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Three Days to Go!

A few days later on Wednesday, I will deliver my first Budget Speech in the Legislative Council. Last week, preparation of the Budget entered the final stage. My colleagues and I had spent a lot of time scrutinising and finalising the draft and other related documents. I have also made all efforts to study the latest statistics and background information related to the Budget this weekend.

Around this time every year, many accounting firms and organisations publish their forecasts of the Government’s financial position and fiscal surplus. As revealed by many of these forecasts, government revenue from land sales this year is more than anticipated, which is the major reason of a higher-than-expected surplus. As a matter of fact, government revenue from land sales is affected by a host of factors. In the Budget announced every February, we can only make estimations based on the information in hand. No one really has a crystal ball that can foresee the market fluctuations during the year. Indeed, factors affecting the market are complicated and ever changing. Local economic environment, global economic atmosphere, level of interest rates, exchange rate movement, capital flow, supply and demand in the property market and buyers’ sentiment as well as investors’ commercial considerations and views of the market outlook are factors that will impact significantly on the prices of property and land.

To better illustrate the variations that may occur in land prices under different market conditions within just a year, let us look at some real examples. A residential site at Shan Tong Road, Lai Chi Shan, Tai Po (Tai Po Town Lot No. 221) involved in a judicial review was sold at $2.13 billion early last year in the midst of a downturn in the property market, which was 42% less than the lower range of market valuation. In stark contrast, a harbourfront site for residential use in the Kai Tak Development Area (New Kowloon Inland Lot No. 6565) was sold in December the same year at a price 87% more than the upper range of market valuation! Likewise, a business site at King Lam Street, Cheung Sha Wan (New Kowloon Inland Lot No. 6505) was sold just last week at a price much higher than market expectations.

Past experiences revealed that the prices of successful bids varied appreciably from quarter to quarter even for sites in the same district. Government land is sold through public tender to the highest bidder at a price to be determined by market competition, provided that it is not lower than the reserve price. It is thus normal for the transaction price to be different from the Government’s assessed value. Apart from land prices, property market conditions also have implications for government revenue from stamp duty, rates and corporate profits tax. These are the major sources of our revenue given the relatively narrow tax base of Hong Kong. As such, sharp volatility in the property market and/or a surge in revenue from land sales far exceeding forecast during a financial year will have a bearing on the Government’s surplus in that year.

As a small and open economy, Hong Kong is vulnerable to the external political and economic environment as well as changes in capital flows. In preparing the estimates of government expenditure and revenue, my colleagues and I have endeavoured to make the best estimation by conducting a comprehensive analysis and review based on known data and the assessment of our economic outlook.

To me, the budget preparation work over the last month was a real challenge carrying a heavy responsibility. I am deeply grateful to the experienced team in the Government for their unswerving support in helping me accomplish the task. The handling of numerous data and charts could be very tiring at times. Yet, I was full of energy again when it came to me that the figures and words in the Budget would be significant to Hong Kong’s future development and that every decision concerning resource allocation made by me in my capacity as Financial Secretary could bring benefits to tens of thousands of citizens from all walks of life. I sincerely hope that the Budget, which I am going to deliver several days later, will be recognised as prudent, pragmatic, responsive to social needs and a conscious effort to address Hong Kong’s long-term challenges.

February 19, 2017