Speech of the Hon K P Chan, JP at the Legislative Council on 14 April 2010 Debate at the Second Reading of the Appropriations Bill of 2010/2011
MR PRESIDENT: The public has been less critical of this year’s Budget since its release. Perhaps, the Financial Secretary has learnt from experience of last year when his relief measures were considered inadequate. In this Budget, he proposes many short-term measures in response to several public requests. However, it is disappointing that this Budget lacks long-term economic strategies as well as effective measures to resolve the increasingly worse “conflicts underlying deep layers”.
Let me start with some issues for concern of the insurance industry. Apart from economic upturn, the strong recovery of the industry last year was also attributable to several factors. Dedications of our practitioners as well as effective government policies that consolidate the foundations of the industry were also crucial. In this Budget, the Government undertakes to carry out several tasks, including consultations on the independence of Commissioner of Insurance and protection funds for policyholders. They should be favourably considered with a view to strengthening the role of Hong Kong as an international financial centre.
Actually, in response to the call of insurance industry, the Government has committed in the middle of last year to establish a protection fund for policyholders. According to plan, the Government will propose a substantial scheme for public consultation. I urge the Government to endeavour launching the fund at the earliest after consultation. From past experience, it would take two to three years to go through stages of consultation, decision, legislation, and implementation before any new public measure may be launched. As the proposed protection fund aims at safeguarding the interest of consumers, it is always better early than late. Therefore, I also urge the Government to take special measures to expedite the process. For example, legal drafting might overlap with public consultation to compress the timetable.
Moreover, the fund would take time to accumulate reserves from levies on premiums received. The Government should provide a financial facility to the fund at the outset so that it might commence operation early, not having first to accumulate sufficient reserves.
I support in principle the independence of the Commissioner of Insurance. An independent Commissioner might deploy resources more flexibly and exercise supervision more efficiently. It is understandable that regulatory costs would also increase and I call on the Government to defer full cost recovery at the outset. As the size of insurance companies is diverse, I also ask the Government to consider reviewing the structure of license fees (which is currently the same for large and small insurance companies).
I also welcome an undertaking in the Budget that personal tax relief for private medical insurance would be considered when designing “supplementary medical funding option of voluntary participation”. Our industry has been calling for tax concessions for personal insurance for years. We are not only talking about medical insurance but also life and other personal insurances. Tax concession for insurance premium is meant to encourage people to transfer personal hazards to underwriters through insurance coverage. Although public revenue would suffer under this proposal, actually the Government would benefit eventually owing to the characteristics of insurance. People would become less dependent on the Government for welfare and they are encouraged to plan for future expenses in medicine and retirement. In the long run, public expenditure on both medicine and welfare would reduce.
The Budget also touches on the cooperation of Guangdong, Hong Kong and Macao. Lately, there has been a breakthrough in the mode of collaboration. I am pleased to witness the signature of Framework Agreement on Guangdong/Hong Kong Cooperation that categorically supports the entry of Hong Kong insurance companies into the Guangdong market. Insurance providers in Hong Kong are encouraged to set up proprietor or joint venture agencies in Guangdong. While the Framework Agreement helps open up the Guangdong market, the question of high entry barriers remains outstanding. The current requirement for Hong Kong insurance companies is total assets of USD5 billion. Only offshoots of multinational companies could meet this threshold. Most small and medium sized local companies are fall short of the requirement. Unless barriers are lowered, it would remain difficult for local insurance companies to enter Guangdong.
Another issue for concern is insurance policy denominated in Chinese renminbi. Demand has been increasing in anticipation of revaluation of renminbi. Unfortunately, there are technical hurdles to overcome before such demand might be met. I am pleased that HKMA has proposed to the Central People’s Government to allow Hong Kong insurance companies to open renminbi bank accounts for handling premium collected.
However, even if policies might be denominated in renminbi, market development is still hampered by inability to invest the premium on the Mainland. In Hong Kong renminbi investment is immature and limited, but the return would not justify placing proceeds in domestic investment instead. Unless they might access to the more mature renminbi market on the Mainland, Hong Kong insuring companies could hardly offer attractive products in renminbi.
As the Financial Secretary says, we all look forward to another step ahead in renminbi business in Hong Kong.
Turning to livelihood, I ask the Financial Secretary to look for remedies to the widening gap between the rich and poor actively and put forward measures to improve livelihood in the long run. I would like to draw his attention to questions of cross-district transport subsidy and social mobility of the younger generation.
Hong Kong has always been a caring society. It is an unquestionable duty of the Government to take care of those who are permanently or temporarily incapable of earning a living with a safety net. However, there are also unfortunate people who do not earn enough for a living. They are known as the “working-poor”. In my view, the Government should also have an indisputable duty to provide better support, as an encouragement to those who are striving to earn a decent living themselves.
As minimum wages are yet to be accomplished, I ask the Government to extend and expand cross-district transport subsidy early as a means of alleviating the pressure of the low-income working class. Meanwhile, it would also encourage those who intend to rejoin the labour force but have the concern of high transport expenses.
I now turn to the subject of working class. Let me also stress that Hong Kong people are dedicated to work. They always treasure every opportunity and endeavour to do their best.
As circumstances change with times, however, career opportunities and ecology are also changed giving arise to many underlying conflicts. Widening gap of the rich and the poor and social immobility of young people are two typical examples. In fact, sources of these conflicts could well be mitigated and resolved with administrative measures.
In particular, the question of social immobility is frustrating not only young people but also their parents. Hong Kong is an economically mature society. Comparing to the old days when the economy started to pick up, young people today is having much less promotion opportunities. Yet, work stress seems to be ever increasing. Together they have led to much frustration in work and life, giving rise to different social problems. These are the main causes of social divergence.
Therefore, I am supportive of the Government’s proposition of six significant industries because they will provide more job openings and career opportunities in their course of development.
In a debate on “Increasing Dynamics for Upward Social Mobility” earlier, I proposed an Amendment to the original motion to promote “economics of the headquarters” in Hong Kong. My Amendment called for tax concessions and other attractive business incentives that are appealing to business enterprises around the world to choose Hong Kong as their regional headquarters. In recent years, I have noticed that many multinational companies are choosing Singapore and even Shanghai or Beijing as regional headquarters instead of Hong Kong. This trend is disadvantageous to the long-term development of Hong Kong.
I frankly believe that this proposal would address the underlying problem of declining competitiveness and make Hong Kong appealing favourably to business enterprises worldwide as the location of regional headquarters. In turn, it would create more job opportunities and more job diversities, creating room for social mobility and insight of international perspectives for young people. Their economic effects would be only advantageous to livelihood and well being of Hong Kong.
I was disappointed that some political parties felt that local taxation was already low and abstained in voting. My Amendment could not get enough support to be carried.
Apparently, they thought that local profits tax was very low. However, the reality is that our competitors including Singapore, Beijing and Shanghai are offering more attractive terms including tax concessions and cash incentives to multinational enterprises in choosing them as regional headquarters. If Hong Kong continues to be complacent, we are loosing out. I shall gather more information for the Government and look forward to in-depth studies of my proposal of developing “economics of the headquarters” in Hong Kong.
With this observation,
Mr President, I conclude my remarks.