Financial Secretary Henry Tang's "homely and anticipated" 2005-06 Budget presented yesterday offered rebates to taxpayers with dependant parents or/and grandparents and those bringing up children but no salary tax cuts.
Nor did Tang heed the public call for cutting rates payments for one or half of a quarter. On the contrary, many property owners have to pay higher rates because their values have been increased. But as many expected, he didn't announce a goods and services tax, either.
Tang, however, didn't raise the alcohol duty, though he abolished the estate duty which generated about HK$1.5 billion a year.
Presenting his second budget to the Legislative Council and hoping the public would accept it, Tang said 2004 saw a 8.1 percent GDP growth, the highest in four years, and up from a 3.2 percent expansion in 2003. The consolidated account is estimated to achieve a surplus of HK$12 billion, mainly because of lower-than-expected expenditure and higher-than-expected revenue in 2004-05.
Capital revenues such as land premiums amounted to HK$31.3 billion, more than 2.5 times the original estimate. And operating revenues like salary tax and stamp duty too were higher than expected, with the increase ranging from 9 percent to 40 percent.
Tang said: "Also, we have successfully checked operating expenditure, which had been on the rise for over 50 years."
But if the revenue from the issue of bonds is excluded, the consolidated account would still have a deficit of HK$13.4 billion. At the same time, the operating deficit for 2004-05 is forecast at HK$14.1 billion, much lower than originally estimated HK$46.6 billion.
Tang forecast a handsome 4.5-5.5 percent GDP growth for 2005. There would still be a consolidated deficit of HK$10.5 billion in 2005-06, but he estimated that would be balanced in 2007-08 - a year ahead of schedule - with a HK$22.8 billion surplus.
The operating account, however, would be restored to balance only in 2008-09, as per schedule.
City University of Hong Kong's chair-professor of finance and economics Stephen Cheung described the budget as conservative and stable, which fits the present economic situation. "We have seen increasing revenues in 2004-05, particularly non-recurrent income such as land premiums.
"The deficit problem seems to have been resolved, but in fact, it has not," Cheung said. "The government has also realized this problem. I think it is necessary to have a bit more conservative budget."
But Hong Kong Bank (Greater China)'s chief economist George Leung described the budget as "plain water". He, however, said that if the government exercises strict control over the expenditure, it would reach the target of cutting operating expenditure to HK$200 billion by 2008-09.
Leung said it was understandable not to reduce the salary tax when economy was just picking up. If such tax is cut now, there'd be pressure on the government's finances in case of an unexpected downturn.
But he said the government's estimated GDP growth of 5.5 percent was a bit too optimistic compared to forecasts of the financial sector.
At a post-budget press conference, Tang said the financial plans were pragmatic, steady and prudent and not designed for him to win support in case he decided to contest the 2007 chief executive's election.
"This is not paving the way for the election because this does not give out a lot of cash payments nor outlines ideal blueprints for the next few years. It is a continuation of the principle of keeping Hong Kong a market and capitalist economy in which 'the market leads, the government facilitates', and we still maintain a simple, low tax regime and fiscal prudence."
But why didn't he cut the salary tax? Tang said the economy, though improving, was only beginning to pick up. "Suspension of the phase two salary tax adjustments would cost the government HK$3.3 billion in a full year. Since the economy is still rather fragile, we are not in a position to shelf the plan," he said.
He went on to defend his decision to abolish estate duty, but keep the alcohol duty untouched. "The abolition of estate duty will help the development of Hong Kong as an asset management centre, and so we must look ahead with foresight.
"As for the alcohol duty, the income is less than HK$200 million a year, and I want to change people's impression that red wines are for the rich people only. Still, keeping the tax rate unchanged will help promote Hong Kong as a wine exhibition and sales hub."
Tang said the ratetable values on property rose by 7 percent for the first time in six years after a cumulative decrease of 39 percent. "There is no strong reason why we shall not adjust it in line with the market condition."
Tang did not give any special mention to the goods & services tax (GST), which was mentioned by his two predecessors, in the budget. The government will launch a public consultation later this year, he told the press conference. He will also discuss this with the new chief executive to be elected on July 10.
But he was pleased to note that the people's acceptance for the GST had increased. "According to a recent survey, the support level has increased from 30 percent to 40 percent even before we came up with a consultation paper," he said.
(China Daily March 17, 2005)