LC Paper No. FC19/98-99

(These minutes have been
seen by the Administration)
Ref : CB1/F/1/2

Finance Committee of the Legislative Council

Minutes of the third meeting
held at the Legislative Council Chamber
on Friday, 17 July 1998, at 2:30 pm

Members present :

Hon CHAN Kam-lam (Deputy Chairman)
Hon Kenneth TING Woo-shou, JP
Hon James TIEN Pei-chun, JP
Hon HO Sai-chu, JP
Hon Cyd HO Sau-lan
Hon Edward HO Sing-tin, JP
Hon Albert HO Chun-yan
Hon Michael HO Mun-ka
Dr Hon Raymond HO Chung-tai, JP
Hon LEE Wing-tat
Hon LEE Cheuk-yan
Hon Martin LEE Chu-ming, SC, JP
Hon Eric LI Ka-cheung, JP
Hon LEE Kai-ming, JP
Hon Fred LI Wah-ming
Hon NG Leung-sing
Prof Hon NG Ching-fai
Hon Margaret NG
Hon Mrs Selina CHOW LIANG Shuk-yee, JP
Hon MA Fung-kwok
Hon James TO Kun-sun
Hon Ambrose CHEUNG Wing-sum, JP
Hon HUI Cheung-ching
Hon Christine LOH
Hon CHAN Kwok-keung
Hon CHAN Yuen-han
Hon Bernard CHAN
Hon CHAN Wing-chan
Dr Hon LEONG Che-hung, JP
Hon Mrs Sophie LEUNG LAU Yau-fun, JP
Hon LEUNG Yiu-chung
Hon Gary CHENG Kai-nam
Hon Andrew WONG Wang-fat, JP
Hon WONG Yung-kan
Hon Jasper TSANG Yok-sing, JP
Hon Howard YOUNG, JP
Dr Hon YEUNG Sum
Hon YEUNG Yiu-chung
Hon LAU Chin-shek, JP
Hon LAU Kong-wah
Hon LAU Wong-fat, GBS, JP
Hon Mrs Miriam LAU Kin-yee, JP
Hon Ambrose LAU
Hon-chuen, JP
Hon Emily LAU Wai-hing, JP
Dr Hon TANG Siu-tong, JP
Hon CHOY So-yuk
Hon Andrew CHENG Kar-foo
Hon SZETO Wah
Hon LAW Chi-kwong, JP
Hon TAM Yiu-chung, JP

Members absent :

Hon David CHU Yu-lin
Dr Hon David LI Kwok-po, JP
Dr Hon LUI Ming-wah, JP
Hon CHEUNG Man-kwong
Hon SIN Chung-kai
Dr Hon Philip WONG Yu-Hong
Hon CHIM Pui-chung
Hon Timothy FOK Tsun-ting, JP

Public officers attending :

Miss Denise YUE, 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 Joseph LAI

Deputy Secretary for Education and Manpower (3)

Mr K C NG

Assistant Director of Education

Mr Dennis PANG

Assistant Director of Information Technology Services

Mr Raymond P H CHAN

Systems Ms Manager of Information Technology Services Department

Mr H W FUNG, JP

Deputy ComMissioner for Census and Statistics

Mrs Helen CHAN

Principal Economist of Financial Services Bureau

Mrs CHEUNG WONG Wai-mui

Senior Systems Ms Manager of Census and Statistics Department

Mr D W PESCOD, JP

Deputy Secretary for the Civil Service

Mrs Philomena LEUNG

Principal Assistant Secretary for the Civil Service

Mr C M LEUNG, JP

Secretary for Housing

Ms WONG Chiu-ying

Principal Assistant Secretary for Housing

Mr Victor SO, JP

Executive Director, Hong Kong Housing Society

Mr Matthew CHEUNG, JP

Deputy Secretary for Education and Manpower (1)

Ms Michelle LI

Principal Assistant Secretary for Education and Manpower

Mr J D WILLIS

Controller, Student Financial Assistance Agency

Clerk in attendance :

Ms Pauline NG

Assistant Secretary General 1

Staff in attendance :

