Commentary

 

Breadth not depth


Introduction 

Financial Secretary John Tsang did not disappoint in offering billions in sweeteners in tax and short-term relief measures while cautioning about the bumpy road ahead with increased economic and political volatility. Tsang has not departed from his prudent fiscal management philosophy in this year's budget. Apart from the immediate boosters, we support his efforts to shore up Hong Kong's competitiveness by looking to cultivate new businesses, technologies and talent. 

The Government forecasts a 2015-16 provisional budget surplus of HK$30 billion versus its previous HK$36.8 billion estimate. Nevertheless, if we add back HK$45 billion allocated to the Housing Reserve, the surplus was about HK$75 billion.


Respite for individuals 

We welcome the increase in the personal basic allowance from HK$120,000 to HK$132,000, although still below our recommended HK$140,000 level, and married person's allowance from HK$240,000 to HK$264,000. The adjustments are aimed at easing the tax burden of individuals and catching up with inflation as the allowances have not been adjusted since 2012-13. 

One-time measures such as the refund of salaries tax and waiver of rates, in addition to the revision of allowances for maintaining dependent parents or grandparents, a recurring measure, will also alleviate the financial pressure on families. Tsang hopes the measures will help spur domestic economic growth.


Supporting businesses, new and old 

We also support the various incentives offered to boost traditional and new businesses, including waiving business registration and several licence fees to support SMEs and extending the application period for the SME Financing Guarantee Scheme. 

We are particularly encouraged by Tsang's moves to embrace the adoption of technological breakthroughs in financial services and cultivate start-ups and R&D in this area. 

In PwC's 19th Annual Global CEO Survey , released earlier this year, 77% of respondents cited technological advances as a top trend that would transform wider stakeholder expectations of businesses within their sector over the next five years. 

As a leading international financial hub, Hong Kong stands to benefit from the boom in fintech, or the opportunities that can arise when finance meets technology. In this regard, the Enterprise Support Scheme under the Innovation and Technology Fund (ITF) will be helpful in providing financial support to fintech start-ups and financial institutions. While fintech can disrupt traditional business models, we believe it can also help companies reinvigorate their services and redefine their offerings in a rapidly evolving environment. 

As such, we also back Tsang's HK$2 billion Innovation and Technology Venture Fund that will co-invest with private venture capital funds on a matching basis in local technology start-ups. 

Also heartening is the move to enhance the long-term competitiveness of SMEs in their use of technological services and solutions through the launch of the Pilot Technology Voucher Programme under the ITF to improve their productivity. 

However, we have yet to be convinced that actions such as these are sufficient to stimulate sustainable advances and stabilise the economy. 

We encourage the Government to look into additional measures such as reducing the profits tax rate from 16.5% to 10% for qualifying high-tech companies as well as additional tax relief and incentives to encourage more start-ups to grow their businesses. For Hong Kong to capture developments in this area more fully, we also urge the Government to review relevant legislation to stay competitive. 

We are also happy to see progress being made on the raft of measures announced in last year's budget aimed at enhancing the competitiveness of Hong Kong's businesses, in particular, the financial services industry. However, we feel that the pace can be quickened.


Planning and financing the city's future 

First mentioned in last year's budget, Tsang has officially established the Future Fund to save a portion of this year's surplus (in addition to the HK$220 billion from the Land Fund) in anticipation of the structural deficit that the Government may face in the long-term future. The HK$45 billion top-up into the Housing Reserve will strengthen the financial health of the Housing Authority as the Government ramps up the supply of public housing in the coming years. In our view, Tsang is taking a responsible and prudent step in planning and financing the city's future. 

Echoing the Chief Executive's Policy Address in January, Tsang has set aside HK$200 billion for the Hospital Authority to implement a 10-year hospital development plan that will expand and upgrade healthcare facilities across the city and cope with the demands from an ageing population. While it is commendable that the Government is committed to enhance the hardware for public healthcare with a long-term outlook, more resources should be devoted to invest in the software—attracting, training and retaining healthcare workers for the public system.


After the sugar rush? 

While the Government has acknowledged the need to modernise the tax legislation in recent years, it has yet to conduct a comprehensive review of the Inland Revenue Ordinance which is long overdue. 

Overall, we welcome Tsang's efforts. His prudent approach is perhaps understandable given the bleaker economic outlook but whether his proposals will be fully implemented in a timely manner to the intended effect remains to be seen. 

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