Finance Committee -- Minutes 3 October 1997

PLC Paper No. FC 46
(These minutes have been seen by the Administration)
Ref : CB1/F/1/2

Finance Committee of the Provisional Legislative Council

Minutes of the fifth meeting held at the Legislative Council Chamber on Friday, 3 October 1997, at 2:30 pm

Members present :

Members absent :

Public officers attending :

Mr K C KWONG, JP: Secretary for the Treasury
Mrs Carrie LAM, JP: Deputy Secretary for the Treasury
Mr K K LAM: Principal Executive Officer (General), Finance Bureau
Mr Esmond LEE: Principal Assistant Secretary for Planning, Environment and Lands
Mrs Olga PANG: Chief Estate Surveyor of Lands Department
Mr Alan SIU: Principal Assistant Secretary for the Treasury
Mr Y Y CHU: Chief Assessor of Inland Revenue Department
Mrs Maureen CHAN: Principal Assistant Secretary for Health and Welfare
Dr T A SAW, JP: Deputy Director of Health
Dr W P MAK, JP: Consultant of Department of Health
Ms Michelle LI: Principal Assistant Secretary for Education and Manpower
Mr Alfred WONG: Controller, Student Financial Assistance Agency

Clerk in attendance :

Ms Pauline NG: Clerk to the Finance Committee

Staff in attendance :

Mrs Vivian KAM: Chief Assistant Secretary (1)5
Mr Matthew LOO: Senior Assistant Secretary (1)7

As the Chairman, Mr Ronald ARCULLI, was not in Hong Kong, the Deputy Chairman, Mr Henry WU, chaired the meeting.

Item No. 1 - FCR(97-98)35
RECOMMENDATIONS OF THE ESTABLISHMENT SUBCOMMITTEE MADE ON 10 SEPTEMBER 1997

2. The Committee approved the proposal.

Item No. 2 - FCR(97-98)36
RECOMMENDATIONS OF THE PUBLIC WORKS SUBCOMMITTEE MADE ON 3 SEPTEMBER 1997

3. The Committee approved the proposal.

Item No. 3 - FCR(97-98)37
HEAD 91 - LANDS DEPARTMENT ?Subhead 111 Hire of services and professional fees

4. Mrs Miriam LAU declared interest as the Chairman of the Security and Guarding Services Industry Authority.

5. Members noted that the supplementary provision was required because of the 148% increase in the costs of security services. They also noted from the paper that the sharp increase was due to high tender prices received, which might result from the transitional provision relating to watchmen's permits under the Security and Guarding Services Ordinance (the Ordinance). Members asked how far the provisions of the Ordinance had altered the original arrangements for guarding Government sites. Some members also queried the likelihood of the effect of the new permit requirement on the day-to-day operation of the contractors since old watchmen who continued to hold permits during the 5-year transitional period would not have their permits renewed before 2000-01. A member further pointed out that security services were also provided in public housing estates but there was no indication that the costs of such services borne by the Housing Authority had increased drastically because of the provisions of the Ordinance.

6. As far as the tender specifications were concerned, the Chief Estate Surveyor (CES) of Lands Department advised that the contractors had to provide security guards or watchmen to look after vacant Government sites on a 24-hour or regular patrol basis to prevent illegal occupation or use of the properties, some of which were planned for sale or redevelopment. For sites where 24-hour guarding was required, the contractors would be responsible for removing debris found on the sites. It was estimated that some 500 security guards would be required for providing security services for the 378 sites given in Enclosure 1 to the paper. The staffing level required was similar to that provided in previous contracts.

7. As regards the impact of the Ordinance on the operation of the contractors, members noted that the Government had all along required the contractors to provide security guards below the age of 65. The Ordinance should not give rise to any uncertainty in the supply of guards, and hence the higher operational costs, as suggested in the paper. Some members asked if there was any indication of collaboration among the bidders to raise the tender prices through exploiting the new provisions in the Ordinance. A member asked whether the Administration would consider conducting a fresh tender exercise. CES said that the tender exercise had been conducted in a fair and open manner. About 20 companies in the security field were currently employing over 500 guards but only three companies were interested and submitted tenders. Not all companies were interested in providing guarding services to Government sites as they had better clientele in the private sector. A re-tendering would not be meaningful on account of the time lapse and inflation. This was brought to the attention of the Public Works Tender Board which had accepted the recommended tender.

8. In this respect, Mrs Miriam LAU pointed out that the new Ordinance also stipulated that a security guard should not work for more than 12 hours in a 24-hour period. She enquired whether this new requirement had in any way affected the normal practice of security services. CES admitted that it would in some way increase the overheads as there was no such requirement in previous contracts. Re-scheduling of staff to work on 12-hour shifts might be necessary as security guards were prohibited from sleeping while on duty.

