LC Paper No. FC116/98-99
(These minutes have been
seen by the Administration)
Ref : CB1/F/1/2
Notes on the Briefing for Finance Committee Members
on Friday, 4 December 1998, at 5:30 pm
in the Legislative Council Chamber
Members present :
Hon Ronald ARCULLI, JP, Chairman of the Finance Committee (Convenor)
Hon CHAN Kam-lam, Deputy Chairman of the Finance Committee
Hon Kenneth TING Woo-shou, JP
Hon David CHU Yu-lin
Hon HO Sai-chu, JP
Hon Michael HO Mun-ka
Hon LEE Wing-tat
Hon LEE Cheuk-yan
Hon LEE Kai-ming, JP
Hon Fred LI Wah-ming
Hon NG Leung-sing
Hon Mrs Selina CHOW LIANG Shuk-yee, JP
Hon MA Fung-kwok
Hon James TO Kun-sun
Hon CHEUNG Man-kwong
Hon Ambrose CHEUNG Wing-sum, JP
Hon HUI Cheung-ching
Hon CHAN Kwok-keung
Hon Mrs Sophie LEUNG LAU Yau-fun, JP
Dr Hon YEUNG Sum
Hon YEUNG Yiu-chung
Hon Mrs Miriam LAU Kin-yee, JP
Hon Ambrose LAU Hon-chuen, JP
Hon Emily LAU Wai-hing, JP
Hon CHOY So-yuk
Hon TAM Yiu-chung, JP
Dr Hon TANG Siu-tong, JP
Public officers attending :
Staff in attendance :
- Miss Denise YUE, JP
- Secretary for the Treasury
- Mrs Carrie LAM, JP
- Deputy Secretary for the Treasury
- Ms Elaine CHUNG Lai-kwok, JP
- Director of Urban Services
- Mrs Lucia LI
- Assistant Director of Urban Services (Finance)
- Mr Anthony WOO
- Deputy Director of Regional Services
- Mr LAM Kam-kwong
- Assistant Director of Regional Services
- Miss Doris NG
- Chief Treasury Accountant, Regional
- Mr K K MOK, JP
- Assistant Commissioner of Rating and Valuation
(Administration and Staff Development)
- Mr TSANG Yam-pui
- Deputy Commissioner of Police (Management)
- Mrs Kitty CHENG
- Financial Controller, Hong Kong Police Force
- Ms Pauline NG
- Assistant Secretary General 1
- Miss Polly YEUNG
- Chief Assistant Secretary (1)3
- Ms Sarah YUEN
- Senior Assistant Secretary (1)4
The Convenor explained that the briefing was convened in response to the Administration's request to brief members on the following subjects :
- One-off grants to the Municipal Councils; and
- One-line vote for selected departments in the 1999-2000 Estimates.
He reminded members that as it was not a meeting of the Finance Committee, members' speeches at this briefing would not be protected by the Legislative Council (Powers and Privileges) Ordinance.
One-off grants to the Municipal Councils
2. The Deputy Secretary for the Treasury (DS/Tsy) briefed members on the background and reasons for the proposed one-off grants of $1,526 million and $1,087 million to the Provisional Urban Council (PUC) and Provisional Regional Council (ProRC) respectively as set out in the information note. Members noted that the Administration would apply for the necessary funding at the Finance Committee meeting on 18 December 1998.
3. On the proposed one-off grants to the PUC and ProRC to meet their shortfalls in rates revenue as a result of the rebate to ratepayers of rates paid for the first quarter of 1998-99, the Convenor recapitulated that reimbursement to the two Councils had been agreed in principle by LegCo Members-elect in June this year when discussing with the Financial Secretary relief measures to cope with the economic downturn. He reminded members that the present funding proposal should be considered separately from the Government's policy decision on the future of the PUC and ProRC.
4. Regarding the consequences of not being reimbursed the shortfall of $1,526 million in rates revenue, the Director of Urban Services (DUS) pointed out that the provision of municipal services to the public would be significantly affected as a result, e.g. possible delay in opening the Hong Kong Central Library and the Hong Kong Film Archive, shelving the extension of library opening hours, postponement of slope maintenance works, delay in acquiring exhibits and vehicles replacement, notably refuse collecting vehicles. She estimated that the curtailment in services would generate savings of some $0.8 billion but the general public would be adversely affected. DUS further informed members that although the rates revenue charged at 2.6% was estimated at $18.7 billion, the PUC could not expect to receive the estimated amount in full as there might be a further loss of $0.4 billion resulting from fewer new buildings coming on stream and an increased number of objections against rates assessment.
