The Shortfall

　
77.     With the foregoing measures to control expenditure and increase revenue and the assumed 4.75% civil service pay reduction, we would not yet be able to restore balance in the Operating Account in 2006-07.  We still need to increase recurrent revenue or reduce recurrent expenditure by $2 billion from 2003-04 onwards, with another $3.5 billion required from 2004-05 onwards and a further $3.5 billion from 2005-06 onwards.

　

78.     To achieve overall fiscal balance in 2006-07, we also need to increase capital revenue (e.g. by the sale of government assets) or reduce capital expenditure by $20 billion over the medium term.

Chart 7

The Shortfall

The Shortfall

　
Boundary Facilities Improvement Tax

　

79.     Having considered the views of various sectors of the community, I propose to introduce a Boundary Facilities Improvement Tax.  Many Members of this Council and citizens agree that it is in principle justifiable to impose a tax at a modest level on passengers departing from Hong Kong through land crossings.  At present, passengers departing through Hong Kong International Airport or people leaving by sea for the Mainland and Macau through our marine ferry terminals are required to pay a flat-rate tax or fixed fee to the Government.  As our economic links with the Mainland strengthen, we will allocate substantial resources to improve our land crossing facilities to remove constraints on the flows of people and trade between the two places.  The collection of a Boundary Facilities Improvement Tax at a reasonable rate will help finance the improvement of boundary facilities.

　

80.     The Government will look into the details of implementation, including appropriate exemption arrangements, for the Boundary Facilities Improvement Tax.  We aim to introduce a bill into the Legislative Council in 2002-03 so that this tax can come into effect in 2003-04.  Assuming that the Boundary Facilities Improvement Tax is set at $18, it can generate an estimated additional revenue of approximately $1 billion a year.

　

Making Up the Shortfall: The Way Forward

　

81.    Apart from the Boundary Facilities Improvement Tax, the Government has to consider other options for raising additional revenue or reducing expenditure to make up the shortfall that I mentioned earlier.

　

82.     As regards increasing revenue, the Advisory Committee on New Broad-based Taxes has recently released its report.  I would like to express my sincere thanks to Mr Moses Cheng, Chairman of the Advisory Committee, and all its members for their work.  The report's recommendations include the introduction of a Goods and Services Tax and a Land and Sea Departure Tax (akin to the Boundary Facilities Improvement Tax), an increase in rates, and a reduction in personal allowances under salaries tax.  Apart from these recommendations, the Government will consider other options for raising additional revenue.  The Government is considering how to tackle illegal soccer betting more effectively, including options that may bring additional revenue to the Treasury.

　

83.     I understand the community's concern about the recommendation for a Goods and Services Tax.  The Chief Executive and I have stated clearly that the Government will not introduce such a tax while there is a downswing in the economy.  Nevertheless, the Government will continue to study the details of a Goods and Services Tax for implementation as and when necessary.