Miss Polly YEUNG

Chief Assistant Secretary (1)3

Ms Sarah YUEN

Senior Assistant Secretary (1)4

Item No. 1 - FCR(98-99)16
CAPITAL WORKS RESERVE FUND
HEAD 710 - COMPUTERISATION
Education Department

New Subhead "Year 2000 Compliance Project for the Education Department"

In response to concerns about whether it was safe to set a target date of mid-1999 for completing the Year 2000 (Y2K) compliance project, the Assistant Director of Education (AD/E) assured members that detailed studies on the computer systems operated by the Education Department (ED), including the checking of Y2K compliance, had already been undertaken in 1996-97. Subject to the funding request being approved, the ED was confident of meeting the target completion date of mid-1999.

2. In reply to a member's enquiry about the distribution of work between in- house staff and temporary contract staff in implementing the Y2K compliance project, AD/E explained that although some of the rectification works were contracted out, in-house staff were responsible for co-ordination, testing and monitoring the progress of services contracted out. He explained how workload and staffing requirements were expressed in terms of man-year.

3. The Assistant Director of Information Technology Services (AD/ITS) echoed a member's concern about achieving economy of scale in implementing the Y2K compliance project and confirmed that some commonly used hardware and software testing facilities could be shared among departments. Responding to a member's query for not mentioning any savings achieved by the ED as a result of the project, AD/ITS explained that most of the rectification works of the ED were software enhancement and the hardware in question was mainly personal computers. The maintenance costs for these facilities were much lower than those required for mainframe or mid-range machines used by other departments such as the Census & Statistics Department (C & SD). The savings achieved by the ED as a result of the rectifications were therefore much less significant.

4. On wider concerns about the progress of Y2K compliance in the entire Government, the Chairman suggested and AD/ITS agreed to provide further information, preferably in the form of a chart presenting, inter alia, the extent and target dates of Y2K compliance projects of all Government departments for further consideration by the Information Technology and Broadcasting Panel.	Admin XX

5. The Committee approved the proposal.

Item No. 2 - FCR(98-99)17
CAPITAL WORKS RESERVE FUND
HEAD 710 - COMPUTERISATION
Census and Statistics Department
New Subhead "Rectification of the computer systems of the Census and Statistics Department for Year 2000 compliance"

HEAD 26 - CENSUS AND STATISTICS DEPARTMENT

Subhead 001 Salaries

6. As a number of non-Y2K compliant computers and related equipment in the C & SD would have to be replaced in connection with the Y2K compliance project, a member enquired about the disposal of the displaced computers. AD/ITS said in reply that they would be disposed of by the Government Supplies Department in accordance with established rules and procedures. The member suggested that the Information Technology and Broadcasting Panel might wish to follow up the issue in case there was a flux of outdated and incompatible computer hardware in the market following the Y2K compliance exercise.

7. In connection with the Y2K compliance project, some members highlighted the importance of accurate and timely release of official statistics and economic forecasts. In response, the Deputy Commissioner for Census and Statistics (DC/C&S) and the Principal Economist of the Financial Services Bureau made the following points:

1. Being one of the economic entities subscribed to the Special Data Dissemination Standard (SDDS) of the International Monetary Fund (IMF), Hong Kong's transparency, credibility and reliability in the release of official statistics were duly recognized. As part of its commitment to comply with the requirements of the SDDS, Hong Kong was obligated to expedite its release of official statistics. For example, by the end of 1998, the C & SD would release its quarterly statistics within three months as compared to the existing 3| to four months after the quarter under reference. The Y2K project would be essential for achieving these targets.

2. If the computer systems of the C & SD were not rectified in time, many of the official statistics, including key statistics such as unemployment rate and GDP figures, could be prone to error. The timing of release of statistics could also be affected. These statistics provided the important basis for formulating government policies. International organizations such as the IMF and credit rating agencies also relied heavily on the official statistics released by the Government in assessing the economic performance of Hong Kong and the credit ratings of its major institutions.

