Budget Speech
Budget Highlights
Press Releases and Speeches
Related Documents
Previous Budgets
  The Economy Is Recovering
  • The real economic growth rate for 2002 was 2.3%.
  • The real economic growth rate for 2003 is forecast to be 3%.
  • However, deflation will persist in the short term, affecting personal income, corporate profits and government revenue.
  Serious Fiscal Deficit
Hong Kong is facing a huge fiscal deficit - this is unprecedented:
  • The consolidated deficit for 2002-03 is forecast to be $70 billion, equivalent to 5.5% of GDP.
  • With investment income excluded, Hong Kong has had consecutive operating deficits over the past five years, and the situation is deteriorating.  The operating deficit has increased from $32 billion in 1998-99 to $67.6 billion in 2002-03.
  • The Government's fiscal reserves have decreased from $457 billion in 1997-98 to $303 billion in 2002-03.
  • With government expenditure remaining high and revenue declining, the structural trend of revenue falling short of expenditure must be reversed early. Otherwise, economic recovery will be impeded and a financial crisis may set in.
The Strategy for Eliminating the Deficit

The Budget has set a target of achieving fiscal balance in 2006-07 and has formulated practical measures to solve the fiscal deficit problem with a three-pronged approach:

  • Boost the economy
  • Cut expenditure
  • Raise revenue
Revitalising our Economy

The Government is implementing specific measures to carry out the economic blueprint of the Chief Executive and to improve people's livelihood:

  • Big market, small government
    - reduce public expenditure from 22.3% of GDPto 20% or below
    - serve the public more effectively by reprioritising service provision, reorganising government department structures, reengineering procedures and making full use of the market
  • Building Hong Kong into a regional metropolis
    - improve facilities at our boundary crossings to speed up the flow of people and goods
    - step up overseas promotions to attract foreign companies to invest into the Pearl River Delta and to set up regional office in Hong Kong
    - reach an arrangement on the main parts of a Mainland/Hong Kong Closer Economic Partnership Arrangement by June
    - study the construction of a bridge linking to the western part of the Pearl River Delta and a Guangzhou - Shenzhen-Hong Kong express railway
  • Developing human resources and infrastructure
    - set up a $1 billion fund to award matching grants to universities which have succeeded in securing private donations
    - study a proposal to attract primary and secondary school students outside Hong Kong to receive education in Hong Kong
    - ease restrictions on the entry of Mainland professionals and further expand the scope for investment immigration
    - introduce a list of projects for private sector participation
    - earmark an average of about $29 billion annually for infrastructure works over the next five years, similar to that for the past five years
  • Enhancing core industries, i.e. financial services, logistics, tourism and producer and professional services, and fostering the development of creative and high-tech industries
  • Increasing employment opportunities
    - provide funding of $270 million to enhance training and extend temporary jobs
Controlling Public Expenditure

The Government has set a target to reduce operating expenditure by $20 billion, to $200 billion by 2006-07:

  • reduce civil service establishment by 10%, launch a second round of the Voluntary Retirement Scheme and freeze civil service recruitment
  • cut civil service pay by 6% in two phases over the next two years
  • economise vigorously and optimise use of resources
  • adjust social security payments downwards by 11%
Raising Revenue

Raise additional revenue of $20 billion in the next four years with $14 billion to be raised through the introduction of the following measures this year:

  • Salaries Tax
    - restore marginal tax rates and tax bands to the levels before the concessions made in 1998-99
    - restore allowances to the levels before the concessions made in 1998-99, but maintain the dependent grandparent, parent and sibling allowances, the disabled dependant allowance, and the deduction for expenses on self-education, etc, at current levels
    - increase the standard rate by one percentage point to 16%
    - the above measures to be implemented in two phases
    - increase the allowance for the third to ninth child to $30,000, equal to that for the first and second child
  • Profits Tax
    - increase by one and a half percentage points to 17.5%
  • Property Tax
    - increase by one percentage point to 16% over a period of two years
  • Motor Vehicle First Registration Tax
    - abolish tax exemption for accessories and for distributors' warranties; adjust the width of tax bands and tax rates; and introduce a marginal tax rate system
  • Air Passenger Departure Tax
    - increase from $80 to $120
  • Introduce a Football Betting Duty
  • Introduce a Boundary Facilities Improvement Tax
  • Ultra Low Sulphur Diesel Duty
    - extend the duty concession for another year, maintaining the duty rate at $1.11 per litre
  • Sale of government assets
Restoring Fiscal Sustainability

Achieve the following targets by 2006-07:

  • Attain a balanced Operating Account
  • Restore balance in the Consolidated Account
  • Reduce public expenditure to 20% of GDP or below
2003 | Important notices