Hong Kong trims budget handouts with slowing economy in view

HONG KONG • Hong Kong’s economic growth is forecast to slow this year as the city grapples with weaker property values and the fallout from US-China trade tensions, lea-ding to a more modest range of budget handouts than last year.

The economy will grow by 2% to 3%, Hong Kong Financial Secretary Paul Chan (picture) said, after the 3% pace in 2018. For the final three months of 2018, GDP expanded 1.3% from a year earlier. Output contracted when compared to the third quarter.

“As a small and totally open economy, Hong Kong has been susceptible to economic headwinds over the past few months, as evidenced by notable slackening growth and diminishing confidence of enterprises in the future outlook,” Chan said according to a prepared statement online. “Resources are not infinite and trade-offs are inevitable.”

A more turbulent macroeconomic picture has forced Chan and Chief Executive Carrie Lam to deliver a muted budget with fewer goodies and more emphasis on areas of potential growth and need.

The fiscal surplus for the current year, which ends March 31, will shrink to an estimated HK$58.7 billion (RM30.45 billion), less than half the HK$149 billion last year.

That’s even with cuts to handouts such as a reduction of the amount of personal income eligible for tax reductions. That was cut to HK$20,000 for the fiscal year that started last April, from HK$30,000 in the prior year.

The fiscal surplus will slide further to HK$16.8 billion in the coming year, the government estimates.

Fiscal reserves are expected to reach HK$1.16 trillion by March 31, Chan said.

In his speech announcing the new budget, he emphasised caution on the outlook for the global economy and Hong Kong, while looking ahead to “enormous business opportunities in close proximity” to Hong Kong as a key cog in the Greater Bay Area development spearheaded by China.

Boosting Hong Kong’s stature in the competitive high-tech industry was an area of budget focus, with funds earmarked for areas including:

• HK$16 billion to qualifying universities to enhance or refurbish campus facilities such as laboratories, particularly those essential to research and development (R&D).

• HK$5.5 billion for the development of Cyberport 5, an expansion of Hong Kong’s tech campus meant to attract technology companies and start-ups, with view to start construction in 2021.

• A two-tiered enhanced tax deduction for eligible R&D spending to encourage more activity in that area.

Chan also highlighted Hong Kong’s potential as a dispute resolution platform for the wider Belt and Road initiative, allocating HK$150 million to support development.

Iris Pang, a Hong Kong-based economist with ING Bank NV, found the spending plan a “disappointment”, criticising Chan for not allocating enough to elderly services and healthcare, and wasteful tax rebate “candy” handouts.

Chan will spend HK$10 billion on a public healthcare stabilisation fund, and another HK$5 billion for the Hospital Authority to spend on upgrading and acquiring medical equipment.

But with a looming ageing population problem, the city will need to invest more, Pang said.

The personal income tax reduction scheme cuts personal income taxes by 75% up to an annual maximum of HK$20,000, benefitting an estimated 1.91 million taxpayers and reducing government revenue by HK$17 billion.

A few other handouts for the fiscal year starting in April:

• Reducing profits tax by 75% to a ceiling of HK$20,000.

• Waiving property rates for the whole year, up to a ceiling of HK$6,000 for each rateable property.

• An extra allowance to social security recipients.

• A one-off grant to needy students of HK$2,500 to support learning.

• A one-off grant of US$1,000 (RM4,067) worth of vouchers to some elderly people.

Chan also announced HK$6 billion for a waterfront facelift and another HK$600 million to refurbish 240 public toilets over the next five years. — Bloomberg