditions of Service to undertake a comprehensive review of all types of job-related allowances and the principles and practices which apply to them.

79. With contributory retirement protection schemes becoming the worldwide norm and with the coming into force of the Mandatory Provident Fund Scheme, we recognize the need for reviewing the civil service pension scheme. We will commence a consultancy study as soon as possible with the aim of putting forward proposals early next year for a new retirement protection scheme for new recruits. In the process, we will assess carefully the full impact of changing this distinguishing feature of civil service employment conditions on the overall morale and stability of the Civil Service. Besides bearing in mind the interest of cost efficiency, we must provide adequate retirement protection for civil servants who devote their entire working lives to serving the community.

80. We will re-design the civil service appointment policy to allow for greater flexibility in hiring and firing. The objective is to help the Civil Service to choose and retain the best. In this connection, we will also simplify the existing disciplinary system and termination procedures, and promote greater awareness within the management of the importance of enforcing the high standards of discipline expected of the Civil Service.

81. When we are confident that we have in place an appraisal system which can be used effectively to determine performance pay, we will, as a longer-term objective, examine the feasibility of linking salary adjustments to performance. This is a normal practice in the private sector but, in heading for this, we must not lose sight of the unique job nature of much of the Civil Service.

82. We will hold a firm grip on the size of the permanent Civil Service by considering alternative recruitment practices. To enhance flexibility in the deployment of human resources and in the interest of cost efficiency, we have already given Heads of Departments much greater discretion in employing non-civil service contract staff, with more flexible pay and conditions that are more akin to those in the private sector.

83. Given these wide-ranging reforms, we will institute a general freeze on hiring into the permanent Civil Service, including hiring to fill new posts or vacancies. Exceptional recruitment for essential services will have to be justified on a case-by-case basis. This measure will reduce the permanent Civil Service strength by around 8 000 by the end of 1999-2000. This should not affect employment opportunities as Heads of Departments may still recruit non-civil service contract staff or temporary staff to carry out certain front-line functions.

The Mode of Providing Public Services

84. Public services are wide-ranging and diversified, very often manpower-intensive. To achieve best value for money in the use of public resources, it is not enough merely to look at the cost of the public servants delivering the service. A fundamental re-think of the mode of delivering the service is essential.

85. We have a track record of letting the market, through its enterprise and efficiency, come up with the most economical solution to deliver a public service. We have the Mass Transit Railway Corporation (MTRC) and the Kowloon-Canton Railway Corporation (KCRC) running rail systems which are among the most efficient in the world; we have tunnels built one after another through Build-Operate-Transfer contracts; we have waste facilities installed and managed through Design-Build-Operate contracts; and we have contracted out the management of government tunnels, carparks and office buildings. I want to see this well-tested private sector participation go much further.

86. The Director of Social Welfare will shortly contract out, as a pilot scheme, the provision of welfare services, starting with the home help service to the elderly. Instead of allocating service units to individual non-government organizations which will then have to operate under rigid subvention rules and procedures, we will open up welfare services for competitive bidding, on a cost and quality basis. In this connection, I am pleased to note that the Director will set up a Contract Management Unit in his Department. I am even more pleased that he will be funding this unit through productivity gains which he has identified.

87. Water supply is another suitable candidate for some form of private sector participation. Many other cities around the world have allowed private sector participation in the supply of water. This has instilled greater cost consciousness and a market-oriented culture in the service providers and allowed them greater operational flexibility outside the government system. We have commissioned a consultancy study to look at a variety of options for private sector participation in the provision of water supply services. The study will be completed in May. The Government will share the findings of the study with the community and this Council. In deciding on the way forward, we will take into account public and staff interest, and the long-term cost-efficiency of water supply.

88. Another form of private sector participation is to fully corporatize suitable government services. Corporatization will, in particular, offer the opportunity to bring private sector management into traditionally government-run activities. Some of these government corporations may, in due course, be earmarked for privatization. I am determined to move ahead quickly. We aim to bring forward specific proposals for Members' consideration as soon as practicable. One such proposal is ready. Let me explain it in detail.

Privatization of Public Corporations

89. Hong Kong rightly prides itself on its long-held free market philosophy of encouraging the private sector to maximize its participation and investment in our economy. The evidence of this is widespread in our daily life. There are, however, instances in which private sector investment at the outset has not been feasible because the intensive upfront capital investment together with the long payback period simply do not have the right appeal to investors. Our answer to this has been for government-owned corporations to build their projects with equity investment from the Government but to operate them on a commercial basis, and subject to many private sector disciplines.

90. An outstanding example of the success of this approach is the MTRC. The MTRC has built and operated a mass transit railway system which is second to none. It has recently completed a world-class airport railway and is embarking on a further extension of the mass transit railway system to the rapidly growing new town of Tseung Kwan O. The efficiency of the MTRC's operations has laid the foundations for major achievements of this kind over the years, while at the same time keeping fares in line with inflation. Financially, the fundamentals of the Corporation are solid.

91. The original reasons for 100% government ownership of the MTRC are no longer valid. I therefore propose to privatize a substantial minority share of the MTRC through a public offering. The Government will remain the majority shareholder.

92. An offering of this nature will provide the people of Hong Kong with an unrivalled opportunity to participate in the ownership of a successful and profitable public corporation. The introduction of private ownership will reinforce the MTRC's commitment to competitiveness and efficiency. It will broaden the Corporation's access to funds and reduce its reliance on government equity injection or loans for future development. The introduction of the MTRC as a company listed on the local stock exchange will strengthen the market and enhance Hong Kong's attractiveness to investors. In addition, the proceeds from the sale of this stock will also provide a useful boost to our finances over the medium term.

93. Privatization of the MTRC will not, however, take place overnight. We need to strike a sensible balance in our regulatory framework between the different interests of investors, employees and commuters, and to ensure in the process no diminution of safety or service standards. And we need to wait until the market is right before we sell any shares. We will consult and secure Members' support as well as that of the community. When successfully implemented, this ground-breaking initiative will become the benchmark for privatization, where appropriate, of other government-owned assets in future. We have decided to take action and introduce a bill for this purpose into this Council within the 1999-2000 financial year.