8. On the implementation plan of the Y2K project, some members considered that the proposed target date of June 1999 for programme testing should be advanced. They were concerned that there might not be adequate time left before the year 2000 to take remedial or contingency action should problems arise.

9. Assuring members that the target date of June 1999 was reasonable and realistic, DC/C&S advised that of the 113 systems operated by the C & SD, rectification had been completed on 10 systems. The department would complete rectification on 50% and 75% of the systems by the end of 1998 and in the first quarter of 1999 respectively. He stressed that the major activities for the Y2K compliance project had been in progress and the target completion dates served primarily as a deadline by which time the activity must have been completed. He further assured members that problems, if any, could be detected well in advance of the year 2000 through thorough programme testing. There would be time for taking remedial action before implementation. Referring to some of the systems which would not need to handle Y2K date until mid or late 2000, DC/C&S cited as examples the annual and quarterly statistics in respect of the year 2000 published by the C & SD. He stressed that these systems would still be thoroughly tested by June 1999 to ensure Y2K compliance.

10. A member was concerned about the reliability of the testing to be carried out in a separate testing site and raised doubt on whether the new system could function properly in the real environment. In reply, DC/C&S and AD/ITS said that in accordance with comprehensive testing plans, the department would test their application systems and simulated data in an operating environment replicated on the real working environment.

11. Regarding overseas experience in handling the problem of Y2K compliance, AD/ITS advised that the Administration was kept posted of overseas developments through its overseas counterparts, service providers and the Internet. He added that the approaches adopted by Hong Kong were similar to those used overseas.

12. The Committee approved the proposal.

Item No. 3 - FCR(98-99)18
CIVIL SERVICE PAY ADJUSTMENT 1998

13.The Chairman declared an interest on behalf of all those members who were employees of subvented non-government organizations and who would benefit from the proposed pay adjustment.

14. Dr YEUNG Sum stated that Members of the Democratic Party (DP) supported the proposal, but they were of the view that the percentage increase for the lower band should be higher than that for the upper band. Dr YEUNG urged the Administration to review the present mechanism of dividing civil service salaries into three pay bands. A member also cautioned the Administration about a decline in morale among junior and middle-ranking staff who would receive a lower percentage increase.

15. In reply, Deputy Secretary for the Civil Service (DS/CS) said that the present methodology had been used since 1989. The Administration's policy was that annual adjustments in civil service pay should be broadly comparable to pay adjustments in the private sector. Each year, the Government proposed salary adjustments having regard to the annual survey of pay trends in private sector companies over the previous year. The drawing up of the adjustment for the lower band to that of the middle band was based on a recommendation of the 1988 Committee of Inquiry. It was only in recent years that the percentage increase for the middle and lower bands was lower than that for the upper band. The Administration had considered carefully applying the same percentage increase across the board, but in order to maintain relativity with the private sector where the increase in salaries for the upper band was higher than that for the other bands, the Administration considered the present proposal appropriate.

16. DS/CS also advised that in addition to the annual Pay Trend Survey, there were also periodic reviews. In this respect, a benchmark review would commence shortly. Although there was no immediate plan for a general review of the current mechanism used in assessing civil service pay adjustments, the Administration would review the survey methodology and make improvements where appropriate.

17. Some members from the labour sector expressed support for the present proposal. Mr LEE Cheuk-yan cautioned that a general freeze or cut in civil service pay would have a negative impact on wage levels in the private sector. Mr CHAN Wing-chan said that the Democratic Alliance for Betterment of Hong Kong and the Hong Kong Federation of Trade Unions considered that employers, such as the Government, who could afford to grant pay increases to their staff should be encouraged to do so.

18. Mrs Miriam LAU questioned the rationale for pitching the pay adjustment freeze at Directorate Pay Scale Point 3 (D3) level and above and asked why the freeze was not extended to all levels of staff on the Directorate Pay Scale. In response, DS/CS pointed out that the decision on the pay freeze was a move to demonstrate that senior officers responsible for policy-making in the Government understood and were prepared to share the hardship caused by the current economic turmoil and that directorate officers below D3 were not as heavily involved in high-level policy-making.

