Widening the net: Financial Secretary Henry Tang says introducing a GST would require compensation for lower income families and concessions for taxpayers. A GST public consultation exercise would be more of a tax reform discussion, he added.

Financial Secretary Henry Tang says the proposed introduction of a goods and services tax is controversial and requires the support of the entire Government.

Speaking on an RTHK radio phone-in show this morning, the day after delivering his 2005-06 Budget address, Mr Tang said he had always planned to launch a GST consultation exercise later in the year.

"All along I've planned that we would first deal with all the amendments in the Budget and then go on to the consultation of the GST. That would allow for continuity, we would finish one thing before we move onto the next. That would be better."

He also explained why it would be best to wait until a new Chief Executive was elected on July 10.

"This is a controversial tax, that's why the whole Government must be behind it, must have a commitment to it. When we have the new Chief Executive, of course he'll have his platform, have his vision and that's why I say we should wait for the new Chief Executive to be selected. We don't want there to be any conflict with the new Chief Executive's platform," he said.

He also noted that the purpose of a GST is to broaden the tax base.

"In the discussion of a GST, I would imagine it is more of a tax reform review more than a revenue measure, because there's no question of us introducing a GST without some compensation for lower income families or some concessions for taxpayers. There will be other measures to mitigate the effects of a GST, so I imagine it would be more of a tax reform discussion than just a  revenue measure," he said.

He said he would respect the new Chief Executive, and that he would stay on if he was asked.

In reply to a caller's query about a land departure tax, Mr Tang said he had decided not to implement it in light of Hong Kong's co-operation with the Mainland, and in particular, the Pan Pearl River Delta region.

"We need to reduce barriers for integration so Hong Kong people can go to the Mainland to spend money, and Mainland people can come to Hong Kong to spend money," he said.

"A land departure tax is a barrier to integration between the two places, and that's why I didn't follow up on that."

He dismissed criticism that his budget ignored the problem of poverty. The Chief Executive's last Policy Address introduced many measures to fight poverty, and the Government was committed to funding these programmes. He added he didn't see the need to repeat what was in the Policy Address, but that his Budget gave full support "to these concrete measures to help the poor," noting there was a 3% increase in welfare spending.

The Budget and Policy Address must be read together as Government policy, he stressed.

Replying to a caller's concerns about lack of opportunity to earn interest on savings, Mr Tang noted that some of the $26 billion worth of  Government bonds and those securitised by toll tunnels and bridges had been put aside for small investors.

He added the LINK Real Estate Investment Trust, the vehicle that will be listed to hold the retail outlets and commercial parking spaces formerly owned by the Housing Authority, offered a stable income with minimal risk. A four-year bond would offer an annual return of 3%, for example, and more than half the shares had been set aside for small investors.

Another caller expressed concern that the Budget's projection for income seemed overly reliant on increasing land sales and stamp duties. To that, the Financial Secretary replied that the projection was based on the land premium received in 2004, which was 2.4% of GDP.

"When we project forward, we use 2.4% for the next five years. That doesn't mean we're optimistic or pessimistic about the property market," he said. He expected the primary and secondary property markets to remain active throughout the financial year.

Another caller asked why the Financial Secretary had not raised tax on tobacco, especially as the Government spent so much on healthcare related to tobacco-related diseases.

Mr Tang admitted "it was something that went through my mind", noting that the Government raked in $2.2 billion in tobacco taxes last year and that many people had suggested raising these taxes to discourage people from smoking.

However, he said, he did not want additional taxes of any sort in the Budget. Besides, tax on tobacco "is already very high and it would just encourage more smuggling."

After a second caller noted he was supporting elderly parents, but that he received no tax breaks as they lived outside Hong Kong, the Financial Secretary said they would consider the situation further, even though it was not permitted now.

Mr Tang also expressed confidence that the Government would win a judicial review of the legality of the recent civil servants' pay cuts. However, if the judgment went against the Government, he would need to dip into the fiscal reserves for the nearly $10 billion needed to reimburse the civil servants.