94. Just as we are making plans for the partial privatization of the MTRC, the ownership of the Cross Harbour Tunnel will revert to the Government on 1 September when the current franchise expires. We will contract out the management of this tunnel for the next few years while we consider the optimum longer-term arrangements.

PUBLIC FINANCES

A Reputation for Prudence

95. Let me now turn to the management of our public finances. If I had to choose one phrase to characterize the fiscal policy which Hong Kong has successfully followed for many years, that phrase would be "living within our means". We have never indulged in profligate spending. We have almost invariably covered our expenditures with our revenues. In this way we have avoided the need for borrowing. Instead, we have accumulated substantial fiscal reserves which over the past year or so have provided us with the strength both to resist the attacks on our currency and to ride out the economic difficulties.

96. The International Monetary Fund (IMF), after its visit last October, commended Hong Kong for having gained an almost unrivalled reputation for fiscal prudence. It is vital to our economic well-being that we maintain that reputation so as to retain the confidence of the international financial community and overseas investors.

The Basic Law Requirements

97. The international financial community draws great comfort from the Basic Law provision which requires the government to "follow the principle of keeping expenditure within the limits of revenues in drawing up its budget, and strive to achieve a fiscal balance, avoid deficits and keep the budget commensurate with the growth rate of its gross domestic product" (Article 107). The Basic Law also requires us to decide on taxation matters by "taking the low tax policy previously pursued in Hong Kong as reference" (Article 108).

Budget Strategy

98. Developing budget proposals for the coming financial year has been no easy task. Whatever I do must be consistent with the constitutional provisions of the Basic Law. I must also stand firm by our established fiscal principles to help maintain international confidence. Yet I must formulate a sound strategy to cater for the current needs of Hong Kong. In doing so I must pay due regard not only to our present economic circumstances but also to our economic prospects in the immediate future and over the medium term. And I must weigh carefully the way in which my budget proposals will affect not only our finances but also our prospects for economic recovery.

99. I have concluded that, hard as I and my colleagues may strive, a budget deficit in 1999-2000 is unavoidable. Let me explain why.

100. First of all, I have funded all the initiatives and improvements to services announced by the Chief Executive in his policy address last October. After taking this into account, I estimate total government spending in 1999-2000 will amount to $242 billion. And without any revenue proposals, I estimate total government revenue will amount to $208 billion. In short there is a gap of $34 billion which would need to be bridged if we were to bring the Budget into balance. A gap of this magnitude could only be bridged if we opted for either substantial tax increases or swingeing cuts in government expenditure.

101. On the one hand, substantial tax increases would hit both businesses and individuals hard. Such a step would inevitably lead to further declines in consumer spending and private sector investment, to further business retrenchment and undoubtedly increased unemployment. The economy, rather than starting to recover, would be driven into deeper recession. On the other hand, swingeing cuts in government expenditure would mean that much-needed investments in our physical infrastructure would be abandoned or seriously delayed. We would have to lower the level and standards of both government and government-subsidized services. We would have to renege on a wide range of our policy pledges and commitments. That would deal a direct blow to people's livelihood and weaken investors' confidence. In the end, stringent measures, on either the expenditure or revenue side, of the magnitude needed to achieve a Budget balance could well prove fiscally counter-productive as well as economically disastrous.

102. In these circumstances, a deficit Budget in the short term is entirely consistent with the provisions of the Basic Law, provided that it is set in the context of a return to balanced budgets over the medium term. From a macro-economic point of view, returning to a fiscal balance over the medium term is prudent and rational. It would be inflexible and unreasonable to try to achieve a strict balance year after year.

103. In our consultations, Members of this Council have made it abundantly clear that they share this view. From the wide spectrum of advice which I have received it is apparent that this is also the view of the community at large. My budget strategy is based on the premise that we should ensure our finances are set on a healthy footing over the medium term while, in the short term, fostering the prospects of economic recovery.

The Spending Constraints

104. In putting our medium-term finances on a healthy footing we will need to exercise careful control over the growth in government expenditure. One of our fundamental budgetary guidelines is to ensure that, over time, government expenditure grows at a rate no faster than the economy as a whole. In pursuit of this guideline we have, for many years, planned the growth of government expenditure in line with the forecast trend growth of GDP.

105. Our spending plans for 1998-99 were formulated before the full severity of the economic downturn became apparent. They were based on a forecast trend growth rate of 5%. In comparison, the economy in 1998 is expected to have shrunk by 5.1%. In addition, our spending plans for 1999-2000 have been drawn up based on a forecast trend growth rate of 3.5%. This also far exceeds the forecast growth in 1999 of 0.5%. This means that over the two years, 1998-99 and 1999-2000, we will have planned our expenditure growth based on a combined trend growth rate of around 8.5% while at the same time the economy will have contracted by more than 4.5%.

106. This is the result of our conscious decision to maintain our spending plans during the economic downturn rather than cut back on spending and drive the economy further into recession. As the economy picks up, over the medium term we will need to gradually redress this imbalance if we are to bring the growth in expenditure back in line with the growth of the economy over time. I will have more to say on this later on. (Table 4)

107. Against growing demands for social services and the objective of keeping the growth of expenditure over time in line with the growth of the economy, the community as a whole must recognize the need to prioritize the different sectors of government spending. For 1999-2000, education, health and social welfare account for exactly half of total recurrent public spending, at 21.3%, 14.6% and 14.1% respectively. In the past five years to 1998-99, we have increased recurrent spending in these areas in real terms by 28% for education, 45% for health and 103% for social welfare, compared to an overall increase of 28%. This significant growth in expenditure on welfare over the years has increased the share of social welfare recurrent spending from 8.7% in 1994-95 to its current 14.1%. Under our existing policies, demand for services and support in all these areas is bound to increase owing to rising unemployment and an ageing population. An anticipated large inflow of people from the Mainland who have right of abode in Hong Kong creates added pressure. The Task Force chaired by the Chief Secretary for Administration is assessing the practical implications of such an inflow for Hong Kong. When we complete the assessment, we will make suitable adjustments to the allocation of our resources. However, there is unlikely to be any significant impact on expenditure in 1999-2000, the impact would fall on the following financial year.