19. In this connection, Mrs LAU pointed out that the Government should look at the salaries of comparable staff in the private sector in determining the cut-off point as many private-sector employees in receipt of a salary equivalent to that at the top of the Master Pay Scale were already at the policy-making level in their organization. In response, DS/CS reiterated the need to maintain relativity between different ranks below D3 and that the proposed freeze was part of the Government's response to the severe economic adjustment faced by Hong Kong.

20. On the Pay Trend Survey, Mr James TIEN said that the Survey failed to take into account other equally important factors such as the cutting-down of commissions or bonuses which were not part of the salaries within the scope of the Survey, trimming-down of the size of senior level staff, etc. In reply, DS/CS pointed out that it was very difficult to obtain information on the pay of directorate-equivalent staff in private sector companies. He said that the Pay Trend Survey was able to accommodate significant changes in staffing levels and that one of the factors in deciding the companies to be surveyed was the changes in the size of their workforce. Moreover, the present mechanism was an established practice and accepted by the Staff Sides of the central consultative councils.

21. Mr James TIEN stated that Members of the Liberal Party (LP) were of the view that the pay adjustment freeze should be applied to all directorate staff and would object to the proposal in its present form.

22. In view of members' concerns, the Chairman suggested and members agreed that the wider issue of pay adjustment mechanism and fringe benefits in the civil service should be referred to the Panel on Public Service for further deliberation.	XX

23. A member enquired how far officers at D3 level and above, including those in the judicial service and in subvented or public organizations, were consulted before the decision on the pay adjustment freeze was made. Two other members highlighted the need to uphold judicial independence and questioned the rationale for extending the freeze to officers on D3-equivalent and above in the judicial service as these judicial staff were by no means engaged in policy-making functions.

24. DS/CS confirmed that although officers at D3 and above in the civil service had not been consulted, the Administration believed that most of them supported the decision on the pay adjustment freeze. He reiterated that the Administration fully supported the independence of the Judiciary. However, the freeze was intended to apply to all related sectors whose salary adjustments followed those in the civil service. He added that the Standing Committee on Judicial Salaries and Conditions of Service had previously considered that the changes to the pay levels of the Directorate pay scale were appropriate for the Judiciary.

25. In reply to members, DS/CS provided the following statistical information:

1. There were about 300 officers at D3 and above in the civil service and some 300 in the subvented sector;

2. the number of officers in the upper band of the Master Pay Scale in the civil service was about 53 000;

3. about 53% of the staff in the civil service were on the maximum pay point, ranging from 31% in the case of directorate staff to 84% for Model Scale 1 staff; and

4. about 20 officers at D3 and above and equivalent would be eligible for the "pensionable personal allowance", resulting in an additional provision of about $6 million in terms of commuted pension and about $700,000 in terms of annual pension.

26. Some members cast doubt on the 'leadership' effect of the pay adjustment freeze on the private sector. DS/CS stressed that the Government had no intention to interfere with the pay levels and adjustments in the private sector since employers and employees were free to determine their own terms and conditions of employment. In reply to the enquiries of Mr Howard YOUNG and Mr Edward HO, DS/CS said that he would not speculate on the impact on civil service pay adjustment in case of negative wage growth in the private sector.

27. The Committee approved the proposal.

Item No. 4 - FCR(98-99)19
LOAN FUND
HEAD 251 - HOUSING
Hong Kong Housing Society
Subhead 116 Home Starter Loan Scheme

28. In reply to members' enquiry about the response to the Home Starter Loan Scheme (HSLS) launched in April 1998, the Secretary for Housing (S for H) and the Executive Director for Hong Kong Housing Society (ED/HKHS) provided the following information:

1. the Hong Kong Housing Society (HKHS) had so far received some 13 600 applications;

2. 4 300 applications had been processed, out of which 1 600 were found to be eligible under the HSLS;

3. 1 300 applications were being processed, and among them 1 170 were expected to be eligible; and

4. of the 1 600 confirmed eligible cases, a total of 1 000 certificates of eligibility had been issued and so far 35 applicants had completed the purchase of properties.