9. Mrs Miriam LAU also pointed out that on the basis of engaging 500 security guards, the monthly salary for each of these staff would only work out to be in the region of $3,000 which was by no means on the high side. She therefore requested members to consider the proposal on the basis of the actual salaries being paid to the staff. The Deputy Secretary for the Treasury confirmed that according to the Department's submission to the Public Works Tender Board which was copied to the Finance Bureau, the recommended tender was accepted for exactly the same reason mentioned by Mrs LAU. According to the information provided, the monthly salary was about $2,700 for a 12-hour shift watchman and $3,240 for the supervisors. The prices quoted were therefore considered to be fair and reasonable. She asked members to consider the present proposal on its own merits rather than focusing on the 148% increase between the current and preceding contracts as there were a lot of commercial factors affecting tender prices in an open and competitive exercise.

10. Whilst expressing dissatisfaction with the way the paper explained the reasons for the increase in costs, members accepted that the actual salaries being paid to the security staff concerned were already very low. However, they questioned the rationale for requiring the contractors to engage security guards below the age of 65 for the Government sites concerned which were usually fenced off and mostly on the ground level. The restriction on engaging security guards below 65 of age in the Ordinance only applied to multi-storey buildings where physical patrolling was more demanding. Members expressed disappointment at the Government taking the lead in imposing such stringent requirements. The Chairman advised members to focus on the present financial proposal and follow up the policy aspect at the relevant Panel.

11. Before putting the item to vote, the Chairman requested the Administration to ensure that papers for the Finance Committee should contain a complete picture of the circumstances and include the essential data in support of the proposals.

Admin

12. The Committee approved the proposal.

Item No. 4 - FCR(97-98)38
HEAD 76 - INLAND REVENUE DEPARTMENT ?Subhead 189 Interest on tax reserve certificates

13. A member expressed concern about the amount of the supplementary provision being sought, which was even higher than the total provision approved. He noted that a substantial part of the $30.1 million supplementary provision was to pay for the interests for tax reserve certificates (TRCs) for cases likely to be ruled in favour of the taxpayers. This gave rise to the concern that taxpayers were required to pay a much substantial amount of tax which in the first instance should not have been withheld by the Government. He enquired if the Administration had clear guidelines on how cases, particularly those appearing to be in favour of taxpayers, should be dealt with and if a review on the appropriateness of collecting tax prior to the decisions on appeal/objection cases was warranted. He added that the accounting profession's views were that the interest rate for TRCs was low, and that the maximum interest earning period of 36 months was exceedingly long.

14. The Principal Assistant Secretary for the Treasury (PAS/Tsy) advised that the existing arrangements struck a balance between safeguarding tax revenue and protecting the interest of taxpayers. The Inland Revenue Department would decide on how each individual case should be dealt with on the basis of the information available at the time, although very often information in favour of the taxpayers were only presented when objections and appeals were made. While the 36-month period represented the maximum statutory interest earning duration, the average period for keeping TRCs for payment of interest was about six months. Moreover, the statutory limit of 36 months was not applicable to objection cases. As regards the interest rate for TRCs, this was based on the average interest rate for six-months?fixed deposit of the three note-issuing banks in Hong Kong. The number of cases ruled in favour of Government and of taxpayers was about the same.

15. The Chief Assessor of Inland Revenue Department (CA/IRD) also explained that taxpayers raising objections to tax assessments could apply for standover of payment, in which case the Commissioner of Inland Revenue could either grant standover unconditionally, or allow the taxpayers to buy TRCs or use bank guarantee as security for the payment of tax held over in dispute. Currently, an amount of $9 billion in tax was being stoodover and $3.6 billion worth of TRCs were purchased as security. The TRCs purchased therefore represented only 40% of the tax being stoodover.

16. Referring to the amount of supplementary provision, PAS/Tsy pointed out that overspending in a particular year might be due to the statutory procedures involved for handling objection/appeal cases of previous years over which the Inland Revenue Department had no control. At the time when the estimate for 1997-98 was prepared, the actual expenditure for 1996-97 was not yet available and hence could not be taken into account. He added that supplementary provision for the item was provided in the past few years, either through the approval of Finance Committee, or under delegated authority when the amount involved was small. CA/IRD advised that a supplementary provision of $33.5 million was sought in 1996-97.

17. PAS/Tsy said in response to members that part of the reason for this year's increase was due to more taxpayers taking part in the Pay-As-You-Earn Scheme, which was available to employees and pensioners of the civil service. The interest earning rate and conditions were similar to those of the normal TRCs. Since introduction of the Scheme in December 1995, the number of persons taking part in the Scheme had been on the increase. The total number of TRCs purchased rose from 32 000 in 1995-96 to 44 000 in 1996-97, and the amount involved also rose from $1.4 billion to $2.2 billion.

18. The Chairman reminded members that the policy aspect of the issue could be followed up by the Financial Affairs Panel.

19. The Committee approved the proposal.

Item No. 5 - FCR(97-98)39
HEAD 37 - DEPARTMENT OF HEALTH Subhead 603 Plant, vehicles and equipment Laboratory Automation System

20. Members were generally in support of the proposal for the installation of a Laboratory Automation System in the Department of Health (DH). They raised questions on the details of operation and cost-effectiveness of the proposal.

