HONG KONG — Two months after protesters were cleared from the streets, the Hong Kong government announced on Wednesday a budget with tax breaks and other economic support for lower- and middle-class residents, and for the businesses it said had been disrupted by the demonstrations.
“The Occupy movement affected tourism, hotel, catering, retail and transport industries,” John Tsang, the city’s financial secretary, said in his budget speech, adding that the initiatives would help “offset the impact on economic confidence.”
Hong Kong’s widening wealth gap and increasingly unaffordable housing emerged as catalysts for last year’s democracy protests, and Mr. Tsang offered several measures intended to help address those issues.
He announced one-time items that included tax breaks on salaries and profits; increased financing for small and medium-size companies; increased welfare payments for the poor and seniors; and a one-month rent waiver for low-income tenants of public housing.
He also increased the permitted tax deduction for raising children, a recurrent measure, and estimated the cost of all these handouts at 34 billion Hong Kong dollars, or $4.4 billion. Mr. Tsang also announced measures worth 290 million Hong Kong dollars that he said were intended to help Hong Kong recover from the effects of the Occupy protests.
Those included license fee waivers for travel agents, hotels, restaurants and taxis and buses, as well as increased spending to promote Hong Kong as a travel destination. Mr. Tsang noted that tourist arrivals to Hong Kong had increased 12 percent last year, while their total spending rose 9 percent, to more than 350 billion Hong Kong dollars.
In October, at the height of the protests, arrivals from mainland China, Hong Kong’s biggest source of tourists, rose 18 percent, according to figures from the tourism board.
The risk to the measures announced on Wednesday and other large government spending programs, like fiscal initiatives to help a rapidly aging population, is that public opposition after the Occupy protests could hamstring the government.
“Is the government still going to have the basic consent among the population to draw up and implement economic policies — tackling the aging issue or getting infrastructure done, for example?” said Andrew Colquhoun, head of Asia-Pacific sovereign ratings at Fitch Ratings in Hong Kong.
“That’s still an open question, whether that political constraint becomes more binding for them.” Mr. Tsang suggested that this might be the case, expressing frustration with the pace of funding approvals from the local legislature, the Legislative Council, also known as LegCo, which features a minority of directly elected members who favor democracy and supported the protests.
“With a number of projects entering their construction peaks, capital works expenditure is expected to maintain at relatively high levels in the next few years,” Mr. Tsang said.
“We are, however, concerned about the sluggish progress of deliberation in LegCo since the last session. This has resulted in the mounting of backlog of funding proposals.”
Continue reading the main story Continue reading the main story Although outlays for social welfare and education are set to rise, a major target of government spending in the coming year will be large-scale infrastructure projects — expenditures that often benefit the wealthy elite, who control the city’s property developers and construction companies.
Hong Kong is spending billions of dollars on several huge projects that have been subject to significant delays and cost overruns.
These include nearly $10 billion on a 50-kilometer, or 31-mile, bridge and tunnel to the cities of Macau and Zhuhai, across the mouth of the Pearl River from Hong Kong; $6 billion on a new cluster of theaters and arts venues; $9 billion on a high-speed rail link to Guangzhou, in southern China; and $14 billion on extensions to the local subway system.
Mr. Tsang said work on a third runway for the Hong Kong International Airport, estimated in 2011 to cost at least $18 billion, could begin next year and finish by 2023, though a final budget has yet to be announced.
Few doubt that Hong Kong’s government can afford the largess. Mr. Tsang estimated the budget surplus for the fiscal year that ends March 31 at 64 billion Hong Kong dollars, up from his estimate of 9 billion dollars a year ago.
Repeated larger-than-anticipated surpluses have left the government with an embarrassment of riches. Fiscal reserves are now forecast to rise to 856 billion dollars by the end of March 2016, equal to 37 percent of gross domestic product. The reserves could cover 23 months’ worth of government expenditure.
That figure does not include excess reserves of 635 billion Hong Kong dollars in the Exchange Fund, which the government set up to backstop the local currency’s peg to the United States dollar and which generates its own large surpluses.
“They are right to a certain extent to be putting money away for a rainy day, rather than just blowing it all in one go, because there’s always been the concern that the tax base here is very narrow,” said Charles Kinsley, a tax partner at KPMG China, based in Hong Kong.
Hong Kong’s tax rates are extremely low, at 15 percent for individuals and 16.5 percent for companies.
On top of that, only 40 percent of Hong Kong’s work force pays salary tax, while only 10 percent of registered companies pay any tax on profits.
Instead, the government relies heavily on profits from land sales and, more recently, temporary taxes on real estate transactions that were intended to cool the property market but have turned into money makers.
Another more recent risk is Hong Kong’s growing ties to mainland China, where economic growth last year declined to its slowest pace in 24 years. Exposure to mainland interests accounted for only 10 percent of Hong Kong banking system assets in 2008, but that figure rose to about 40 percent as of mid-2014.
“Hong Kong is becoming increasingly integrated with the mainland economy, both through trade and financial linkages, which is kind of a double-edged sword,” said Mr. Colquhoun of Fitch.
“Being plugged into China in the long run is a structural positive and an overall competitive advantage for Hong Kong,” he said. “But in the shorter to medium term, China is going through a structural economic adjustment, and there are some risks in that for Hong Kong.”
