Hong Kong's 2014 Budget

Capital expenditure for 2014-15 is forecast to be HK$86.2 billion, including HK$70.8 billion on capital works. Infrastructure projects under construction include new roads and railways, tourism facilities and land development, etc.

Mr Tsang said that about HK$30 billion would be invested in waste recycling and treatment facilities, and that the Government would actively take forward the development of the Integrated Waste Management Facilities Phase 1. To increase the supply of fresh water from local sources, Mr Tsang said that the Government had reserved a site for the construction of a desalination plant, with a planning and investigation study to be completed early next year. The desalination plant is expected to commence operation in 2020.

A new initiative announced in the Policy Address is developing an East Lantau Metropolis, a new core business district. The Government is considering a proposal to build an artificial island in central waters between Hong Kong Island and Lantau Island. The new metropolis could accommodate a population of several hundred thousand and provide many employment opportunities.

Another large-scale infrastructure project under planning is the expansion of the Hong Kong International Airport to a three-runway system. The project, estimated to cost over HK$100 billion, will foster Hong Kong's long-term economic development and enhance its competitiveness. The project is currently at the environmental impact assessment stage with a view to securing approval this year, with an aim of commissioning in 2023.

On healthcare infrastructure, Mr Tsang announced that the Government would seek funding approval from the Legislative Council for the redevelopment of Queen Mary Hospital and Kwai Chung Hospital, as well as the expansion of Hong Kong Red Cross Blood Transfusion Service Headquarters. These and other projects, at a total cost of HK$55 billion, are part of an ongoing effort to improve public healthcare facilities and provide 1 400 additional hospital beds. Mr Tsang also said that the Government was conducting strategic studies on the construction of an acute general hospital in the Kai Tak Development Area.

To strengthen Hong Kong's competitiveness and efficiency, Mr Tsang said the city needed a comprehensive strategy, not only to improve flows of people, goods, capital and information, but also for enhancing Hong Kong's quality of life and position as an international hub.

To boost competitiveness, Mr Tsang proposed a series of initiatives in different sectors. In the financial services industry, he said Hong Kong had become one of the largest markets in the Asia Pacific region for exchange traded funds (ETFs) since 2010, when the Government extended the stamp duty concession to cover ETFs that track indices comprising not more than 40 per cent of Hong Kong stocks. He has now proposed to waive the stamp duty for the trading of all ETFs, so that the trading cost of ETFs with a higher percentage of Hong Kong stocks in their portfolios can be reduced as well.

"This will help promote the development, management and trading of ETFs in Hong Kong," he said.

Hong Kong is a popular platform for multinational enterprises to manage their global or regional treasury functions, said Mr Tsang. To draw more of these functions to Hong Kong, he has asked the Financial Services and the Treasury Bureau to set up a task force in collaboration with the Hong Kong Monetary Authority to review the requirements under the Inland Revenue Ordinance for interest deductions in the taxation of corporate treasury activities, and clarify the criteria for such deductions. It will come up with concrete proposals within one year.

Mr Tsang also said that consensus had been reached between the Securities and Futures Commission and relevant Mainland authorities on the mutual recognition of funds. On implementation, this arrangement will further promote the diversification of fund products in the Mainland and Hong Kong.

Mr Tsang announced seven measures to strengthen support for small and medium-sized enterprises (SMEs). The measures include: HK$50 million to support retailers on a matching fund basis for the use of IT and other technology solutions to increase productivity; promoting cloud computing applications among SMEs and providing training to help them adopt appropriate and affordable IT solutions; and continuing to identify suitable workspace for individuals and enterprises engaging in creative industries. In this connection Mr Tsang said that the creative industries landmark "PMQ", a HK$500 million government project to revitalise the former Police Married Quarters on Hollywood Road, would come on stream in the first half of this year. This will house over 100 designers and entrepreneurs in a studio-cum-incubation space that will support and accelerate the creativity and business growth of new design start-ups.

To enhance Hong Kong's capacity and appeal as a tourist destination, Mr Tsang said the Government planned to develop the Kai Tak Fantasy area of the Kai Tak Development into a spectacular world-class tourism, entertainment and leisure hub. He said that the Government was looking into ways of gradually releasing to the market six sites facing Victoria Harbour within the 'hotel belt' adjacent to the Kai Tak Cruise Terminal starting from the end of next year. In addition, new hotel projects at the Murray Building site in Admiralty, Ocean Park and Hong Kong Disneyland would provide over 1,500 rooms.

Mr Tsang earmarked a total of HK$95 million additional funding for the Hong Kong Tourism Board, including HK$45 million to promote conventions and exhibitions and HK$50 million to inject new elements into popular established events, for example using 3D projection mapping technology to help showcase the magnificent night view of Victoria Harbour during mega events.

To promote innovation and technology, Mr Tsang announced two new measures under the Innovation and Technology Fund (ITF) to enhance the application and commercialisation of research and development (R&D) results, including:

setting up an Enterprise Support Programme to replace the Small Entrepreneur Research Assistance Programme and raise the funding support ceiling for R&D activities of private sector companies from HK$6 million to HK$10 million for each project; and
extending the scope of funding to development work and system integration, industrial design, compliance testing and clinical trials.
Mr Tsang said that the Government will create a better ecological environment for technology start-ups in collaboration with local R&D institutions and universities. The ITF will provide an annual funding of up to HK$24 million to the six designated universities to provide seed money for R&D projects that they recommend, encouraging their students and teachers to start downstream R&D businesses and commercialise their R&D results.

On long-term financial planning, Mr Tsang said that the Working Group on Long-Term Fiscal Planning, which was set up following the 2013-14 Budget to explore ways for Hong Kong's public finances to cope with the city's ageing population and long-term financial commitments, was due to release detailed results next week. According to the Working Group's analysis, he said, the Government's overall fiscal position in the short-to-medium term remains healthy. It also recommends that Government should implement a combination of measures, including containing expenditure growth, preserving the revenue base and saving for future generations, to cope with the fiscal challenges ahead.

Finally, Mr Tsang unveiled a HK$20 billion package of relief measures for various sectors of the community.

Concluding his speech, Mr Tsang said "Our competitive edge cannot be taken for granted, nor is it self-sustaining. It is essential that we seize every opportunity to improve, and aptly respond to possible crises along the way."

The complete text of the budget, along with associated materials, can be found at www.budget.gov.hk/2014.

Erica Ng
Hong Kong Economic & Trade Office
6 Grafton Street
London W1S 4EQ
Tel.: +44 (0) 20 7499 9821
Fax: +44 (0) 20 7495 5033
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Website: www.hketolondon.gov.hk