108. Whilst these sectors will press for higher efficiency and productivity, we would only be able to meet the ever-growing demands within our overall expenditure constraints by re-examining policies and re-adjusting spending priorities. The modifications to the Comprehensive Social Security Assistance (CSSA) Scheme which aim at removing dependence on CSSA and encouraging able-bodied recipients to rejoin the workforce are introduced with this objective in mind. We will also look at other aspects of the CSSA Scheme to ensure equity in the use of public resources. We cannot afford much longer double-digit growth in welfare spending each year. In health care, we can no longer defer a serious and purposeful discussion on the issue of health care financing. We cannot ignore the burden on the public purse of a quality, accessible and virtually free public hospital service. I hope the community will take an active part in the deliberations on the subject when we shortly release the consultancy report on Hong Kong's Health Care System by the Harvard University. In line with the Chief Executive's pledge for quality education, education must be a spending priority. Investment in our younger generation is the only way to preserve Hong Kong's competitiveness.

109. This process of policy review must not become an excuse for indiscriminate cuts in public spending. My Budgets, and those of my predecessors, are characterized by a commitment to helping those most in need. This will continue to be our guiding principle. Indeed, in 1999-2000, I have budgeted for recurrent spending of more than $29 billion on social welfare. This represents a growth of 13.6% in real terms. (Table 5)

Civil Service Pay Freeze

110. For fiscal reasons, we have decided to freeze civil service pay in 1999. In accordance with the established practice, the Standing Commission is conducting a Pay Trend Survey of the private sector, which will be completed in May. When the outcome of the Standing Commission's pay trend survey of the private sector and the Commission's recommendations are known, we may consider whether there is a need to go further than a freeze. In this regard, I am encouraged by an open and honest exchange of views with the representatives of the four civil service staff consultative councils in January. They appreciated that the public expects the Civil Service to strive constantly to achieve greater efficiency and improve the quality of service. They were also prepared to make sacrifices in the interest of the economy and share the pains of the recession with the community.

The Taxation System

111. On the revenue side, we have been fortunate in recent years in being able to cut tax rates, increase tax allowances and introduce new allowances and deductions to "return wealth to the people". As a result, the majority of our workforce pays no salaries tax.

112. This has led some professional bodies and academics to criticize us for reducing the size of the tax net. They have also suggested that our tax base is too narrow and that we should explore alternative sources of taxation to provide a more stable source of government revenue.

113. I appreciate their concern and understand their arguments. But let us be quite clear what changes to our tax system would mean. Widening the tax base means introducing new taxes. Enlarging the tax net means that people who do not now pay taxes would start to do so. Any such proposal would clearly prove controversial.

114. We pride ourselves in Hong Kong on our low, simple and predictable tax regime. A predictable tax environment is an important consideration for businesses when deciding whether to set up or expand their activities in Hong Kong. We should not embark on major changes to our tax system unless we are convinced that the benefits of doing so far outweigh the disadvantages. Although we have done some preporatory work on a new tax with a wide net based on consumption, I do not believe this is the right time to pursue it.

The Fiscal Reserves

115. There are also people who have suggested that given the size of our reserves we can provide yet more generous tax concessions and boost our spending even further. I beg to differ.

116. Our fiscal reserves gave us the credibility we needed last year to defend our currency and to prevent Hong Kong people's confidence from being undermined by manipulative activities in our securities market. That experience was enough, I believe, to justify in full the policy we have pursued over the years of building up our fiscal reserves.

117. Without healthy reserves, we would not be able to maintain government spending programmes in the face of temporary fiscal deficits like we did last year. We must maintain our investment programmes for sound economic reasons. We will still be living within our means provided we use our reserves judiciously and on a short-term basis. But we must never use them to prop up business sectors or individual companies which are no longer profitable. This sort of policy creates a subsidy, however well-hidden behind political rhetoric. And subsidies are the ruin of competitiveness.

118. What we must do is continue with the policies that have served us so well for so long. We must continue to use our reserves for the purposes that they are intended, namely:

o to protect the stability of our monetary system;

o to enable us to maintain our spending on capital works, social services, law and order and our other well-justified programmes even when there is a temporary fall in government revenues; and

o to meet our day to day cash-flow needs and to cover the several months in the financial year when expenditure exceeds revenue.

119. This view is also supported and reckoned by the IMF who commented last October that "While questions have been raised in the past as to whether the accumulation of fiscal reserves has been excessive, recent economic developments have confirmed the wisdom of these policies. Hong Kong's high fiscal reserves have played an important role in sustaining confidence in financial markets; and they have also significantly increased the authority's room for manoeuvre in the present economic situation."

1998-99 Outturn

120. It is the existence of these reserves which gives us the fiscal strength to ride out the impact of the economic downturn on our finances. That impact has been felt on our revenue collections.

121. In 1998-99, we suffered an across-the-board reduction in revenue. Our revenue from land transactions will be $32.2 billion lower than originally estimated, largely as a result of the decision taken last June to suspend land sales by auction and tender and to put on hold the provision of sites to the Hong Kong Housing Society for sandwich class housing. There are also significant shortfalls in profits tax of $3.8 billion, in stamp duty of $3.3 billion, in bets tax of $2.3 billion and in Rates, duties, motor vehicle taxes and fees and charges totalling $4.4 billion.

122. Fortunately, these shortfalls have been partially offset by an enhanced yield from the investment of our fiscal reserves with the Exchange Fund. This windfall is a by-product of our incursion into the stock market last August and the subsequent rise in the Hang Seng Index. As a result, the investment earnings on our fiscal reserves in 1998-99 are now forecast to be $36 billion, $9.3 billion more than originally estimated.

123. Taking all these factors into account our revenue will be $220.6 billion. This is $38.4 billion lower than originally estimated.

124. On the expenditure side, total expenditure is now expected to amount to $245.1 billion, $3.1 billion lower than originally estimated. This is made up of a number of pluses and minuses.

