LegCo Paper No. FC 83/96-97
(These minutes have been
seen by the Administration)
Ref : CB1/F/1/2

Legislative Council Finance Committee

Minutes of the proceedings of the meeting held on Friday, 21 February 1997, at 2:30 pm in the Legislative Council Chamber

Members present :

Members absent :

Public officers attending :

Mr Kevin HO, JP: Deputy Secretary for the Treasury
Mr Ros K T LAM: Principal Assistant Secretary for Education and Manpower
Mr Anthony K H TONG: Assistant Director of Education
Mr Rafael HUI, JP: Secretary for Financial Services
Mrs Pamela TAN, JP: Director, Mandatory Provident Fund Office
Mr Stephen PANG: Principal Executive Officer, Mandatory Provident Fund Office
Mr Trevor KEEN: Principal Assistant Secretary for Planning, Environment and Lands
Mrs Violet CHAN: Chief Treasury Accountant of Finance Branch
Mr Kelvin CHAN: Land Registrar
Ms Barbara MAK: Busines Manager of Land Registry
Mr Andrew R WELLS: Deputy Secretary for Housing
Mr Victor SO, JP: Executive Director, Hong Kong Housing Society
Mr Ambrose LAM: Director (Finance and Administration), Hong Kong Housing Society
Miss L C WONG: Director (Estate Management), Hong Kong Housing Society

Clerk in attendance :

Mrs Vivian KAM: Assistant Secretary General 1

Staff in attendance :

Mrs Constance LI: Chief Assistant Secretary (Finance Committee)
Miss Anita SIT: Senior Assistant Secretary (Finance Committee)

RECOMMENDATIONS OF THE ESTABLISHMENT SUBCOMMITTEE MADE ON 29 JANUARY 1997

HEAD 40 - EDUCATION DEPARTMENT

HEAD 148 - GOVERNMENT SECRETARIAT : FINANCIAL SERVICES BRANCH

CAPITAL INVESTMENT FUND

HEAD 972 - TRADING FUNDS

LOAN FUND

Item No. 1 - FCR(96-97)106

RECOMMENDATIONS OF THE ESTABLISHMENT SUBCOMMITTEE MADE ON 29 JANUARY 1997

The Committee approved the proposal.

Item No. 2 - FCR(96-97)107

HEAD 40 - EDUCATION DEPARTMENT

Subhead 305 Code of Aid for secondary schools

2. The Committee approved the proposal.

Item No. 3 - FCR(96-97)110

HEAD 148 - GOVERNMENT SECRETARIAT : FINANCIAL SERVICES BRANCH

Subhead 001 Salaries

3. Responding to members' questions, the Secretary for Financial Services (SFS) and the Director/Mandatory Provident Fund Office (D/MPFO) briefed members on Government's position in relation to the six suggestions made by members of the Democratic Alliance for the Betterment of Hong Kong (DAB) and Federation of Trade Union (FTU) when the staffing proposal was discussed at the Establishment Subcommittee meeting on 29 January 1997 -

The Government would be represented on the Management Committee overseeing the operation of the Industry Scheme.
The MPFO saw no objection to members' suggestion that under the interface arrangement, employees who joined the schemes under the Occupational Retirement Schemes Ordinance should be entitled to receive the employers' contribution on dismissal for cause, in line with the provisions under the Mandatory Provident Fund (MPF) System. However, as this might have financial implications on employers, the Government would discuss the issue further with employers' representatives.
The ceiling of $500 million for professional indemnity insurance would be subject to review after implementation of the MPF System.
The ratio for local and overseas investment would be reviewed where necessary.
The Government had no intention to expand the scope of the Residual Provident Fund Scheme (RPFS) considering that the suggestion might lead to unfair competition among service providers, thus seriously affecting the interest of scheme members who could not join the RPFS.
The Government had no intention to change the existing policy for MPF benefits derived from employers' contributions to be used to offset severance payments/long service payments. As employers would likely object to making double contributions for the same purpose, the issue might have to be further discussed by the Labour Advisory Board if employee representatives wished to pursue the suggestion.

4. D/MPFO acknowledged members' concern about the adequacy of protection to the retired under the MPF Schemes. She advised that MPFO would introduce appropriate measures to keep the administrative costs of the MPF Schemes to the minimum, so that contributions by the low-income employees would not be eroded by the administrative costs in the long run. The MPFO had agreed in principle that service providers should not reject any customer wishing to join the MPF Schemes, and MPFO would examine the implementation details. The MPFO would also examine the feasibility of requiring all MPF schemes to provide a guaranteed product, so that scheme members would be given an option to choose a product that could guarantee a minimum return for their retirement benefits.