5. Noting that a large part of the expenditure of the two Municipal Councils was on personal emolument, a member asked if the lower salary increase approved this year had brought about any savings. DUS confirmed that most of the staff of the Urban Services Department (USD) were civil servants on permanent and pensionable establishment and their annual salary adjustment had followed that of the civil service. Since 1997, the USD had implemented some 29 cost saving measures resulting in savings of some $1.2 billion. In 1997-98, there was a 0.6% decrease in the actual staff costs of the department. She added that for most new posts, the department would recruit staff on contract basis.
6. DS/Tsy supplemented that the PUC's estimated requirement of rates revenue of $18.7 billion had been worked out at money-of-the-day prices, based on an inflation allowance of 8% for personal emolument, 8% for capital works projects and 8.5% for operational expenditure. The actual salary adjustment of civil service salaries however had only been 6.83% and 5.84% in 1997-98 and 1998-99 respectively. She said that according to the Administration's calculations, the PUC would save about $1 billion as a result of lower inflation and salary adjustments. On the other hand, the Administration was fully aware that the total rates income of the PUC would fall short of the original estimate by some $0.4 billion as a result of the two factors mentioned by DUS. However, DS/Tsy confirmed that the Administration had no intention to re-open the rates negotiation with the two Councils for the current triennium (1997-98 to 1999-2000). Within the rates revenue provided, the two Councils were given full autonomy in managing their own finances. She reiterated that the present funding proposal only sought to meet the two Councils' shortfall in rates revenue resulting from the rates rebates. In this connection, DS/Tsy added that the PUC and ProRC had also undertaken some measures to provide relief to the community in the current economic situation.
7. DS/Tsy further explained that despite the said anticipated cost savings of up to $1 billion, the Administration proposed to fully compensate the PUC, and indeed the ProRC, for their shortfall in rates revenue in recognition that the rates rebate was a move of Government and it would not be appropriate for the consequence to be transferred to the Councils. In reply to Mr Ambrose CHEUNG, DS/Tsy re-affirmed the Administration's position that it would not make up for the under-estimate in rates revenue of $0.4 billion in the PUC's rates revenue in line with the established practice in the rates financing arrangement between the Councils and the Administration.
8. Noting a difference of $0.6 billion between the possible $1 billion cost savings and the $0.4 billion loss highlighted above, Miss Emily LAU remarked that the PUC might, as a result of the above arrangements, have at its disposal an additional $0.6 billion. In response, Mr Ambrose CHEUNG urged members to take into account the following factors when considering the proposed one-off grant to the PUC. Firstly, the PUC had prepared its current financial plan on the basis of revenue expected to be generated on the basis of the PUC rates of 2.6% or $18.7 billion in dollar terms estimated at the time of the triennial discussion, and was thus unprepared for the possible loss of $0.4 billion. Secondly, it might be too arbitrary to assume that lower inflation and salary costs would undoubtedly lead to savings of up to $1 billion for the PUC. Thirdly, apart from the above projected loss of $0.4 billion in rates revenue, the PUC's rental income would also decrease as a result of rental concessions for its market stalls and facilities. Mr CHEUNG considered it unfair to assume that the PUC would be able to benefit from the cost savings and hence, be able to operate within the reduced rates revenue without full reimbursement of its shortfall in rates revenue arising from the rates rebate.
9. Referring to the new arrangement of property valuation on an annual basis for the purpose of rates assessment, the Convenor enquired whether this would have any impact on the financial position of the two Councils. In reply, DS/Tsy advised that rates receipts of the Councils were determined by the rateable values and the rates charge. Pending the Financial Secretary's announcement of the rates charge in his 1999-2000 Budget, it was too early to assess its impact, if any, on the two Councils. She nevertheless said that in determining the Councils' next triennial funding requirement, the Government would consider all relevant factors, including the accumulated reserves of the PUC and ProRC.
One-line vote for selected departments
10. DS/Tsy briefed members on the background and reasons for the proposed one-line vote arrangement for selected departments in the 1999-2000 Estimates as described in the information note. She highlighted that the proposed arrangement would, inter alia, provide controlling officers with greater flexibility in the deployment of financial and human resources to enhance productivity and achieve their policy objectives.