125. On the General Revenue Account we have spent $4.2 billion less than originally anticipated. This arises largely from much reduced Pensions payments as a result of a smaller than expected number of retirees in 1998. Spending from the Capital Works Reserve Fund was $4 billion lower than originally estimated, partly due to some modest slippage and partly as a result of lower land compensation values reflecting the impact of the economic downturn. The decision taken in June last year to suspend the provision of sites to the Housing Society for sandwich class housing resulted in reduced payments from the Loan Fund of $6.8 billion.

126. These underspendings have been largely offset by three major items: the payment of $3.4 billion to Hong Kong Telecom International Limited for early surrender of its exclusive telecommunications licence; $2.6 billion to the two Municipal Councils to compensate them for the loss of revenue as a result of the Rates refund given as part of the package of special relief measures announced last June; and the injection of a further $6 billion equity, which was originally scheduled for April 1999, into the KCRC for the West Rail project.

127. Total expenditure of $245.1 billion and total revenue of $220.6 billion would result in a deficit of $24.5 billion. But one of the tax concessions, which I shall be announcing shortly, will increase this figure.

The 1999-2000 Forecast

128. The reductions which we have seen in our revenue in 1998-99 will not reverse overnight. Not surprisingly the revenue which we collect is dependent on the overall performance of the economy. With forecast economic growth of 0.5% in 1999 our revenues will remain flat. In addition there are two further factors which will reduce our revenue collections in the coming year. First, we will start to bear in 1999-2000 the full cost of the generous package of tax concessions introduced in the 1998 Budget. Second, we will feel in the next financial year the full impact on our Profits Tax collections of reduced business profitability in 1998.

129. These factors partly explain the gap between our expenditure and revenue (before revenue proposals) which I have already mentioned when discussing the prospect of a deficit Budget for the coming financial year. The other reason is, of course, our decision to hold fast to our expenditure plans and to provide the funds for all of the improvements and initiatives announced in the Chief Executive's policy address last October.

130. Government spending in 1999-2000 will total $241.6 billion. Within this total our recurrent expenditure will grow by $12.8 billion over the revised estimate for 1998-99 to $179.7 billion. This will enable us to meet the increased demands placed on many of our services as a result of the economic downturn as well as introduce new and improved services, particularly in the areas of social welfare, education and health. Despite the economic downturn, the draft estimates of expenditure published last Friday provide for an impressive list of service improvements and, in particular, for substantial investment in our physical infrastructure.

131. In 1999-2000, after taking into account the range of revenue proposals which I will outline shortly, I am forecasting a deficit of $36.5 billion or 2.8% of GDP. As a consequence I expect the fiscal reserves to fall to $389 billion by the end of the coming financial year.

Medium Range Forecast

132. I said earlier that I believed a deficit was acceptable in 1999-2000 provided this was set in the context of a return to fiscal balance over the medium term. My Medium Range Forecast which is published as an appendix to the printed version of this speech provides for just such a return to fiscal balance over the medium term. The Forecast is based on a trend growth rate of GDP of 3.5% This is a significant reduction from the trend growth rate of 5% which we have been following for much of the present decade. Attainment of even this reduced forecast will hinge on the economy being able to sustain its upswing from the latter part of 1999 onwards; to around 3.5% to 4% in 2000 and to appreciably above that in 2001 and 2002. This in turn will depend on the external economic and financial situation turning progressively more favourable.

133. This reduced growth rate has significant implications for the growth in government expenditure over the medium term. I have referred earlier to the need to redress the imbalance between the growth in government expenditure in 1998-99 and 1999-2000 and the contraction in the economy over the same period. To do this, I have made allowance in my forecast for our recurrent and capital works expenditures to grow by only 3% in 2000-01 and 2.5% in the following two years. Even this reduced level of growth will not bring the cumulative growth in expenditure fully back in line with cumulative economic growth by the end of the forecast period. We may well need to maintain a similar degree of restraint over the growth in expenditure for a further two years after 2002-03. This underscores the need for us to achieve the savings targeted under the EPP and to re-prioritize the different areas of government spending.

134. On the revenue side my forecast assumes the receipt of privatization proceeds of $15 billion in each of 2000-01 and 2001-02 from the floating of a partial stake in the MTRC, representing a total of $30 billion.

135. In 2000-01, the combined effect of restraining the growth in government expenditure, of the receipt of $15 billion in privatization proceeds and of my package of revenue measures will not be quite sufficient to restore our finances to the black. For that year I am forecasting a modest deficit of $5.6 billion. In the context of a combined total of expenditure and revenue in 2000-01 of around $500 billion, this can be considered broadly balanced. From 2001-02 onwards, our finances will be back on a healthy footing. I forecast surpluses of $8.3 billion in 2001-02 and $14.5 billion in 2002-03, pending of course Honourable Members' approval for my revenue proposals.

136. As a consequence, I expect our fiscal reserves to fall from $458 billion at 1 April 1998 to a low of $383 billion at 31 March 2001 before picking up again over the next two years to a level of $406 billion at 31 March 2003, the end of the forecast period. This leaves the fiscal reserves within the guidelines set out in the 1998 Budget speech^*, albeit at the lower end of the range. (Table 6)

REVENUE PROPOSALS

Salaries Tax

137 In recent years, successive Budgets have offered generous salaries tax concessions. We have increased allowances at a rate far higher than inflation. For example, in my previous three Budgets, we have increased basic allowances by a cumulative 36.7% compared to inflation over the same period of 15.7%. We have also reduced the marginal tax rates substantially and widened the marginal tax bands. Furthermore, we have introduced new allowances and deductions for mortgage interest, for training expenses and for taxpayers incurring residential care expenses for elderly dependants. All these changes have led to massive reductions in the salaries tax burden.

138. In 1998 the economic adjustment has brought inflation down to a new low, even turning negative at the end of the year. At the same time, many employees have suffered from pay freezes or even pay cuts. Their salaries tax liabilities will be reduced accordingly. Against this background there is no justification for further salaries tax concessions in 1999-2000. Accordingly, I propose no change to salaries tax rates or allowances.

Profits Tax

139. In the 1998 Budget we reduced the rate of corporate profits tax to 16%. Our profits tax rate is among the lowest in the world. I propose no change to the rate of profits tax. This is consistent with the views expressed by many Honourable Members and professional bodies.

