View this page in: 繁體中文版 25 February 2009(All denominations are in HK$) Is the budget focusing on what really matters?
On 25 February 2009, Hong Kong Financial Secretary Mr John Tsang delivered his second budget speech. Mr Tsang is forecasting a deficit of $4.9 billion in the 2008/09 consolidated account which is lower than the deficit of $7.5 billion originally forecast in his budget last year. With the global financial crisis in the latter half of 2008 and the $11 billion inflation relief measures announced by the Chief Executive last July, one might have expected the consolidated deficit to be higher.
Taking a closer look, the main reason for the lower-than-expected deficit is that the estimated 2008/09 operating revenue is $28.6 billion higher than the original estimate. This is primarily because of the "lag effect" in the Government's tax collections. While the rapid economic growth in 2007/08 led to a higher-than-expected revenue from profits tax and salaries tax in 2008/09, the impact of the financial crisis has not yet been fully reflected in the 2008/09 tax revenues. Worse is yet to come. The full effect of the recent economic downturn will only impact the 2009/10 and subsequent year's tax revenues. As an example of this, the Government is predicting that its profits tax collections in 2009/10 will be 30% less than those in 2008/09.
Looking ahead to 2009/10 and beyond, covered by the Medium Range Forecast (MRF), the Government is predicting a period of sustained budget deficits totalling close to $97 billion, with the deficit for 2009/10 amounting to $39.9 billion and gradually declining to $1.3 billion by 2013/14. The MRF is based on an underlying assumption of a negative GDP growth for 2009/10 of minus 2%-3% and an annual average trend growth rate for Hong Kong's economy in real terms of 3.5% for 2010/11 to 2013/14. While many in the community will hope that Hong Kong's economic performance can indeed be turned around as the Government predicts, some may question whether the 3.5% trend growth rate used by the Government is realistic. The MRF also assumes a strong improvement in land revenues from 2010/11, and a resumption of an asset sales programme in 2011/12; some may again question whether the Government is being too optimistic in these areas, though it is important to note that Hong Kong's current fiscal position is strong.
On the expenditure side, Mr Tsang noted that the Government will not reduce expenditure because of the economic downturn and reduction in revenue. He also said that the Government will adopt counter-cyclical measures and expenditure will exceed $300 billion in 2009/10. However, a close review of some of the figures in the MRF and a comparison of these figures with last year's MRF seems to suggest a more conservative approach has been adopted.
Turning to the specific measures contained in the 2009/10 budget, as far as tax concessions are concerned, Mr Tsang announced a one-off 50% reduction of salaries tax and tax under personal assessment for 2008/09, subject to a ceiling of $6,000. Similar to the previous two years, this reduction will be reflected in the taxpayer's final tax payable for 2008/09; no cheques will be in the post. One may question whether this reduction will increase spending by these individuals to help stimulate the Hong Kong economy. Mr Tsang also announced a waiver of rates for the first two quarters of 2009/10, subject to a ceiling of $1,500 per quarter, for each rateable tenement. This is less generous than the relief provided last year. Could the Government do more by waiving rates for the full year? Further concessions in this area may be forthcoming.
The Government is also extending the fees and charges freeze related to people's livelihood announced by the Chief Executive last year to 31 March 2010, as well as providing for a 20% rental reduction for most Government properties and short-term tenancies of Government land for three months.
Besides tax concessions, Mr Tsang also announced some other welcomed tax measures. In order to consolidate Hong Kong's position as a financial centre, Mr Tsang is proposing some particular measures to improve Hong Kong's regime as a platform for the growing area of Islamic finance. The proposed measures will include making changes to, or clarification of, the arrangements for stamp duty, profits tax and property tax so as to create a level playing field between conventional products and Islamic financial products. We welcome this proposal. The Government is also proposing to put forward amendments to Hong Kong's existing legislation to accommodate the exchange of tax information requirements under avoidance of double taxation agreements. We also welcome this proposal as the exchange of information article has been the stumbling block to finalising tax treaties with other countries. The change in law will help Hong Kong extend its tax treaty network, which will help improve the business environment and facilitate flows of trade, investment and talent between Hong Kong and the rest of the world. More tax treaties will enhance Hong Kong's position as an international business and financial centre.
From a public health policy perspective, the announcement of increasing tobacco duty by 50% will be welcomed by many in the community.
Surprisingly, the Government has not provided any substantial relief in the budget to businesses. The one-off tax reduction announced this year does not apply to profits tax so businesses will not benefit from this measure. In addition, there is no reduction in the current corporate profits tax rate of 16.5%, nor any insights on when steps will be taken to fulfil the Chief Executive's pre-election commitment to cut Hong Kong's profits tax rate to 15%. With the Singapore Government cutting its corporate income tax to 17%, the income tax rate differential between Singapore and Hong Kong is now only 0.5%. This, coupled with the other tax incentives in the Singapore tax regime, makes it an increasingly attractive competitor to Hong Kong.
To tackle unemployment, Mr Tsang announced a provision of $1.6 billion to create 62,000 jobs and new internship opportunities in the next three years. Any measures to increase employment are welcome. The Government is also proposing to implement a programme to issue Government bonds in order to promote the development of the bond market which is important to reinforcing Hong Kong's position as an international financial centre. The sums raised will be credited to a fund established under the Public Finance Ordinance and will not be treated as part of fiscal reserves. We welcome this proposal and it will be interesting to see how the funds will be used.
In conclusion, Mr Tsang opened his speech with reference to the current financial crisis being the most severe for the world economy since the Great Depression in the 1930's. He noted that at this time we need foresight and courage. As noted above, the MRF predicted a total deficit of $97 billion in the medium term from 2009/10 to 2013/14. For those who have good memories, the Government recorded a record surplus of $123.7 billion in 2007/08, which is more than the total deficits he is now predicting over the revised MRF. Time will tell whether he has been courageous enough.
