October 12, 2011

Chief Executive Donald Tsang

I joined the Government more than 40 years ago as an Executive Officer II, and worked my way up to become the Chief Executive. I have witnessed the ups and downs as well as changes in Hong Kong and I have also grown along the way.
 
Now I have reached the last stage of my public service career, with only eight more months to go before the end of my term of office. As for my performance as Chief Executive, that will be for the public to judge. However, I feel obliged to share with the public my experience in administering Hong Kong over the past seven years.
 
I believe that there are major economic, livelihood and political challenges for Hong Kong, which cannot possibly be fully overcome by the current-term Government within a short time. Whether Hong Kong can overcome these challenges in future will have far-reaching implications.
 
Over the years, we have been administering Hong Kong under the core principle of "Big market, small government”, giving precedence to a free market with the Government assuming a subsidiary role.
 
This has formed the basis of our financial-management philosophy of maintaining a low tax regime, keeping expenditure within the limits of revenue, and strictly controlling recurrent government expenditure.
 
Approach challenged
The economic restructuring of Hong Kong in the past three decades was a response to the changing global economic trend, rather than centrally planned. It was driven by the market and entrepreneurs, and actively supported by the Government. However, this approach is being challenged.
 
First, the wealth gap has given rise to the demand for income redistribution. Economic globalisation and job polarisation have led to competition for local well-paid jobs among people from around the world, while the income of low-skilled workers remains stagnant.
 
Furthermore, technological development and the migration of local industrial operations to the Mainland have resulted in the gradual loss of certain blue-collar jobs and middle management jobs. People in such posts need to upgrade their skills to cope with the demands of a knowledge-based economy if they are to keep their jobs.
 
The widening wealth gap resulting from all these changes has prompted the public to call for government intervention to redistribute income and narrow the gap between the rich and the poor through public policies and fiscal measures.
 
People are having higher and higher expectations of the Government’s role.
 
Social tension
The wealth gap has become a structural cause of social tension. Those working in globalised and high-end economic sectors, such as the financial sector, have seen their pay rising continuously. On the contrary, those in low-end service sectors have had to live with a consistently low income.
 
In addition, the disappearance of middle-level positions has removed a rung on the ladder for upward mobility. The wealth gap generated by globalisation is all the more acute in a city economy like Hong Kong. I believe that it is difficult to solve the problem completely. However, we will ease the resulting tensions through various policy measures.
 
I think Hong Kong should continue to follow the fundamental principle of maintaining a low and simple tax regime and a market-led economy. It is simply not feasible to support a significant increase in recurrent welfare expenditure by raising taxes or issuing bonds.
 
Appropriate intervention
In the wake of the financial tsunami, many European governments have been caught in public finance crises and forced to cut expenditure, which gives rise to social unrest in the end. We have to remind ourselves at all times not to follow in their footsteps.
 
While increasing public welfare spending is always popular, we have to be aware of the consequences of over-expansion. Also, we have to bear in mind that raising taxes will make Hong Kong less attractive to enterprises, and running a fiscal deficit and issuing bonds regularly will adversely affect Hong Kong’s credit ratings.
 
As a highly open economy, Hong Kong must preserve the distinct economic features that have underpinned our success.
 
Market forces represent collective wisdom. The Government should not step in without good reason. But neither should it adopt a completely hands-off approach. When the market fails, the Government should intervene as appropriate. The introduction of subsidised housing and the statutory minimum wage, for example, highlights the importance of appropriate government intervention.
 
Fiscal prudence
At present, under the principle of fiscal prudence, public expenditure is targeted at a level not exceeding 20% of our Gross Domestic Product. We should maintain this fiscal discipline, which practical experience shows will help us maintain our long-term competitiveness and respond to sudden changes in the global economy.
 
Nevertheless, this does not mean that the Government pays no heed to the hardships of people in need. The Government should help low-income families in a strategic way.
 
During my term of office, I put through legislation for a statutory minimum wage and introduced a direct transport subsidy for low-income workers. I introduced many direct relief measures when fiscal conditions allowed.
 
Another challenge to our philosophy of public administration comes from the expectation that the Government should do more in economic planning and the selection and nurturing of industries in order to sharpen our competitive edge.
 
Maximising strengths
We have to be pragmatic in this regard. Macro planning, market intervention and favourable industry-specific policies should strictly follow the principle of “capturing opportunities and capitalising on strengths” instead of being dictated by dogma or the wishes of senior officials.
 
Hong Kong is a small and open economy. We cannot turn back the global tide of change, but we can ride on the wave of change. Very often, entrepreneurs are more sensitive to business opportunities than government officials.
 
What the Government should do is support them by, for example, allocating land, providing financial assistance, facilitating business matching and concluding economic agreements. The aim is to do what we can do best, as well as maximise our existing strengths.
 
Ageing population
Apart from the challenges concerning the Government’s role, Hong Kong is beset with the problem of an ageing population. Advanced economies around the world face the same problem.
 
With a lower birth rate and longer life expectancy, the number of dependent elderly people has been increasing, calling into question in many countries the sustainability of their public healthcare and welfare systems.
 
We should move fast to tackle this challenge. I have mentioned just now that we need new blood. We have to maintain an open immigration policy and attract more talent from outside Hong Kong. We should plan ahead and make preparations for the return of Hong Kong children living in the Mainland.
 
In regard to retirees, we will introduce policies to help the elderly to retire in the Mainland. Portability of their welfare benefits is the key factor in determining whether they choose to retire in the Mainland.
 
We need to conduct a comprehensive study on the portability of various welfare benefits, including services provided by residential care homes for the elderly, hospitals and clinics. We will consider whether such services should be extended for our elderly people residing in the Mainland from the perspectives of law, policy and public finance.
 
Political reform
Finally, on the political front, there has been intense debate in the community since reunification on the subject of universal suffrage. Now that the timetable is fixed, differences in public opinion are gradually narrowing.
 
We should allow democracy to take root in Hong Kong, maintain high administrative efficiency and build consensus in the community. To this end, we need to focus our thinking and design a suitable political system accordingly.
 
Matters to consider include the role of political groups, the relationship between the executive authorities and the legislature, the nurturing of political talent and political ethics.
 
We also have to safeguard our core values of solving problems rationally and respecting one another. At the same time, with a humble spirit, we should study and compare the experiences of other democratic countries in implementing their democratic systems.
 
Revolutionary changes
As for administrative reform, the global political and economic landscape is undergoing revolutionary changes. People are expecting their governments to do more. Here in Hong Kong, we have introduced the political accountability system to respond more swiftly to public aspirations.
 
We need to review our administrative system to ensure it is compatible with future democratic development.
 
Aspects to be considered include the definition of the roles and responsibilities of political appointees and civil servants; establishment and mobility; allocation of financial, manpower and land resources within the Government and the relevant procedures; further devolution of powers to district administration; division of work among heads of bureaux and their subordinate departments; and arrangements for policy formulation, advocacy and consultation.
 
Like other governments around the world, we are facing another unprecedented political challenge, which is the changing political landscape arising from the popularisation of online social media.
 
Social action emerges
The traditional channel of political participation in Hong Kong has been through the system of representative government, under which representatives of public opinion returned by elections are empowered to participate in policy formulation.
 
With the emergence of new online networks, the younger generation now expresses their political views and participates in politics through social action. These online networks and youth-driven social action are transforming the conventional, mainstream political ecology.
 
It is imperative for the Government to address the diverse demands of young people and improve communication with them. We are still exploring the way forward.
 
This is an excerpt from Chief Executive Donald Tsang's 2011-12 Policy Address delivered at the Legislative Council on October 12.