Tax Rebate

140. Many Members may find the decision not to introduce further salaries tax concessions disappointing. Members will be pleased to know that I am not turning a blind eye to the financial difficulties facing the community. To provide relief to individuals, families and businesses, I propose to rebate by 10% the 1997-98 final assessments of profits tax, salaries tax and property tax. The one-off cost will total $8.5 billion. The vast majority of taxpayers have already settled their final assessments for 1997-98. They will be receiving a refund in the next few weeks. We will send out more than 1.5 million cheques before the end of the current financial year on 31 March. The minority of taxpayers who have not yet finalized their 1997-98 tax payments will also see their ultimate liability reduced. This will bring the deficit for this financial year to $32.3 billion.

141. This rebate will not only offer immediate and direct help to the individuals and businesses concerned, but also provide a modest boost to consumer spending and corporate liquidity; important steps on the road to economic recovery.

Fees and Charges

142. Last year, I announced a freeze on most government fees and charges. I said that the moratorium would last for one year. On that occasion, I emphasized that the freeze was an exceptional measure to cater for the needs of an exceptional time. But I stressed that we remained committed to charging fees based on the user pays principle. Only by adhering to this principle are we able to meet the requirement under the Basic Law to maintain a low tax policy.

143. At present, our fiscal position is such that a decision to extend the freeze cannot be taken lightly. Neither should we give up the user pays principle. But, since our economy is unlikely to pick up until the second half of this year, I have decided to extend the moratorium for another six months. In the meantime we will seek the views of Members of this Council and try to reach a consensus on the level of increase and the priority for adjusting different fees and charges upon the expiry of the moratorium.

Rates

144. Last November, the Government announced that we would conduct a general revaluation of the rateable values of properties to take effect on 1 April 1999, one year earlier than previously planned. We have also decided that, in future, a general revaluation will be conducted annually instead of every three years as before. This ensures that rateable values will better reflect prevailing market rentals. This will be fairer to ratepayers and will reduce unnecessary disputes between the public and the Rating and Valuation Department. Since rents have fallen considerably since mid-1996 when the last general revaluation exercise was conducted, bringing forward the general revaluation will reduce the burden on most ratepayers. The new measure will also reduce the burden on those required to pay government rent, which is calculated as a percentage of the rateable value.

145. In my 1998 Budget, I announced that the overall Rates percentage charge would be reduced from 5% to 4.5% for one year. On that occasion, I emphasized that Rates represented the most widely based and one of the most secure source of revenue. We must therefore be extremely cautious when considering adjustments to Rates. Last year's concession was made to benefit the greatest number of individuals and businesses. It was also in line with our policy of not raising more revenue than necessary. However, due to the change in circumstances, the Administration now needs that part of the revenue.

146. In 1999-2000, our overall fiscal position, and particularly our operating account, will show a substantial deficit. The overall Rates percentage charge needs to revert to 5% so as not to erode further a reliable stream of revenue.

147. For the vast majority of ratepayers, the effect of allowing the Rates percentage charge to revert to 5% will be more than offset by the effect of bringing forward the general revaluation. The rates payable in the next financial year will be lower than in 1998-99 for 80% of properties.

148. I am well aware that Rates are the taxes with the widest impact on the community. They are paid by individuals and businesses alike. Within the very tight fiscal constraints I am facing I have tried hard to find room to further relieve the burden on ratepayers. After careful consideration of our overall financial position, I have decided to grant a one-off concession of 50% of the Rates payable for the July to September quarter. This will allow reasonable lead time for the Rating and Valuation Department to make the necessary administrative arrangements. This one-off concession will save ratepayers $1.8 billion in 1999-2000. In other words, ratepayers only need to pay three and a half instead of four quarters' rates.

149. A large proportion of the revenue from Rates goes directly to the two Municipal Councils. The effect of the general revaluation and the 50% reduction in the July to September quarter will mean that the two Councils will suffer a significant reduction in their Rates revenues. We will need to make suitable arrangements with the two Municipal Councils as the need arises.

Helping Business

Merchant Shipping Registration and Related Fees

150. The shipping industry accounts for 1.7% of our GDP and employs over 50 000 people. At present, the total tonnage of ships registered in Hong Kong amounts to over 6.2 million tons. To strengthen our status as an international shipping centre and enhance our regional competitiveness, I propose to reduce merchant shipping registration and related fees as follows:

o to revise the fee for registration of a ship not exceeding 500 gross registered tons to $3,500, and to charge a flat rate of $15,000 for all other ships which exceed this limit. Currently, ocean-going vessels registered in Hong Kong are subject to the maximum fee of $100,000;

o to reduce the maximum level of annual tonnage charges from $180,000 to $100,000; and

o to abolish or substantially reduce 21 fee items for other types of registration-related services, such as changing the registered name or tonnage of a ship and registering a change in address of a ship owner.

Through this package of measures, we hope to increase the total tonnage of ships registered in Hong Kong to 10 million tons in three years, thereby creating 15 800 additional jobs.

Re-export Declaration Fees

151. I also propose to halve the charge for re-export declarations from 0.05% of the value of the article declared to 0.025%. This will align the declaration fee levels for imports, domestic exports and re-exports. This will cost $270 million in 1999-2000 and $1.2 billion over the period of the Medium Range Forecast.

Fuel Duty

152. One of the special relief measures introduced last June was a reduction in diesel duty from $2.89 per litre to $2. This special relief measure will expire on 31 March 1999. In view of our forecast economic performance in 1999, I propose to extend this special relief measure by one more year until 31 March 2000 at a one-off cost of $590 million.

153. The Government is concerned about the incidence of smuggling and illegal sale of diesel in Hong Kong. We will step up enforcement against such illegal activities.

154. To fulfil the policy commitment of improving air quality by requiring all new taxis to operate on LPG fuel from the end of the year 2000, I am quite prepared to exempt auto-LPG from the payment of duty. But I am also concerned that the commercial price of LPG should not be unreasonably high as this may create room for smuggling and the illegal sale of LPG. If this happens, public safety will be at risk, and the consequences will be far more serious than that of the illegal sale of marked oil.

