Speech on Motion of Thanks – Economic Development

This year’s Policy Address focuses on livelihood covering issues like caring for the elderly, helping the poor, nurturing the young and increasing land supply etc. There are many concrete proposals, like low-income family allowance, regularization of Community Care Fund programmes, etc. They would definitely help the needy, and I fully support.

That said I am concerned that these proposals would add $20 billion to recurrent expenditure a year. Conceptually, increased expenses should be met by increased revenue. Unfortunately, the Policy Address does not hint on economic development. Frankly, it is evident that our competitiveness is slipping. If substantial rise in recurrent expenditure were not covered by increase in revenue, our economic outlook would be a cause for concern.

We often criticize the Government as miser. In fact, the Government has been always prudent in public finance even before unification and subscribing to the doctrine of “big market and small government”. It has been cautious in raising recurrent expenditure simply because once introduced there is almost no way out. Thus, the Government would rather choose one-off relief measures or so-called “sweeteners” in case of fiscal surplus. This explains why “sweeteners” have been repetitive but supports for the disadvantaged have been selective.

This Administration has taken more positive stance, eventually, and increases recurrent expenditure to alleviate poverty and support for the disadvantaged. It reflects the determination to improve livelihood. Among various proposals, low-income family allowance and other welfare, for instance, would be sustaining benefits to recipients. Raising the value of health care voucher and extending concessionary fare in public transport, etc would benefit the elderly. As these are measures that the Legislature has been striving for, I am sure they are supported by the community. Meanwhile, the middle-class might be disappointed for being neglected on this occasion. However, the forthcoming Budget is due to release toward the end of this month. We are looking forward to specific measures that would address and relieve financial stress of the middle-class.

On specific expectations on the Financial Secretary, I am also looking forward to concrete measures in the Budget on economic development to complement expenditure proposals in the Policy Address. Thus, the SAR Government would achieve coherent policies. As the Government has changed course from “miser” principle in public finance, the legacy doctrine of non-interventionism in economic development should also become redundant and give way to more proactive policies.

Economic figures for the past year have sounded alarm that competitiveness is stagnant in many areas. We are still heavily reliant on financial sector, a legacy industry. However, the real cause for concern is erosion of its comparative advantages. Scholars have cautioned that if the current rate of increase in public expenditure persisted, fiscal reserve would be depleted by 2030. Of course, this is theoretical using simple arithmetic and would never happen in reality. That said it is a warning that reserves would be exhausted one day if not replenished. Above all, Hong Kong is facing the problem of aging population. If it is our choice to give more help to the need, we must also work harder to grow the economy and to earn more in support of our social work.
The next question is how. The past Administration has identified six pillar industries for development and I have fully supported. Unfortunately, the Government then insisted on non-interventionism and progress was unimpressive. We all realize that these six industries do not necessarily generate substantial income but they would offer considerable opportunities to young people and rebalance structure of the economy. They should be followed up and pursued. I wish the Government would take a more positive attitude in revamping and developing them. On the other hand, I would suggest borrowing experience of Singapore and pursue headquarters economics with new thinking to attract investments from international enterprises. I have spoken on many occasions and shall not repeat.

Meanwhile, foundation of the financial sector should be reinforced. Financial Services Development Council has submitted its first set of reports on the way forward with concrete proposals on many areas. Most proposals are useful to the financial sector, including future positioning for some, and I wish that they would be realized early. Moreover, Shanghai has established a free trade zone (FTZ) and Guangdong is prepared to follow. Analysts are saying that FTZ on the Mainland would compete directly with Hong Kong. Under such circumstances, we should play an active role and share their benefits. Thus, I ask the Government to take the lead and seek cooperation with FTZ for involvement of our businessmen in development.
In a nutshell, this is an opportunity, in my view, for both the Government and the community to take a closer look of our challenges ahead and they would endeavor to change.

I would also like to speak on the insurance industry today. The Policy Address does not have new proposals on insurance. There are merely progress reports on the establishment of Independent Insurance Authority and Policyholders Protection Fund in the Policy Agenda. In fact, the insurance industry is still facing problems that deserve public attention.

Insurance fraud is still serious. For the past 10 years, employee compensation insurance has suffered total loss of $2.6 billion. The loss for the previous year alone amounted to $600 million. Fraud is a major factor of loss. In the previous term of the Legislature, the Joint Subcommittee on Issues Relating to Insurance Coverage for the Transport Sector was formed to study ways of fighting insurance fraud. Both the Government and Police then were reactive. The Police even set up a separate channel for reporting frauds. The Panel submitted its report in 2012 with many constructive recommendations like actions against the abuse of sick leave certificates. Unfortunately, the Government is yet to respond but frauds persist. The insurance industry would continue to follow up these matters as usual but the Government should take serious actions against such crimes.

On policyholders’ protection fund, the Bill is being drafted. Our industry still has reservations on certain provisions, including proposed time bar of outstanding policies issued by underwriters under liquidation. Understandably, those companies are problematic in management as well as underwriting. The potential risk would be too large for the compensation fund to take over their legal responsibilities for a prolonged period of time. Our view is that such contingency undertaking should be limited to, say, one month simply to facilitate affected policyholders making alternative arrangements. On the levy, the Government proposes to adopt a progressive model with additional calls in case of contingency. Our view is that a ceiling rate should be written into the law, preferably less than 0.5% for the purpose of definition.

The Independent Insurance Authority Bill would be tabled later in this session. The Government has undertaken to increase representation of practitioners in both governing body and committees of the new Authority. Our industry would follow up and continue our dialogue with the Government on transitional arrangements. Health Protection Scheme is also our concern. I shall defer discussion till the third part of this debate.

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