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| Financial Secretary John C. Tsang presents the 2008-09 Budget in the Legislative Council on February 27. |
On February 27, Hong Kong Financial Secretary John C. Tsang unveiled a package of initiatives and concessions to help the disadvantaged, enhance Hong Kong’s competitiveness and ensure the city’s sustainable development.
Delivering his first Budget, Mr. Tsang said that Hong Kong’s economy grew 6.3% in 2007, mainly because the city continues to benefit from the dynamic development of mainland China and the rapid growth of the global economy.
GDP growth for 2008 is forecast at 4% to 5%.
“I hope that this Budget will lessen people’s burden and help them handle their various challenges,” Mr. Tsang told the Legislative Council, adding that he strictly adhered to three basic principles when formulating the 2008-09 Budget.
“First, the Budget should demonstrate the government’s commitment to our society; second, financial policies should be sustainable; and third, we should be pragmatic in decision-making,” he said.
The Financial Secretary forecast a record US$14.82 billion budget surplus in the Consolidated Account and a US$8.16 billion surplus in the Operating Account for 2007-08.
Mr. Tsang proposed a variety of measures to return the wealth to the people, including one-off 75% reductions in the salaries tax and personal assessment tax for the 2007-08 fiscal year. The move will cost the government US$1.58 billion in 2008-09 and will benefit 1.4 million taxpayers, who will pay no more than US$641.02 in taxes.
Mr. Tsang also proposed raising the basic allowance and the single parent allowance from US$12,820.51 to US$13,846.15 and increasing the married person’s allowance from US$25,641.02 to US$27,692.30.
“Upon implementation of the proposals, all the major allowances and tax rates will have reverted to their 2002-03 levels,” Mr. Tsang said.
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Financial Secretary John C. Tsang fields questions by the media on the 2008-09 Budget in Hong Kong. |
The standard rate of salaries tax and personal assessment tax will be lowered by one percentage point from 16% to 15% beginning the next fiscal year and the profits tax will be lowered from 17.5% to 16.5%.
Small and medium-sized businesses are also in line for a one-off tax reduction with the Financial Secretary proposing a 75% concession in the profits tax for 2007-08. Business registration fees also will be waived for 2008-09. The proposal will benefit all 100,000 companies liable to profits tax and will cost the government US$221.79 million.
To further develop Hong Kong’s strength as an international financial center, the government will take measures to enhance the competitiveness of the city’s commercial and financial sectors and to improve the regulatory system. This includes a review of the regulatory framework for the securities market to improve market quality and to reduce compliance costs for the industry.
With the Research and Development sector a key area for promoting high value-added economic activities, Mr. Tsang proposed a one-off US$2.3 billion grant to set up a Research Endowment Fund. In addition, he proposed providing 800 more publicly-funded places for post-graduate research programs in phases starting in the 2009-10 school year.
To attract more high quality convention and exhibition projects that will bring high value-added business travelers to Hong Kong, the Financial Secretary has earmarked US$19.23 million to carry out these activities over the next five years. He also proposed waiving the Hotel Accommodation Tax.
Duties on wine, beer and all other alcoholic beverages except spirits will be exempt to help promote Hong Kong as a trade and distribution center for quality wine in Asia. It is expected that by developing the various businesses in Hong Kong relating to quality table wine, the city’s total business volume in trading, storage and auction of table wine could increase by as much as US$512.82 million.
Regarding the environment, Mr. Tsang proposed a reduction of 30%, 50% or 100% in the First Registration Tax of commercial vehicles meeting Euro V emissions standards. To encourage businesses to use cleaner production techniques, he also proposed a 100% profits tax deduction for capital expenditure on environmentally friendly machinery and equipment in the first year of purchase.
The Financial Secretary placed health care reform as a priority in achieving fiscal sustainability and reiterated the government’s commitment to increase the share of health care expenditure to 17% of its recurrent expenditure by 2012. He also pledged to draw US$6.41 billion from the fiscal reserves to assist in the implementation of health care reform.
In keeping with the principle of commitment to society, the Financial Secretary earmarked US$6.79 million to tackle the problem of psychotropic drug abuse by young people. Another US$5.12 million will go toward assisting victims of domestic abuse. To ensure more affordable medication for the less affluent, he proposed setting aside US$128.2 million for the Samaritan Fund to include more new medicines in the subsidy list.
The Financial Secretary also proposed to waive rates for 2008-09, subject to a ceiling of US$641.02 per quarter, for each rateable tenement. It is estimated that 99% of domestic properties and 85% of non-domestic properties will be subject to no rates during the year. This proposal will cost the government US$1.43 billion.
An additional measure to help ease inflationary pressure is a proposed electricity subsidy grant of US$230.76 for each domestic electricity account. It is estimated that this will cover the annual electricity bills for about 15% of households, and will cost the government about US$551.28 million.
“Based on the revenue, expenditure and other proposals set out in the Budget, I forecast a deficit of US$807.69 million in the Operating Account and a deficit of US$961.53 million in the Consolidated Account for 2008-09,” said Mr. Tsang, who added that public expenditure, as a proportion of GDP, would increase from 15.9% in 2007-08 to 19.2% in 2008-09.
Mr. Tsang predicted that a surplus would occur again starting in 2009-10 and that the operating surplus would build up to US$8.62 billion in 2012-13.
“As the measures proposed in this Budget are mostly one-off or time-limited, they will not have significant implications for future public finances,” said Mr. Tsang. “They will not lead to structural fiscal deficits and are therefore in line with the principle of sustainability.”
Details of the 2008-09 Budget can be found on the Web site: [www.budget.gov.hk].
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