Hong Kong hands out generous budget

Hong Kong handed out billions in tax cuts and poverty relief, to stimulate its economy that is expected to grow more strongly than expected at 2 to 3 per cent this year despite headwinds from rising global trade protectionism Financial Secretary Paul Chan said in his maiden annual budget address that stronger exports and jobs, rising wages and construction projects worth nearly HK$87 billion this year, had bolstered consumer confidence and domestic demand that would feed into the local economy.

He warned, however, that the prices continued to be an issue.

While the financial hub’s economy was projected to grow faster than the 1.3 per cent expansion forecast by six economists surveyed, Chan cautioned risks remained.

“The uncertain external environment and interest rate trend may trigger abrupt shifts in capital flows and heighten volatility in local asset prices, with repercussions on consumption and investment sentiments and on macro-economic stability,” Chan told lawmakers.

Credit Rating Agency Moody’s said in a research note that the budget was relatively balanced and fiscally prudent but doubted Hong Kong would meet its bullish GDP forecast.

“We do not expect a material rebound in global trade which will weigh on Hong Kong’s exports, while growth in domestic demand will be somewhat dampened by higher interest rates,” Moody’s wrote. “We expect three to four interest rate increases by the US Federal Reserve this year which will push interest rates up in Hong Kong.”

On the property market, which Chan called exuberant and “out of tune with the local economy” despite a raft of cooling measures, he said the government would “substantially” increase residential flat supply in the next few years.

Hong Kong’s provisional budget surplus was a much higher than expected HK$92.8 billion ($11.96 billion) for the 2016/17 financial year, far in excess of the HK$11 billion last year, with fiscal reserves of HK$935.7 billion.

The government said some HK$61 billion would be ploughed into elderly services, sports development, youth development and developing the high technology sector.

Chan said Hong Kong could afford to be more proactive with its spending and his measures to “share the fruits of economic development” would help stimulate domestic demand, stabilise the economy and help the job market.

The populist-leaning budget comes at a time of flux for Hong Kong amid rising political tensions and as the city in July marks the 20th anniversary of its handover from British to Chinese rule in 1997.

The city will also usher in a new leader in a March 26 election involving a 1,200-member election committee stacked with Beijing loyalists. city’s astronomical property