11. Addressing concerns about the controlling officer's authority on establishment matters under the one-line vote arrangement, DS/Tsy confirmed that establishment controls in the form of the Notional Annual Mid-point Salaries (NAMS) system would continue. Changes to the NAMS ceiling and directorate posts would still be subject to the approval of FC through its Establishment Subcommittee.
12. As regards the cash-limited budgetary basis for the one-line vote arrangement, DS/Tsy confirmed that in the course of the year, supplementary provision would only be made for the salaries and allowances portion of the Operational Expenses in line with the civil service pay adjustment. Regarding Mr Michael HO's enquiry about increases in the Hospital Authority's staff on-cost being met by the Government, DS/Tsy clarified that with effect from 1 April 1998, the Government had ceased to top up such increases on an actual requirement basis.
13. On whether the one-line vote system was widely used in non-government organizations, DS/Tsy advised that many Government-funded bodies such as the eight UGC-funded tertiary institutions and the Hospital Authority were operating on one-line votes. Referring to the case of the LegCo Secretariat, Miss Emily LAU commented that a one-line vote was appropriate in view of the independence of the Secretariat from the Administration. In this connection, DS/Tsy supplemented that the independence of the Secretariat had been reflected in a separate Head of Expenditure being allocated to it whereas the other Government-funded bodies did not have their own Heads of Expenditure. She understood that greater flexibility in resources deployment was also a major reason for implementing a one-line vote for the LegCo Secretariat and pointed out that remuneration and allowances for Members were currently classified under a separate subhead.
14. Noting that the use of funds by the LegCo Secretariat was overseen by the 13-Member LegCo Commission, Mr LEE Wing-tat was concerned about the extensive powers to be vested with the controlling officer in the virement of funds between subheads in the absence of a comparable monitoring body. DS/Tsy, in response, acknowledged his concern but stressed the importance of instilling a new management culture in the civil service of greater responsiveness and accountability. She re-assured members that the devolution of authority would be accompanied by suitable institutional safeguards and the controlling officers would still be required to account for their use of funds in their Controlling Officers' reports. Where appropriate, the output indicators would be strengthened.
|15. To strengthen safeguards, Mr LEE suggested that a ceiling should be imposed on the virement of funds among subheads by controlling officers and where the amount of virement was large, a report should be made to the Finance Committee. In response, DS/Tsy urged members to give sufficient flexibility to the five selected departments in the initial period of trial and assured members that the Administration would consider whether further reporting requirements should be imposed during the trial period and would fully consult Members before the operation of one-line votes was extended to other departments. In this connection, the Convenor suggested and the Administration agreed to report progress to the FC towards the end of 1999 when the one-line vote had at least six months' operation in the selected departments.
16. Despite the Administration's assurance that the one-line vote arrangement would not diminish the Government's accountability to LegCo or undermine the power of the legislature in scrutinising and approving public expenditure, members stressed the need to strike a reasonable balance between providing greater flexibility to controlling officers and preserving the monitoring role of the legislature over the use of public funds. For the sake of prudence, Dr YEUNG Sum considered that one-line votes should be implemented by phases.
17. In this connection, Miss Emily LAU referred to Rule 69(3) of the Rules of Procedure of LegCo and expressed concern on whether members' existing powers to amend expenditure under various subheads in the context of the Appropriation Bill would in fact be diminished as the number of subheads would be globally categorised as "Operational Expenses".
18. Whilst refraining from commenting on specific provisions in the Rules of Procedure, DS/Tsy assured members that over the years, there had not been any case in which the legislature had to invoke its powers to reduce the sum alloted to a head of expenditure. She also agreed with the Convenor's view that despite the absence of a detailed categorization of subheads under the one-line vote system, LegCo could still reduce the overall amount under the subhead of "Operational Expenses" where justified, and it would be up to the controlling officer to make available the shortfall by way of virement within his global recurrent account.
19. On whether advice had been sought from the Director of Audit on the proposed one-line vote system, DS/Tsy confirmed that such advice had not been specifically sought as there would not be any change to the existing accounting arrangements.