5. A member expressed concern that the high proportion (70%) of overseas investment permitted under the MPF Schemes might have adverse impact on the economy of Hong Kong. In response, SFS clarified that the investment guidelines for MPF Schemes had promulgated the requirement for a minimum of 30% of the total assets to be invested on Hong Kong assets. As Hong Kong was an international financial centre, it was unlikely that the MPF Schemes would be dominated by overseas financial institutions. As far as the insurance industry was concerned, for example, about 20 insurance companies were conducting retirement schemes business, and the sources of capital for half of these companies came from Hong Kong or China. He added that, in reviewing the ratio for local and overseas investment, the Government would need to take into account the capacity of local financial markets.

6. In response to a member's question, D/MPFO advised that, based on the Wyatt report, retirement schemes in Hong Kong achieved an average annual return rate of about 16% over the past years. After deducting the cost of inflation for the same period, these schemes still achieved a net investment return of 7%. In this regard, some members were of the view that the average figure could not accurately reflect the overall picture, especially in respect of schemes which had failed to achieve an annual return rate above inflation. D/MPFO stressed that it was unrealistic to expect all retirement schemes to achieve sustainable high return at all times. It was more important that retirement schemes sustained a good return on average in the long term. She also promised to provide more information on the calculation of the rate of investment return to members. In response to a member's queries about the system in Chile, SFS undertook to provide further information.

Admin

7. In response to a member, SFS advised that the Chief Executive (Designate) had acknowledged in public the need for a MPF System. On the legislative timetable, SFS assured members that the Government still aimed to complete the subsidiary legislation in around April 1997, and the Attorney General had agreed to put in more resources for the task. To expedite the legislative drafting and scrutiny process, the Government had been in detailed discussion with the LegCo Subcommittee on MPF System about the proposals of the MPF System. The Government was firmly committed to implementing the MPF System as soon as possible.

8. Members of the Liberal Party supported the proposal. They considered that as retirement protection had been discussed for more than 30 years and had now secured the support of the employer associations, the Government should expedite the legislative work to enable early implementation of the MPF System.

9. Members of the DAB indicated support of the proposal as the Government had agreed, after further discussions with DAB, to pursue their recommendations made at the Establishment Subcommittee meeting on 29 January 1997. They would continue to ensure that the MPF System could provide adequate protection to the retired and the low-income group.

10. Members of the FTU stated that they had always been in support of the MPF System and the Old Age Pension Scheme. As the Government had undertaken to introduce improvements to the MPF System as mentioned above, they would support the staffing proposal and continue to press for further improvements to the System.

11. Members of the Association of Democracy and People's Livelihood objected to the MPF System as they were in favour of a dual protection system comprising both the Old Age Pension Scheme and the Central Provident Fund. They considered that the MPF System had structural defects and could not ensure adequate protection for the low-income employees.

12. Members of the Democratic Party were of the view that the Government had not made any firm commitment to solve fundamental problems of the MPF System such as risks caused by fraud and misfeasance. They considered that the scope of the Residual Provident Fund Scheme should be expanded to allow greater flexibility for participation by low-income employees, but the Government's suggestion was working to the contrary. They had reservations on the protection which the MPF System could offer to low-income employees in view of the investment risks and high administrative costs. As they doubted the Government's determination of introducing other welfare benefits for the elderly after implementation of the MPF System, they would not support the present proposal.

13. In concluding the discussion, SFS advised that it was Government policy to strive for a reasonably adequate retirement protection system in Hong Kong, and the Government would continue to improve its social services to the elderly within financial constraints.

14. As the proposal had been discussed at length, the Chairman put the proposal to vote: 31 members voted for and 19 voted against the proposal.

Ayes:

Hon Allen LEE	Hon Mrs Selina CHOW
Hon NGAI Shiu-kit	Hon LAU Wong-fat
Hon Edward S T HO	Hon Ronald ARCULLI
Hon Mrs Miriam LAU Kin-yee	Dr Hon LEONG Che-hung
Hon CHIM Pui-chung	Hon Eric LI Ka-cheung
Dr Hon Samuel WONG Ping-wai	Dr Hon Philip WONG Yu-hong
Hon Howard YOUNG	Hon Christine LOH Kung-wai
Hon James TIEN Pei-chun	Hon CHAN Kam-lam
Hon CHAN Wing-chan	Hon CHAN Yuen-han
Hon Paul CHENG Ming-fun	Hon CHENG Yiu-tong
Hon CHEUNG Hon-chung	Hon CHOY Kan-pui
Hon David CHU Yu-lin	Hon IP Kwok-him
Hon Ambrose LAU Hon-chuen	Hon LEE Kai-ming
Hon LO Suk-ching	Hon Margaret NG
Hon NGAN Kam-chuen	Hon Mrs Elizabeth WONG
Hon Lawrence YUM Sin-ling