29. Members were gravely concerned about the predicament of home buyers who were unable to secure mortgages for their properties amidst the present property slump. They urged that these aggrieved home buyers should be assisted and suggested that the HSLS be extended to eligible aggrieved home buyers to enable them to meet the initial down-payment and secure a bank mortgage for their properties.

30. S for H reiterated that the Administration were fully aware of members' concerns. Having considered the views expressed by Legislative Council Members and the public in this respect, the Administration decided that the HSLS should not be extended to the "aggrieved" home buyers in question. While the Administration was sympathetic to these home buyers, the government, as custodian of the public purse, must exercise prudence in the management of publicly-funded loan schemes. The Administration considered it unjustifiable to single out the "aggrieved" home buyers for assistance while other sectors of the community who also suffered hardship as a result of the current economic downturn did not receive similar relief. He pointed out that there were others who bought properties in similar circumstances but who had started repaying the banks for the mortgages which they secured during the construction period. Although these buyers had not been given any Government assistance, they were still making every effort to fulfill their obligations. There were also those property buyers who sustained financial loss by rescinding their sale and purchase agreements. The proposed extension of the scheme would hardly be fair to these groups.

31. On the practical aspect, S for H explained that since the aggrieved home buyers had entered into a sale and purchase agreement in respect of their properties, they would not meet one of the eligibility criteria i.e. not owning domestic properties in Hong Kong for the past 10 years. Relaxing the ownership criteria for the HSLS would have profound implications for the eligibility criteria of other subsidized housing schemes. He added that second mortgages offered by some major developers might help the aggrieved home buyers.

32. Mr LEE Wing-tat, on behalf of Members of the DP, urged the Administration to seriously consider allowing the aggrieved home buyers who would otherwise qualify under the HSLS to apply for the loan as a one-off relief measure. A member cautioned the Administration about possible social discontent brought about by home buyers being forced to forfeit their down-payments and prospective properties upon failure to secure mortgages. In view of the earlier decision of the Housing Authority to refund deposits for Home Ownership Scheme flats to tenants of Tenant Purchase Scheme Phase 1 Estates so that they could purchase their own flats under the Tenant Purchase Scheme, some members pointed out that the exercising of flexible arrangements to provide more facilities to prospective participants in Government-funded schemes was not unprecedented.

33. Several members considered that since the number of aggrieved home owners who would be eligible under the HSLS would not be great and that their application would also be subject to the same screening and balloting requirements, unfairness should not arise. Moreover, the HSLS was a loan scheme and the Administration would be able to recoup both the loan amount and interests accrued. Some members also expressed grave reservations from the legal point of view on whether it was appropriate to classify a person as a "property owner" by virtue of his having entered into a provisional sale and purchase agreement with the property vendor, hence rendering him ineligible under the HSLS.

34. Noting that the HKHS had only processed 4 300 applications and issued 1 000 certificates of eligibility, Mr LEE Wing-tat pointed out that it was not until October/November 1998 that the 6 000 quota for the first year would be fully used up. He and some members considered that there was no urgent need for approving the proposed modification of drawdown schedule at this point of time. He asked the Administration to withdraw the paper and consider what other measures could be taken to assist the aggrieved home buyers.

35. Mrs Selina CHOW said that Members of the LP appreciated the hardship of the aggrieved home buyers. They were particularly concerned about the classification of those who had entered into a sale and purchase agreement as owners, hence depriving them of the opportunity to apply under the HSLS for the next 10 years. She suggested that the Administration should withdraw the item for further consideration and if the Administration insisted that the proposal be voted on in its present form, Members of the LP had no other choice but to vote against the proposal.

36. Miss Emily LAU stated the position of the Frontier that the aggrieved home buyers should be assisted to secure mortgages and urged the Administration to withdraw the item.

37. Mr LEUNG Yiu-chung and Mr CHAN Kwok-keung also opined that the Administration should withdraw the item and consider members' suggestions further.

38. Professor NG Ching-fai held the view that the Administration should separately explore ways to assist the aggrieved home buyers, instead of extending the HSLS to cover these buyers.