Tax Proposals to Promote the Local Financial Markets

155. To promote the development of the local financial markets, I propose:

o to reduce from $500,000 or its equivalent in foreign currency to $50,000 or its equivalent in foreign currency the minimum denomination of debt instruments qualifying for a 50% tax concession. This will cost a modest $30 million a year; and

o to abolish the present rule which restricts the exemption from stamp duty to stock borrowed for up to 12 months only.

We also intend to grant stamp duty exemption for transactions undertaken by stock futures market makers for hedging purposes. This will be subject to the working out of a satisfactory monitoring mechanism with the two exchanges to prevent abuse of the concession.

Air Passenger Departure Tax

156. To encourage same-day transit passengers with an extended stopover to make use of the few hours of their stay to visit and to shop in Hong Kong, I propose that those who arrive and depart from Hong Kong within the same day should be exempt from the payment of air passenger departure tax. This new measure will encourage more same-day transit passengers to make the best of their brief stay in Hong Kong and their spending will contribute to Hong Kong's economy. The cost of this concession will be minimal.

Estate Duty

157. Under our present system, life insurance proceeds are subject to estate duty if paid in Hong Kong. However, if payment is made outside Hong Kong, the proceeds are exempt. Many of the larger international insurance companies attract clients by providing services which enable the payment of life insurance proceeds outside Hong Kong, so that the beneficiaries will enjoy the tax exemption. Most small-scale insurance companies incorporated locally are unable to provide the same service because of cost constraints. I propose to exempt life insurance proceeds from estate duty irrespective of where they are paid. This will accord equal treatment to all life insurance policy holders and their beneficiaries. It will also help level the playing field for the local insurance industry.

Business Registration Certificates

158. To enhance convenience for all businesses and to reduce business costs, I propose to offer, as an option to the present annual certificate, a three-year business registration certificate at a cost of $5,200. This offers a significant saving when compared with the current cost of $2,000 for renewing certificates on an annual basis.

Double Taxation Agreements

159 We have recently held a round of preliminary talks with the Netherlands Government about the conclusion of a double taxation agreement with them. We expect to go forward with this, and with other prospective partners, over the coming months, to ensure that exposure to double taxation is kept to a minimum. The conclusion of such agreements will provide an added incentive for overseas companies to do business in Hong Kong.

Revenue Raising Measures

160. Article 107 of the Basic Law imposes on the Government an obligation to strive to maintain a balanced budget. In view of the budget deficit and our forecast of Hong Kong's economic performance in the short term, we clearly need to increase revenue on a selective basis. Only then can we regain fiscal balance over the medium term and at the same time, afford the special relief measures that I have already outlined. This is a painful but necessary decision. It is one we cannot avoid.

Stamp Duty on Property Transactions

161. First, I propose to adjust the stamp duty rates and banding on property transactions as follows:

o for purchases costing up to $3 million the duty rate will remain unchanged;

o for purchases costing over $3 million and up to $4 million the duty rate will rise from 2% to 2.25%;

o for purchases costing over $4 million and up to $6 million the duty rate will rise from 2.75% to 3%; and

o for purchases costing above $6 million the duty rate will rise to 3.75%.

162. The proposed adjustments will not affect those who purchase property costing up to $3 million. We believe that purchasers of property within this price range are mostly genuine home buyers with relatively low incomes. For them, any increase in stamp duty rates would create a heavy burden.

163. Purchasers of property costing over $3 million and up to $4 million will have to pay between $7,500 and $10,000 more in stamp duty. They are mostly middle-income individuals or families. For them, the extra amount of stamp duty may not be a small sum in absolute terms, but this sum is insignificant when compared to the amount saved as a result of the fall in property prices over the last year or so.

164. Purchasers of property costing more than $6 million will feel the impact of the adjustments most. Relatively speaking, they are also the group in our community who can best afford to pay the higher cost involved.

165. Since speculative activity in the property market has abated, I propose that the payment of the stamp duty due on the purchase of a residential property be deferred until the assignment of the property is executed. We will make sure that speculators cannot benefit from this change. As payment of stamp duty will not be required immediately following the signing of the sale and purchase agreement, genuine home buyers should find it slightly easier to cope with the initial outlay when purchasing a property. If, for whatever reason, the sale and purchase agreement is subsequently cancelled or rescinded, the property buyer will no longer have to suffer the loss of the stamp duty already paid.

166. Deferring payment to the assignment stage will lead to a cash-flow loss in 1999-2000. As a result, I expect these adjustments to reduce revenue by $0.8 billion in 1999-2000 but to bring in additional revenue of $5.9 billion over the period of the Medium Range Forecast.

Betting Duty

167. Next, I propose some modest increases in betting duty. When compared with other types of tax, betting duty has the least direct impact on people's livelihood. It is truly an optional tax. In order to raise additional revenue, I propose to adjust betting duty rates as follows:

o to increase the duty rate on Mark Six lotteries from 20% to 25%, offset by a corresponding reduction in the prize money pool. This will raise additional revenue of $260 million a year; and

o to increase the duty rate on exotic bets on horse races from 18% to 19%, offset by a corresponding reduction in the prize money pool. This is expected to generate additional revenue of $185 million a year.

Together these changes to betting duty will bring in additional revenue of $2 billion over the period of the Medium Range Forecast.

168. By developing a clean and professional racing industry, the Hong Kong Jockey Club provides a popular form of public entertainment which has become an integral part of the social life of many Hong Kong people. Its significant contributions to charity are laudable. The Government will work closely with the Club to take all possible measures to combat illegal betting and other activities designed to evade betting duty, both to protect public revenue and to safeguard the financial ability of the Club to continue its widespread support of charitable activities.

Tunnel Tolls

169. The ownership of the Cross Harbour Tunnel will revert to the Government when its present franchise expires in September 1999. At that time, all the revenue, net of operating expenses, will become part of government revenue. The cost of using the Cross Harbour Tunnel has remained unchanged since 1984. I propose to abolish the present tunnel tax but in the process increase the tolls, from the date the Tunnel reverts to Government ownership, as follows:

o to increase the toll for private cars from $10 to $20; and

o to increase the toll for motorcycles from $4 to $8.