(31 members)

Nos:

Hon SZETO Wah	Hon Albert CHAN Wai-yip
Hon CHEUNG Man-kwong	Hon Frederick FUNG Kin-kee
Hon Michael HO Mun-ka	Dr Hon HUANG Chen-ya
Hon LEE Wing-tat	Hon Fred LI Wah-ming
Hon James TO Kun-sun	Hon Zachary WONG Wai-yin
Hon LEE Cheuk-yan	Dr Hon Anthony CHEUNG Bing-leung
Hon LAU Chin-shek	Hon LAW Chi-kwong
Hon LEUNG Yiu-chung	Hon Bruce LIU Sing-lee
Hon SIN Chung-kai	Hon TSANG Kin-shing
Dr Hon John TSE Wing-ling

(19 members)

15. The Chairman announced the voting result and declared that the proposal was approved. (At this juncture, Dr LAW Cheung-kwok and Mr MOK Ying-fan indicated that they had voted against the proposal but their votes had not been registered by the voting machine. The Chairman therefore ordered a test of the voting system which was found to be in order. The Chairman directed to put on record that Dr LAW Cheung-kwok and Mr MOK Ying-fan had claimed to have voted against the proposal.)

16. The Committee approved the proposal.

Item No. 4 - FCR(96-97)108

CAPITAL INVESTMENT FUND

HEAD 972 - TRADING FUNDS

Subhead 102 Loan to Land Registry

17. In reply to a member, the Land Registrar (LR) explained the reasons for extending the drawdown period for the existing loan facility from the Capital Investment Fund to the Land Registry Trading Fund. He advised that a number of improvement measures planned at the time of the establishment of the Land Registry Trading Fund in 1993 had been implemented. With technological development, it was now possible to adopt new technology for some improvement initiatives. Due to changes in the scope and timing of implementation of those initiatives such as microfilming of land documents and centralisation of land registrations, it was envisaged that the credit facilities would be required at a later stage. He added that as the Land Registry was now operating on commercial principles, it had to keep in view customer requirements for necessary improvements.

18. On the question of whether subsequent changes to the operation of the land registration system might render the proposed systems obsolete, LR assured members that the records would still be required even if modifications were made to the land registration procedures, and that the investment would not be wasted.

19. The Committee approved the proposal.

Item No. 5 - FCR(96-97)109

LOAN FUND

HEAD 251 - HOUSING

Hong Kong Housing Society

New Subhead "Sandwich Class Housing Loan Scheme"

HEAD 184 - TRANSFERS TO FUNDS

Subhead 988 Payment to the Loan Fund

20. The Chairman of the LegCo Panel on Housing advised that members of the Panel had discussed the subject and were in support of the proposal. Nevertheless, he pointed out that the construction of about 30 000 flats under the Sandwich Class Housing Main Scheme by the year 2003 would be insufficient to meet the demand of 60 000 - 80 000 sandwich class families. He therefore urged the Administration to make more efforts to increase housing supply for this category. In response, the Deputy Secretary for Housing (DS/H) advised that the Administration would definitely aim to increase supply of sandwich class housing units to meet growing demand, and was making greater efforts to identify new sites to construct more sandwich class housing units beyond the year 2001.

21. A member asked about the rationale for a lower loan limit of $550,000 for applicants under the Sandwich Class Housing Loan Scheme (SCHLS) of the Hong Kong Housing Society (HKHS) since the maximum loan amount for the Home Purchase Loan Scheme of the Housing Authority was $600,000. In reply, DS/H advised that the maximum loan amount was calculated having regard to the loan conditions of the SCHLS and the average income level of potential applicants. It was possible that applicants under the Housing Authority scheme might require a higher loan amount than those under the HKHS scheme.

22. On the number of successful applicants for the previous phases of SCHLS, the Director (Estate Management)/HKHS advised that although 1 718 applicants were found eligible under Phase IV of the scheme, only 80% of them eventually purchased units under the scheme. With regard to the suggestion of relaxing the eligibility criteria for SCHLS, HKHS was in discussion with the Government on the feasibility and implications.

23. The Administration noted a member's views that increasing the supply of subsidised home ownership flats would be the preferred option to SCHLS in the long term.

24. The Committee approved the proposal.

25. The Committee was adjourned at 4:05 pm.

Legislative Council Secretariat
7 March 1997

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