39. Mr Gary CHENG Kai-nam advised that Members of the Democratic Alliance for the Betterment of Hong Kong (DAB) disagreed with the Administration's decision against providing financial help to the aggrieved home buyers. Nevertheless, Members of the DAB were in support of the proposed increase in drawdown under the HSLS to enable more eligible families to acquire their own properties this year. On balance, they would support the present proposal but would continue to urge the Administration to pursue measures to help the aggrieved buyers.

40.In response to members' concerns and suggestions, the Secretary for the Treasury said that while the Administration was sympathetic to the hardship of the aggrieved home buyers, the principle of ensuring prudent and proper use of public funds had to be upheld. She reiterated the Administration's position as follows:

1. Although the HSLS would operate as a loan scheme under which the loan would be repaid with interests, it should be borne in mind that loan repayment would not start until the fourth year after drawdown of the loan and the interest rates charged were concessionary. There was thus a cost to public funds;

2. In his policy address on 8 October 1997, the Chief Executive had already announced the launch of a scheme to assist first-time home buyers. The public should be well aware of this new scheme and those who were eligible should consider what was the best timing for purchasing properties The propriety of the Administration's action would be queried if taxpayers' money was disbursed to assist those home buyers who had chosen to purchase their property at a particular time and then suffered a loss. Pressure would also mount for governmental assistance to be made available to other investors who had been adversely affected by the current economic turmoil; and

3. Bearing in mind the need for equity and fairness, the package of relief measures announced on 22 June 1998 had been devised in such a way that all persons in the affected sector would benefit. For example, all, not selected categories of, ratepayers would be reimbursed the rates for the first quarter of 1998-99. It was therefore hard to justify why only a selected group of home buyers should be assisted in the present case.

41. The proposal was put to vote: 18 members voted for the proposal, 25 members against and four abstained.

For:

Dr Raymond HO Chung-tai	Mr Eric LI Ka-cheung
Mr LEE Kai-ming	Mr NG Leung-sing
Prof NG Ching-fai	Mr MA Fung-kwok
Mr HUI Cheung-ching	Mr CHAN Kam-lam
Dr LEONG Che-hung	Mr Gary CHENG Kai-nam
Mr WONG Yung-kan	Mr Jasper TSANG Yok-sing
Mr YEUNG Yiu-chung	Mr LAU Kong-wah
Mr Ambrose LAU Hon-chuen	Dr TANG Siu-tong
Miss CHOY So-yuk	Mr TAM Yiu-chung

(18 members)

Against:

Mr Kenneth TING Woo-shou	Mr James TIEN Pei-chun
Mr HO Sai-chu	Miss Cyd HO Sau-lan
Mr Edward HO Sing-tin	Mr Albert HO Chun-yan
Mr Michael HO Mun-ka	Mr LEE Wing-tat
Mr LEE Cheuk-yan	Mr Martin LEE Chu-ming
Mr Fred LI Wah-ming	Mrs Selina CHOW LIANG Shuk-yee
Mr James TO Kun-sun	Miss Christine LOH
Mrs Sophie LEUNG LAU Yau-fun	Mr LEUNG Yiu-chung
Mr Andrew WONG Wang-fat	Dr YEUNG Sum
Mr LAU Chin-shek	Mr LAU Wong-fat
Mrs Miriam LAU Kin-yee	Miss Emily LAU Wai-hing
Mr Andrew CHENG Kar-foo	Mr SZETO Wah
Mr LAW Chi-kwong

(25 members)

Abstentions:

Miss Margaret NG

Mr CHAN Kwok-keung

Miss CHAN Yuen-han

Mr CHAN Wing-chan

(4 members)

42. The Committee rejected the proposal.

Item No. 5 - FCR(98-99)20
LOAN FUND
HEAD 254 - LOANS TO STUDENTS

Subhead 102 Non-means-tested loan scheme for students of government-funded tertiary institutions

43.The Committee approved the proposal.

44. The Committee was adjourned at 5:45 pm.