21. In response, the Principal Assistant Secretary for Health and Welfare and the Deputy Director of Health (DD of H) provided the following information:

The current annual demand for routine biochemistry and haematology tests from the various service units of DH was about 500 000 specimens, while the designed annual throughput of the system was about 1 200 000 specimens. This would be sufficient to cope with DH's requirements over the next ten years.
Efficiency in the transmission of laboratory results would be maintained upon centralization of the laboratory service at the Lek Yuen Health Centre as the five centres currently engaged in the preparation of specimens for routine biochemistry and haematology tests were already served by courier service. To further improve efficiency, a project was in the pipeline for linking up all centres with the end users by a computer system which would put information online to end users once the results were available.
There would not be overlapping of work between DH and the Hospital Authority (HA). DH mainly provided service for clinics and public health institutions in the area of public health functions, while HA provided services for in-patients and out patients from specialist clinics. There was already co operation in the area of laboratory service between the two organizations in the form of joint studies, sharing of data, and cross referral of specialized laboratory tests.
Hong Kong had been keeping abreast with the development of laboratory medicine in advanced countries. The system in question was put onto the market by Japan in 1987 and its full benefits were not evaluated until a few years later. The United States began adopting the system in 1993. The setting up of the system in Hong Kong would enable Hong Kong to be among one of the 200 most modern laboratory centres in the world.

22. On the cost-effectiveness of the system, DD of H said that its installation would result in realizable and notional savings in staff costs over the next ten years of $21 million and $19 million respectively. Ten staff members would be deployed to other services in due course.

23. In response to a member on the need for more information on the costs and the type of equipment involved, DD of H advised that the assessment of the cost was based on the experience of countries using such systems. Some units in the system would have to be customized, and the usual open tender process in accordance with Government practices would be adopted. The Consultant of Department of Health added that details relating to the number and type of units required as well as other requirements would be listed in the tender specifications, and altogether 24 units would be needed to carry out the various functions.

24. As regards the possibility for allowing the private sector to make use of the spare capacity of the system to offset costs, DD of H reckoned that this would give rise to administrative difficulties. He also added that DH's demand for the system might change in time and priority should be given to those who made use of public health services. He assured members that consultancy service was always available to the private sector when there was such a need. The Chairman advised that the subject could be followed up by the Health Services Panel.

25. The Committee approved the proposal.

Item No. 6 - FCR(97-98)40
HEAD 173 - STUDENT FINANCIAL ASSISTANCE AGENCY ?Subhead 152 Scholarships, bursaries and maintenance grants
LOAN FUND
HEAD 254 - LOANS TO STUDENTS ?Subhead 111 Students of approved post-secondary colleges

26. On the eligibility of students of the Hong Kong Shue Yan College (HKSYC) for grants and loans under the Student Finance Assistance Scheme (SFAS), the Controller, Student Financial Assistance Agency, advised that the students could be eligible for both types of assistance depending on family circumstances. Repayment was not required in the case of grants, while loans were repayable within five years of graduation at an interest rate of 2.5% per annum. He confirmed that 872 students, or 95% of the applicants, were in receipt of the loans in 1996-97, and that the remaining 5% were either not eligible or were not successful because there were insufficient funds.

27. Some members sought clarification on the proposed arrangements for determining the provision for the SFAS and the need for change. In response, the Principal Assistant Secretary for Education and Manpower (PAS/E&M) said that restrictions in the existing formula had led to a reduction in the total annual provision available for the scheme in some years, and hence reduced financial assistance for the students. The Administration had accordingly proposed a new arrangement which would provide for greater flexibility. Under the new arrangement, the Administration would adjust the provisions for the SFAS for inflation to maintain their real value, and consider any real increases in the normal manner with reference to, for instance, the existing and the projected number of students in the scheme and the trend of the average amount of financial assistance in previous years.

28. On the comparison with the Local Student Finance Scheme (LSFS), PAS/E&M explained that these were different schemes designed for two different types of students. The SFAS was applicable only to students of the HKSYC which was a privately-run post-secondary college not subject to Government scrutiny in terms of enrolment, duration and tuition fee levels. The LSFS, on the other hand, provided financial assistance to students of publicly-funded institutions. The LSFS provision was not subject to an upper limit and for which supplementary provision could be sought. The average amount of financial assistance which students under the LSFS were likely to receive in 1997-98 would be about double of that given to the student in HKSYC. The school fees for students of the HKSYC for 1997-98 was $31,000 but this had no bearing on the extent of financial assistance.

29. As some members were interested in the Administration's principles in providing subsidy to students of post-secondary institutions, the Chairman advised members to follow up the issue at the Education Panel.

30. The Committee approved the proposal.

31. The Committee was adjourned at 4:20 pm.

Provisional Legislative Council Secretariat
3 November 1997