To avoid increasing the operating costs of the transportation industry and related trades, the Cross Harbour Tunnel tolls for all other types of vehicles (including taxis) will remain unchanged. These proposed increases will bring us additional revenue of $120 million in 1999-2000 and $840 million over the Medium Range Forecast period to 2002-03.

170. I also propose to increase the Lion Rock Tunnel toll from $6 to $8. The adjustment will apply across the board to all types of vehicles using the Lion Rock Tunnel. It will bring in additional revenue of about $60 million a year.

171. Apart from generating additional revenue, the proposed increase in the tolls of the Cross Harbour Tunnel and Lion Rock Tunnel will also encourage drivers to switch to other tunnels, thus improving traffic conditions and reducing congestion.

On-street Parking Meter Charges

172. Since 1994, we have been charging a maximum of $2 for every 15 minutes for on-street parking. I propose to increase the maximum charge to $4 for every 15 minutes. This will bring the maximum hourly rate for on-street parking to $16. Given the scattered distribution of parking meters, the increase in meter charges will have to be implemented in phases. The new fee will be implemented in the busiest districts initially, to be followed in other areas within six months. With this increase, the hourly rate for on-street parking will still be lower than the levels charged by carparks in busy areas during peak hours. This measure is expected to bring in additional revenue of $190 million in 1999-2000 and $980 million over the period of the Medium Range Forecast.

Fixed Penalties for Traffic-related Offences

173. Fixed penalties for traffic-related offences were last adjusted in 1994. I propose to adjust them by 26.5% in line with cumulative inflation since 1994. The primary objective is to maintain the deterrent effect of these fixed penalties. The adjustment I propose will not change the policy intent for introducing these fixed penalties, nor will it affect the relativity of the different types of penalties in this category. While increasing the deterrent should reduce the number of offences committed, I also expect a modest increase in revenue in the region of $140 million a year.

The Importance of the Revenue Raising Measures

174. I must emphasize the importance of the revenue raising measures which I have just outlined. Without them, and the proceeds from the partial privatization of the MTRC, our finances, over the medium term, would remain in a much more fragile state. We would face a deficit of $24 billion in 2000-01 and a further deficit of $12 billion in 2001-02; a total of four successive years of deficits. And the surplus in 2002-03, the final year of the forecast period, would be halved to $7.3 billion. This is an outlook which could well put at risk our reputation for fiscal prudence and which, in turn, could damage international investors' confidence; a costly prospect. (Table 7)

Tobacco Duty

175. This year I will not be proposing any increases in excise duties, but I wish to draw attention to the increased flouting of the law by many smokers. For many years, the Government has been pursuing an anti-smoking policy in the interests of public health. However, statistics reveal that the sale of duty-paid cigarettes has been on a falling trend since 1992 without a corresponding decline in the total number of smokers. The smuggling and illegal sale of contraband cigarettes accounts for this gap. Fuelled by the economic downturn, such illegal activities have become even more widespread. I believe that increasing tobacco duty will only enhance the attractiveness of contraband cigarettes and provide further impetus to smuggling and illegal sale. It would be counter-productive in revenue terms and would contribute little to furthering our anti-smoking policy. Worst of all, it would further erode public respect for the rule of law. This is clearly unacceptable. We need to rethink how best to achieve our revenue and health policies rationally. We will consult the Hong Kong Council on Smoking and Health on the way forward. For the time being, tobacco duty will remain unchanged.

Tax Enforcement

176. A fair tax system depends on profits and income earners making their proper contributions towards the public coffers according to law. The Inland Revenue Department has continued with its efforts to combat tax evasion. In the last three years, the Department completed the investigation of 5 400 cases and recovered back taxes and collected penalties in the order of $6 billion. These figures show there is room to do more. We will step up tax enforcement further with the addition of another field audit team in 1999-2000.

Implementation of Revenue Proposals

177. That concludes my revenue proposals. More details of their effects are contained in the supplement to the printed version of this speech. Almost all of my proposals will take effect from 1 April this year. The exceptions are:

o the new tolls for the Cross Harbour Tunnel, which will come into effect when ownership of the Tunnel reverts to the Government on 1 September; and

o the betting duty on horse races, which will apply from the start of the new racing season in September.

178. Starting from this year, we will adopt a new approach of combining those of my revenue proposals which need to be effected through legislative amendments in one omnibus Revenue Bill for consideration by the Legislative Council; which means Honourable Members will need to scrutinize only one single bill. This approach has the advantage of allowing Honourable Members to consider all my revenue proposals as one complete package, and facilitates Members' evaluation of their fiscal effect in overall terms. It underlines the importance of dealing with the revenue proposals in the Budget in their entirety, and not selectively.

Land and Sea Departure Tax

179. Before I come to my concluding remarks I would like to deal with one other revenue-related issue. One which has been the subject of much speculation in recent weeks. That is the question of departure taxes. At present, passengers departing through Hong Kong International Airport are subject to a $50 air passenger departure tax. People leaving by sea through our marine ferry terminals to the Mainland and Macau pay a passenger embarkation fee of $18. However, those departing Hong Kong by ocean liners or through the land crossings are not required to pay any form of departure charge. This is inequitable.

180. I believe that, in principle, charging a modest land or sea departure tax is justified. It would remove the inequity if people departing Hong Kong paid a departure tax irrespective of their mode of travel. And, most important, such a tax would yield significant revenue; a much needed boost to our medium-term finances.

181. However, when I and my colleagues discussed the possible introduction of such a tax, we were all conscious of the need to implement it in a way which was simple to administer and which did not cause disruption to traffic crossing to or from the Mainland. Neither should we penalize people such as children crossing the boundary for schooling or truck drivers crossing the boundary for business. It was soon clear that we would not be able to proceed without involving the various transport operators and that resolving the practical difficulties involved could take some time.

182. For obvious reasons, I could not embark on such discussion in advance of the Budget. I now propose to open discussions with the various transport operators and other concerned parties on the feasibility of introducing this revenue-driven proposal. We will also discuss our ideas with the relevant panel of this Council to achieve a consensus before embarking on the proposal.

