HONG KONG: Hong Kong launched a relatively modest series of economic stimulus and relief measures in its annual budget on Wednesday to combat an uncertain external environment with its economy likely to recover to between 1.5 per cent to 3.4 per cent in 2013. Country unveils HK$64.9 billion ($8.37 billion) fiscal surplus in 2012/13.
“The intricate external environment will remain unstable in the year ahead,” said Financial Secretary John Tsang, warning of potential instability from currency wars and a trade slowdown to the financial hub’s small and open economy.
A poll of eight banks estimated that Hong Kong’s GDP this year would grow 3.1 per cent, accelerating from GDP growth of 1.4 per cent in 2012, its slowest rate since 2009 and well below the financial hub’s average 4.5 per cent growth over the past decade.
In a budget short on bold steps, Tsang offered a mixed bag of relief measures for the poor and elderly, a marginal corporate tax and salary rebate, and moves to bolster the city’s financial sector and private equity industry.
While soaring land revenues and profits taxes swelled public coffers to a bumper HK$64.9 billion ($8.37 billion) fiscal surplus in 2012/13. The coming fiscal year that begins on April 1 will likely see a HK$4.9 billion deficit. Despite registering a large fiscal surplus of HK$64.9 billion, however, Tsang sounded a warning on the sustainability of the city’s feted low and simple tax regime given an ageing population and slowing long-term economic growth.
“I expect that the growth of government revenue will drop substantially if our tax regime remains unchanged. Moreover, expenditure on welfare and healthcare will soar. We may not be able to make ends meet,” Mr Tsang cautioned, adding that a treasury working group would examine ways of better planning its long-term finances.
Anthony Lau, deputy head of CPA Australia in Greater China, said Hong Kong needed to consider broadening and evolving its tax base through possible sales taxes including on luxury goods.
“Instead of just providing one-off measures, we believe the government should consider performing a comprehensive tax review to improve the sustainability of government revenue and see how to enhance our competitiveness here,” Lau said.
To lure more private equity funds amid competition with Singapore - that has signed a raft of tax treaties granting exemptions to the industry there - Hong Kong said it would extend profits tax exemption for offshore funds to include transactions in private companies, which are incorporated or registered outside Hong Kong.
“This will allow private equity funds to enjoy the same tax exemption as offshore funds,” Tsang said.
Hong Kong is also considering laws to allow the Open-ended Investment Company (OEIC) structure for funds popular in mature markets such as the United Kingdom.