Also Wednesday, Hong Kong government data showed that the city’s economy grew 2.3 percent last year, compared with 2013, in line with forecasts. The government expects growth of 1 percent to 3 percent this year, Mr. Tsang said.
nytimes.com
“The Occupy movement affected tourism, hotel, catering, retail and transport industries,” John Tsang, the city’s financial secretary, said in his budget speech, adding that the initiatives would help “offset the impact on economic confidence.”
Hong Kong’s widening wealth gap and increasingly unaffordable housing emerged as catalysts for last year’s democracy protests, and Mr. Tsang offered several measures intended to help address those issues.
He announced one-time items that included tax breaks on salaries and profits; increased financing for small and medium-size companies; increased welfare payments for the poor and seniors; and a one-month rent waiver for low-income tenants of public housing.
He also increased the permitted tax deduction for raising children, a recurrent measure, and estimated the cost of all these handouts at 34 billion Hong Kong dollars, or $4.4 billion. Mr. Tsang also announced measures worth 290 million Hong Kong dollars that he said were intended to help Hong Kong recover from the effects of the Occupy protests.
Those included license fee waivers for travel agents, hotels, restaurants and taxis and buses, as well as increased spending to promote Hong Kong as a travel destination. Mr. Tsang noted that tourist arrivals to Hong Kong had increased 12 percent last year, while their total spending rose 9 percent, to more than 350 billion Hong Kong dollars.
In October, at the height of the protests, arrivals from mainland China, Hong Kong’s biggest source of tourists, rose 18 percent, according to figures from the tourism board.
The risk to the measures announced on Wednesday and other large government spending programs, like fiscal initiatives to help a rapidly aging population, is that public opposition after the Occupy protests could hamstring the government.
“Is the government still going to have the basic consent among the population to draw up and implement economic policies — tackling the aging issue or getting infrastructure done, for example?” said Andrew Colquhoun, head of Asia-Pacific sovereign ratings at Fitch Ratings in Hong Kong.
“That’s still an open question, whether that political constraint becomes more binding for them.” Mr. Tsang suggested that this might be the case, expressing frustration with the pace of funding approvals from the local legislature, the Legislative Council, also known as LegCo, which features a minority of directly elected members who favor democracy and supported the protests.
“With a number of projects entering their construction peaks, capital works expenditure is expected to maintain at relatively high levels in the next few years,” Mr. Tsang said.
“We are, however, concerned about the sluggish progress of deliberation in LegCo since the last session. This has resulted in the mounting of backlog of funding proposals.”
Continue reading the main story Continue reading the main story Although outlays for social welfare and education are set to rise, a major target of government spending in the coming year will be large-scale infrastructure projects — expenditures that often benefit the wealthy elite, who control the city’s property developers and construction companies.
Hong Kong is spending billions of dollars on several huge projects that have been subject to significant delays and cost overruns.
These include nearly $10 billion on a 50-kilometer, or 31-mile, bridge and tunnel to the cities of Macau and Zhuhai, across the mouth of the Pearl River from Hong Kong; $6 billion on a new cluster of theaters and arts venues; $9 billion on a high-speed rail link to Guangzhou, in southern China; and $14 billion on extensions to the local subway system.
Mr. Tsang said work on a third runway for the Hong Kong International Airport, estimated in 2011 to cost at least $18 billion, could begin next year and finish by 2023, though a final budget has yet to be announced.
Few doubt that Hong Kong’s government can afford the largess. Mr. Tsang estimated the budget surplus for the fiscal year that ends March 31 at 64 billion Hong Kong dollars, up from his estimate of 9 billion dollars a year ago.
Repeated larger-than-anticipated surpluses have left the government with an embarrassment of riches. Fiscal reserves are now forecast to rise to 856 billion dollars by the end of March 2016, equal to 37 percent of gross domestic product. The reserves could cover 23 months’ worth of government expenditure.
That figure does not include excess reserves of 635 billion Hong Kong dollars in the Exchange Fund, which the government set up to backstop the local currency’s peg to the United States dollar and which generates its own large surpluses.
“They are right to a certain extent to be putting money away for a rainy day, rather than just blowing it all in one go, because there’s always been the concern that the tax base here is very narrow,” said Charles Kinsley, a tax partner at KPMG China, based in Hong Kong.
Hong Kong’s tax rates are extremely low, at 15 percent for individuals and 16.5 percent for companies.
On top of that, only 40 percent of Hong Kong’s work force pays salary tax, while only 10 percent of registered companies pay any tax on profits.
Instead, the government relies heavily on profits from land sales and, more recently, temporary taxes on real estate transactions that were intended to cool the property market but have turned into money makers.
Another more recent risk is Hong Kong’s growing ties to mainland China, where economic growth last year declined to its slowest pace in 24 years. Exposure to mainland interests accounted for only 10 percent of Hong Kong banking system assets in 2008, but that figure rose to about 40 percent as of mid-2014.
“Hong Kong is becoming increasingly integrated with the mainland economy, both through trade and financial linkages, which is kind of a double-edged sword,” said Mr. Colquhoun of Fitch.
“Being plugged into China in the long run is a structural positive and an overall competitive advantage for Hong Kong,” he said. “But in the shorter to medium term, China is going through a structural economic adjustment, and there are some risks in that for Hong Kong.”
Also Wednesday, Hong Kong government data showed that the city’s economy grew 2.3 percent last year, compared with 2013, in line with forecasts. The government expects growth of 1 percent to 3 percent this year, Mr. Tsang said.
nytimes.com
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