20. At the invitation of the Convenor, the Deputy Commissioner of Police (Management) (DC/P(Mgt)) elaborated on the operational experience of the Police Force in utilisation of resources and cost-saving and stated that the Police Force welcomed being selected as one of the five departments for trial. Over the years, the Police had achieved savings through measures such as streamlining its work procedures, outresourcing and computerization. Internal safeguards on flexible use of resources included the formulation of comprehensive guidelines and the delineation of "core tasks". DC/P(Mgt) added that the deletion and creation of posts were conducted in accordance with established procedures and scrutinized by the Force Establishment and Manning Committee and the Departmental Establishment Committee, and in the case of directorate posts, by FC through its Establishment Subcommittee. He nevertheless assured members that despite efforts to achieve savings and increase productivity, law and order and services to the public must be maintained and frontline Police staff would not be reduced.
21. Mr James TO expressed grave reservation about the Police Force being selected as one of the five departments to operate on a one-line vote. He was particularly apprehensive of the possible diversion of funds for other undisclosed purposes and gave the examples of the possible reinstatement of the Special Branch and the purchase of interception devices. Mr TO was also concerned about the use of funds under subhead 103 - "Rewards and special services" which had never been revealed all along. In view of the sensitive nature of the work of the Police Force, he urged the Administration not to include the Police Force as one of the participating departments.
22. Addressing Mr TO's concerns, DC/P(Mgt) highlighted a series of measures undertaken by the Police Force in the past three years to achieve productivity gains which were targeted at strengthening frontline police staff and had nothing to do with funding for undisclosed purposes. Members noted that these measures included major computerization, simplifying work procedures to reduce the payment of overtime allowance to staff, outsourcing of catering services at the Police Training School and the phased merging of the Field Patrol Detachment and the Border District Division. Over 800 frontline posts had been created from the savings achieved.
23. For the avoidance of doubt and responding to Mr James TO's comments, the Secretary for the Treasury (S/Tsy) reiterated that the five participating departments, which represented a good mix of departments of various sizes, had been selected solely on the basis of their track record in resource management and the capability of their senior management in undertaking this reform initiative which would entail a lot of additional work. Members noted that during the five-year period ending 1997-98, the increase in annual expenditure of the Police Force was only 2.8% while the annual expenditure of the Government as a whole had increased by 30%. S/Tsy re-affirmed that there was no hidden agenda in selecting the Police Force.
24. In this regard, DS/Tsy supplemented that to maintain controls over certain types of expenditure and to enhance transparency, the Recurrent Account of the Police Force would be presented under three subheads, instead of a single subhead. Moreover, the one-line vote arrangement would only apply to the estimated expenditure under the Recurrent Account and no change would be proposed to the Capital Account which covered, inter alia, purchases of equipment and capital projects.
|25. Addressing members' concerns about the level of details which would be disclosed in the draft Estimates of Expenditure for members' scrutiny, S/Tsy agreed that for reporting and analysis, but not for control purposes, the details of expenditure under the Recurrent Account would be explained in detail, (i.e. with breakdown of expenditure for specific items, in the same way as the current practice).
26. On the timetable for full implementation of one-line votes in the civil service, DS/Tsy advised that if implementation proved to be effective, the Administration might have to examine whether the existing provisions in the Public Finance Ordinance (PFO) requiring expenditure to be classified under heads and subheads should be suitably amended; and whether unspent balance could be retained by the departments concerned for the following year. Pending a careful study of these issues, the Administration was unable to specify a firm timetable for full implementation.
|27. Mr Michael HO pointed out that part of the existing rigidity and long time taken in the deployment of resources had arisen from cumbersome procedures and formalities which the Administration should seek to address without delay. Miss Emily LAU suggested that the Administration should provide further information to illustrate the extent to which the one-line vote arrangement could expedite resources management or improve efficiency in the civil service. In this connection, the Convenor also highlighted the importance of introducing some form of incentives to encourage savings on the part of Government departments.
28. S/Tsy took note of members' concerns and advised that to facilitate more effective resource planning and management, some Governments prepared their Estimates of Expenditure on a triennial, instead of an annual, basis. The Administration was now adopting an incremental approach and the one-line vote arrangement was the first major step aimed at improving resource management. She added that it would be necessary at a later stage for the Administration to examine provisions in the PFO to cater for future reform initiatives in public finance management.
29. The briefing ended at 7:00 pm.
Legislative Council Secretariat
19 April 1999