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In its position paper submitted to the Financial Secretary’s Office earlier, the Bauhinia Foundation Research Centre advocates a three-pronged approach for the 2011-2012 Budget with a view to providing timely relief from inflationary pressure, enhancing Hong Kong’s long-term competitiveness and building a caring community. The submission paper has been put together on the basis of the Centre’s relevant research findings and cross-sector focus group discussions on the Budget. As a result of the budget measures in the past two years, Hong Kong’s unemployment rate has dropped to 4%, while the city’s economy in 2010 is expected to have grown by 6.5%. But with the inflation rate rising to 3.1% in January 2011, inflation has again emerged following our gradual economic recovery. This, together with the projected rise in fiscal reserve, will inevitably give rise to increasing public expectation of the Government’s relief measures and economic policies. The Centre’s Chairman Anthony Wu said, “While giving away ‘sweeteners’ can immediately increase people’s purchasing power, we should bear in mind the need to introduce corresponding policies to promote our economy, enhance our competitiveness and build a caring community.” “Our current inflation is mainly driven by price increases and the overheated property market. We consider it important to tackle the sources of inflation with relevant policies to mitigate their negative impact,” he added. Amongst other things, the Centre recommends putting in additional resources to expand the scope of Food Assistance Service Projects. Other proposals include increasing the number of days for the elderly passengers to enjoy fare concessions and facilitating social enterprises to provide more services at lower prices. To relieve people’s burdens resulting from the inflationary pressure, the Centre suggests introducing a number of one-off relief measures including a refund of fees and charges of public utilities, waiving of Government rates and public housing rental or rental subsidies, and providing additional CSSA payments for one to two months. To facilitate the development of a healthy property market, the Centre has all along advocated a steady supply of land as well as raising the existing percentage of land for residential use. A more innovative approach should be adopted to increase land resources through reclamation outside the Victoria Harbour (e.g. West Kowloon and the New Territories) and development of the un-utilised areas of the Lantau Island. Riding on the initia success of the additional stamp duty, the Centre recommends expanding its scope to cover commercial premises as part of the overall strategy to curb speculative activities. With regard to first-time home purchase, the Centre suggests encouraging the construction of more ‘no-frills’ flats and granting land to the relevant organisations in building flats with zero downpayment. These measures aim to provide first-time homebuyers with more choices for properties valued below HK$1.5 million. It is also worth considering providing eligible individuals with tax concessions on mortgage loan interest payment and stamp duty. “A more fundamental way to tackle inflation is to improve Hong Kong’s economy and long-term competitiveness, which will be translated into employment opportunities and wage increases,” said Lau Ming-wai, Vice-chairman of Friends of Bauhinia and Co-convenor of the Centre’s Budget Study Group. “In anticipation of the enormous fiscal surplus, we do see a lot of room for tax concessions to improve the local business environment,” added Mr Lau. From a competitiveness perspective, the Centre advocates the introduction of additional tax concessions and new funds to strengthen the traditional pillar industries as well as the six priority industries, particularly environmental industries, education services and creative industries. Accounting for 98% of local enterprises, small and medium-sized enterprises (SMEs) form an integral part of the city’s economy. According to the Centre’s submission, the recently launched SME Financing Guarantee Scheme can be modified to cover other types of SMEs’ loan financing in the future with a view to developing a more sustainable SME loan mechanism. Another key recommendation is to reduce profits tax rate to 15%. For businesses with assessable profits of less than HK$1 million, their profits tax rate can be further reduced to 10%. The Centre also recommends a more competitive tax loss carry-back regime for companies to claim back their paid profits tax by offsetting their loss during the current fiscal year with the profits earned during the past three years. Another competitiveness issue is Hong Kong’s ageing population. Our population is projected to rise to 9 million in the next 30 years, when one in every four persons will be aged 65 or over. In the long run, the resulting shrinkage of labour force will lead to a fall in the government’s direct tax revenue and a corresponding increase in public expenditure on social services. This will call for a change to our retirement policy; a flexible and optional retirement scheme is recommended to relieve the adverse impact of ageing workforce. In parallel, the ‘grey hair’ market and design courses for elderly products should be promoted. To cater for the housing needs of elders outside the welfare net, the government may consider providing incentives to developers in bidding for elderly housing sites. In the face of an ageing population, youth development should be another key area of the Budget. Possible policy initiatives include the introduction of new tax concessions for university student loans to alleviate the financial burden of fresh graduates and an increase in continuing education allowances to promote social mobility. To rekindle Hong Kong’s entrepreneurial spirit, the Centre recommends setting up a youth enterprise fund with exit clauses and funding support from the government and the business sectors. Regarding policy proposals for a caring community, Director Winnie Ng who is also Co-convenor of the Centre’s Budget Study Group said, “A sustainable healthcare system, drug-free campus, sports development and environmental protection are all key components of a caring community.” Ms Ng attaches great importance to the promotion of primary care, which is preventive in nature. On anti-drug measures, the Centre calls for expanding the scope of the existing scheme on school drug testing with provision of additional resources and professional support for participating schools. On sports development, the Centre advocates the establishment of a new sports promotion fund to work alongside the existing Arts and Sports Development Fund in three major areas, i.e., sports for all, grooming of elite athletes and making Hong Kong the place for major sporting events. To promote a greener lifestyle, the Centre supports the introduction of green taxes in respect of waste recycling, waste disposal and use of landfills along the ‘polluter-pays’ principle. Anthony Wu said, “It is true that Hong Kong has quickly recovered from the global financial tsunami, but our external environments are still uncertain and volatile. While combating inflation, it is of utmost importance that the Government remains committed to its prudent fiscal policy so that we are capable of dealing with any unforeseen circumstances.”