The Hong Kong budget, delivered by Financial Secretary Paul MP Chan FCPA, announced a surplus of HK$92.8 billion for 2016-17.
The surplus will be used to fund tax relief for individuals and business, and boost infrastructure, innovation, education and community services.
The very positive financial result for Hong Kong has been driven by a boost in revenue from land sales and stamp duty, as well as moderate economic growth, particularly in the second half of 2016.
Hong Kong’s public finances are forecast to remain one of the healthiest, if not the healthiest in the world, with reserves of HK$935.7 billion, which is the equivalent of 23 months of government expenditure. The Government is forecasting a surplus of HK$16.3 billion for 2017-18.
The Hong Kong economy is expected to grow two to three per cent in 2017-18. Financial Secretary Chan stated in his first budget speech that "the slightly improved global economy over the recent period will lend support to Hong Kong’s export performance.”
However, he added the following note of caution: “The uncertain external environment and interest rate trend may trigger abrupt shifts in capital flows and heighten volatility in local asset prices.”
CPA Australia notes that such a strong surplus not only provides Hong Kong with fiscal and structural stability but also allows it to respond to such external uncertainty should the need arise and make the required strategic investments that will strengthen its competitive advantage and secure its future.
A commitment to tax reform
One of the key areas of interest in this year’s Hong Kong Budget was the announcement that the government will establish a tax policy unit within the Financial Services and Treasury Bureau to “comprehensively examine” the international competitiveness of Hong Kong’s tax regime and Hong Kong’s narrow tax base.
CPA Australia has been lobbying the government to develop and implement a comprehensive tax reform agenda for some time.
The establishment of this tax policy unit will be a critical component in determining how Hong Kong addresses its immediate and long-term social and economic challenges.
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Other budget highlights
Support for business:
- A reduction in the 2016/17 profits tax by 75 per cent, subject to a ceiling of HK$20,000. This measure is expected to benefit 132,000 taxpayers and reduce government revenue by HK$1.9 billion
- Extending the application period for the special concessionary measures under the SME Financing Guarantee Scheme to February 2018
- Assistance for businesses to further their development in Mainland China by extending the application period for the Dedicated Fund on Branding, Upgrading and Domestic Sales for five years until June 2022
- Strengthening the underwriting capacity of the Hong Kong Export Credit Insurance Corporation by raising its contingent liability from HK$40 billion to HK$55 billion
- Assistance for the tourism industry, including waiving the licence fees for travel agents, hotels, guest houses, restaurants and hawkers for one year and spending HK$243 million to further promote Hong Kong as a tourist and conference destination
Support for individuals
- A reduction in the salaries tax and tax under personal assessment for 2016-17 by 75 per cent subject to a ceiling of HK$20,000. This measure is expected to benefit 1.84 million taxpayers and reduce government revenue by HK$16.4 billion
- Widening the marginal bands for salaries tax from HK$40,000 to HK$45,000 from 2017-18
- Raising the disabled dependant allowance from HK$66,000 to HK$75,000
- Raising the dependent brother/sister allowance from HK$33,000 to HK$37,500
- Extending the entitlement period for the tax deduction for home loan interest from 15 to 20 years.
- Raising the deduction ceiling for self-education expenses from HK$80,000 to HK$100,000
- Waiving rates for four quarters of 2017-18, subject to a ceiling of HK$1000 per rateable property. This measure is expected to reduce government revenue by HK$10.9 billion
- Provide a one month extra allowance to recipients of Comprehensive Social Security Allowance, Old Age Allowance, Old Age Living Allowance and Disability Allowance. Similar arrangement will apply to Low-Income Working Family Allowance and Work Incentive Transport Subsidy. These measures involves additional expenditure of HK$3.6 billion
- The Government will allow taxpayers to claim a tax deduction for the purchase of regulated health insurance products, however the details are still being considered by the Government
- Providing free kindergarten education from the 2017/18 school year
Encouraging innovation and technology
- Providing HK$2 billion to establish the Innovation and Technology Venture Fund to co-invest in local start-ups.
- The establishment of an Innovation and Technology committee to co-ordinate the innovation and technology development and re-industrialisation of Hong Kong.
- The new tax policy unit will explore enhanced deductions for innovation and technology expenditure.
Supporting the community
- HK$30 billion is earmarked to strengthen elderly services and rehabilitation services for people with disabilities
- HK$20 billion is earmarked to provide better community and sports facilities. This includes launching 26 projects over the next five years
- HK$300 million is set aside to help property owners secure the necessary technical support for building rehabilitation
Major areas of public expenditure
- Recurrent expenditure of education is budgeted to increase by HK$3.1 billion to HK$78.6 billion in 2017-18, accounting for 21 per cent of government recurrent expenditure
- Recurrent expenditure of social welfare is budgeted to increase by HK$9.5 billion to HK$73.3 billion in 2017-18, accounting for 20 per cent of government recurrent expenditure
- Recurrent expenditure of healthcare is budgeted to increase by HK$3.2 billion to HK$61.9 billion in 2017-18, accounting for 17 per cent of government recurrent expenditure
- Expenditure on capital works in 2017-18 is budgeted to be HK$86.8 billion. This will include funding a number of major rail and road projects including the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link and the Central-Wan Chai Bypass.
Hong Kong doubles down on stamp duty