183. I say revenue-driven proposal quite deliberately. We have no wish to deter Hong Kong people from visiting the Mainland, whether it be on business, to visit relatives, for shopping or for other purposes. On the contrary, ever increasing cross-border flows are good for Hong Kong and for the Mainland. I have already referred in this speech to the need to remove immigration restrictions on mainland scientists and skilled technologists, and to the Chief Executive's vision of our becoming an innovation centre for Southern China. With the co-operation of the mainland authorities, we have extended the operating hours of the Lo Wu and Lok Ma Chau crossing points and facilitated the introduction of a shuttle bus service between Lok Ma Chau and Huang Gang. In addition, we will spend $800 million to expand facilities at Lok Ma Chau. We have also asked the KCRC to submit proposals on the Sheung Shui to Lok Ma Chau rail spur line. All aimed at easing conditions for a greater flow of goods and people. It is precisely the anticipated growth in the flow of goods and people that makes the land and sea departure tax attractive: it is likely to prove a reliable and growing source of revenue not at the expense of the exchanges between Hong Kong and the Mainland.

CONCLUSION

184. 1998 brought the worst economic setback our present generation has ever seen. This is the first recession we have experienced since we began our economic take-off in the 1960s. But there are signs that we have passed the worst of the crisis, that our performance will show a growing momentum of improvement in the years ahead.

185. Because of the usual time lag, the official statistics will continue for some time to be gloomier than the real pick-up in our performance. We will still be more conscious of the continuing pain of the adjustment than our improving performance. But the reality is that Hong Kong is battling successfully to return to economic health.

186. In typical Hong Kong style, the community has faced up to the economic downswing with determination and resilience. The Government has stood fast in defending the stability of the Hong Kong dollar and the linked exchange rate as well as the integrity of the financial markets. It has not shunned from taking difficult but necessary actions. The combined efforts of every sector and every individual have allowed Hong Kong to come through a severe test. We have proposed in this Budget making good use of our reserves by granting additional tax concessions. But we will have to introduce some moderate revenue raising measures to bring our finances back to the black in 2001-02.

187. 1998 was a hard year, and 1999 will not be an easy one even without the inevitable Y2K problems. The challenges brought about by the adversity of last year also yield new opportunities. History has proved that Hong Kong people will not shrink from these challenges. They will take full advantage of this window of opportunity. This is why the Administration has decided to marshal its greatest efforts within the available resources and embark upon a number of major initiatives all in the coming year, including:

o the demutualization, merger and listing of the securities and futures exchanges and their clearing houses, and other major reforms in the securities and futures area;

o strengthening supervision of the banks and developing the debt market;

o the public-private sector development of a $13 billion Cyberport to provide the essential infrastructure for Hong Kong to become an international information services hub;

o in co-operation with the Walt Disney Company, planning the construction of a major theme park on North Lantau, breathing new life into our tourist industry;

o the partial privatization of the MTRC to enable Hong Kong people to share in the ownership of a successful and profitable public corporation and to reinforce MTRC's commitment to competitiveness and efficiency; and

o the reform of the Civil Service and the mode of delivering public services to meet the changing needs of Hong Kong.

188. These are bold initiatives. Together with our solid foundations built over years of hard work, they will take Hong Kong to new economic heights in the new millennium. And we can press onward with new strengths.

189. Madam President, before closing, I should like to take this opportunity to express my most heartfelt thanks to all my fellow colleagues who have helped compile this year's Budget. It has never been an easy task to formulate a budget, and the difficulties we have encountered this year are all the more greater. Nevertheless, I am very much pleased to say that colleagues from resources bureaux, policy bureaux, as well as other departments have given full play to their professionalism and made concerted efforts in working together closely on this Budget. In the run-up to the Budget Day over the past few weeks, my colleagues and I, in particular colleagues from the Finance Bureau, have been working round-the-clock almost to the gross neglect of our rest and meals to make this budgeting exercise a success. I take pride in the excellent performance made by my colleagues; I am sure that they will keep up with their good work in the years to come and always live up to the high expectations of the public.

190. Thank you, Madam President.

PRESIDENT (in Cantonese): I now propose the question to you and that is: That the Appropriation Bill 1999 be read the Second time.

In accordance with Rules 67 and 71 of the Rules of Procedure, the debate on the Second Reading of the Appropriation Bill 1999 is now adjourned. I now refer the draft Estimates to the Finance Committee for examination before the debate on the Bill resumes.

NEXT MEETING

PRESIDENT (in Cantonese): I now adjourn the Council until 2.30 pm on Wednesday, 10 March 1999.

Adjourned accordingly at twenty-four minutes past Four o'clock.

Table 1

Growth in GDP

Table 2

Change in Composite Consumer Price Index

Table 3

Size of Labour Force and Total Employment

Table 4

Comparison of Cumulative Growth in Government Expenditure
With Cumulative Growth in GDP since the introduction
of the Medium Range Forecast

Table 5

Major Policy Areas' Share of Total Recurrent Public Expenditure
in 1994-95 and in 1999-2000

Table 6

Comparision of Fiscal Reserves with Guidelines related to
Government Expenditure and Money Supply (M1)

Table 7

Fiscal Position

SUPPLEMENT

NOTES ON THE TEXT

	Page

Tax Rebate	5635

Rates	5636-7

Government Rent	5638

Stamp Duty Rates	5639

Fixed Penalties	5640

Economic Performance in 1998	5641-3

Economic Prospects for 1999	5644

APPENDICES

		Page

A.	Medium Range Forecast 1998-1999 to 2002-2003	5646-54

	Forecasting Government's expenditure and revenue in the period up to 2002-2003 and setting these forecasts in a historical context.


B.	Trends in public expenditure 1994-1995 to 1999-2000	5655-60

	Showing the allocation of resources between policy area groups.


C.	Recurrent expenditure growth in key police areas in 1999-2000	5661-2

	Listing major improvements in services in 1999-2000.


D.	Major capital projects to begin in 1999-2000	5663

	Listing major capital projects to begin in 1999-2000.


E.	Glossary of Terms	5664-5

FFICIAL RECORD OF PROCEEDINGS

Wednesday, 3 March 1999 The Council met at half-past Two o'clock

Wednesday, 3 March 1999
The Council met at half-past Two o'clock