Enhanced relief package to spur growth
Government increases sweetener package size and unveils various support measures in 2015-16 Budget
With a challenging economic outlook this year, the Hong Kong government increased the sweetener package size and announced various support measures for industries affected by last year’s “Occupy Central” movement.
The government enhanced the relief package size to HK$34 billion with a view to lifting Hong Kong’s GDP growth by one percentage point. It also announced various support measures for industries affected by the illegal occupation movement to alleviate the public’s financial burden, stimulate consumption, preserve employment and stabilize the economy.
Chief Executive Leung Chun-ying praised the Budget for implementing the current government’s principles of governance: propelling economic development that can enable the government to have fiscal capability to deal with the issues of housing, poverty, environmental protection and population.
Financial Secretary John Tsang Chun-wah estimated Hong Kong’s economic growth rate in 2015 will be 1 to 3 percent, lower than the annual average of 3.9 percent over the last 10 years.
“Local consumption and investment sentiment will be dampened by the increased uncertainties over the US interest rate hike and weaker spending power of inbound visitors,” Tsang cautioned.
“The US inflation outlook, rising deflation risks in Europe and Japan, and some oil-exporting countries facing huge pressures on finance and exchange rates will upset the stability of global financial markets that will complicate economic growth prospect,” Tsang added.
The Hong Kong economy grew 2.3 percent last year, its slowest pace since 2008.
“We are pleased to see a broad collection of focused measures aimed at reducing the operating costs of companies,” Hong Kong General Chamber of Commerce Chairman Pang Yiu-kai said.
“These relief measures can be more effective to sustain personal consumption expenditure to support economic growth. Corporate investment will be more volatile as it is affected by cyclicality of global financial market,” Bank of China (Hong Kong) Senior Economist Michael Dai noted.
Due to the 60-percent-higher stamp duty revenue receipts, 16-percent-higher profits tax receipts and higher salaries tax and land premium, the government achieved a consolidated budget surplus of HK$63.8 billion for 2014-15 and by March 31 fiscal reserves are expected to reach HK$819.5 billion.
Looking ahead, the administration forecasted a budget surplus of HK$36.8 billion for 2015-16. Fiscal reserves are estimated to reach HK$856.3 billion by the end of March 2016.
Despite higher-than-expected consolidated budget surplus, the administration announced the government may explore again the feasibility of broadening the tax base in due course with the aim of stabilizing government revenue and creating room for direct tax concessions.
The administration agreed the Working Group on LongTerm Fiscal Planning proposal in 2014 to establish a Future Fund, comprising an endowment of HK$220 billion Land Fund and a proportion of budget surpluses. The secretary for financial services and the treasury will work with the Hong Kong Monetary Authority to hammer out specific management and investment mechanisms. The savings scheme is expected to be in place within this year.
“Once again the actual fiscal surplus outperformed its original budget, pointing to the need to establish a mechanism to disburse the windfall gain systemically,” ANZ Bank senior economist Raymond Yeung said.
Florence Chan Yuen-fan, chair of the Taxation Faculty Executive Committee at the Hong Kong Institute of Certified Public Accountants, was disappointed that the administration did not announce more long-term refinements regarding enhancing the city’s tax regime competitiveness.
These relief measures can be more effective to sustain personal consumption expenditure to support economic growth.”
Michael Dai, Bank of China (Hong Kong) senior economist