Financial Secretary Paul Chan Mo-po delivers his 2018/19 Budget speech at the Legislative Council in Hong Kong, Feb 28, 2018. (PARKER ZHENG / CHINA DAILY)
HONG KONG - Hong Kong's financial secretary Paul Chan Mo-po unveiled a people-friendly budget at the Legislative Council on Wednesday morning. This is the administration’s first formal address on fiscal policy since Chief Executive Carrie Lam Cheng Yuet-ngor assumed office last July.
40 per cent of Hong Kong's projected annual surplus of HK$138 billion will be shared with the community
Chan began his speech by pointing out how the initiatives proposed in this budget were driven by three main objectives - a diversified economy, investing for the future and caring and sharing. He said he expected Hong Kong's Gross Domestic Product (GDP) to grow by 3-4% in 2018 while putting the city's 2017/18 surplus at HK$138 billion.
He said 40 per cent of the projected annual surplus will be shared with the community and the remaining will go toward improving services and investing in the future.
In a much-awaited announcement, Chan shared with Hong Kong people that the government will widen the bands for salaries tax from the current HK$45,000 to HK$50,000, increasing the number of tax bands to five from the current four, and adjusting the marginal tax rates to 2 percent, 6 percent, 10 percent, 14 percent and 17 percent, respectively, to benefit 1.34 million taxpayers.
(GRAPHIC DESIGN BY ALEX TANG / CHINA DAILY)
Also, the ceiling on basic and additional child allowances will be upped from current HK$100,000 to HK$120,000, benefiting 335,000 taxpayers.
Chan said, salaries tax and tax under personal assessment for 2017-18 will be reduced by 75 per cent, subject to a ceiling of HK$30,000. The reduction will be reflected in the final tax payable for 2017-18, benefiting 1.88 million taxpayers.
Raft of tax breaks to benefit 1.34 million taxpayers
Profits tax for 2017-18 will be reduced by 75 per cent, subject to a ceiling of HK$30,000. The reduction will be reflected in the final tax payable for 2017-18 and will benefit 142,000 taxpayers.
The government will waive rates for four quarters of 2018-19, subject to a ceiling of HK$2,500 per quarter for each rateable property. This proposal is estimated to benefit owners of 3.25 million properties.
Waivers and community projects
In a move that would help tens of thousands of students, Chan said the government will pay the examination fees for candidates sitting the 2019 Hong Kong Diploma of Secondary Education Examination, involving an expenditure of about HK$180 million.
Hong Kong Financial Secretary Paul Chan (2nd left) presents the 2018/19 Budget to the press on Feb 28, 2018. (PARKER ZHENG / CHINA DAILY)
Also, the government will provide a one-off grant of HK$2,000 to each needy student, involving an expenditure of about HK$740 million.
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Chan pledged an extra allowance for social security recipients, equalling two months of the standard rate of Comprehensive Social Security Assistance (CSSA) payments, Old Age Allowance, OALA or Disability Allowance. This will involve an additional expenditure of about HK$7 billion.
Chan said the government would set aside HK$8 billion to build more facilities such as community complexes and pedestrian links across Hong Kong's 18 districts.
The financial secretary said the government would set aside HK$15 billion to effect the abolition of the MPF “offsetting” arrangement. Chan said a proposal acceptable to both employers and employees will be soon put forward after consulting major stakeholders.
Chan said Hong Kong's average annual economic growth rate over the past decade was merely 2.7 per cent, at odds with a per capita Gross Domestic Product (GDP) of US$46,000 - among the highest in the world. He said Hong Kong's strength needed to be leveraged in order to galvanize the growth momentum.
The financial secterary made it clear that the government's focus will be firmly on removing land and manpower constraints.
Hong Kong's Gross Domestic Product (GDP) is expected to grow by 3-4% in 2018
He asserted that the tax regime would remain simple and competitive and the regulatory system transparent and efficient, all the while encouraging investment and innovation.
Noting that in 2017, Hong Kong's rate of growth of GDP was 3.8 percent, Chan said he forecast an inflation rate of 2.2 percent with an underlying inflation rate of 2.5 percent. He said fiscal reserves were expected to reach HK$1,092 billion by 31 March 2018.
Chan announced the 2017-18 revised estimate for government revenue stood at HK$612.4 billion - about 20.6 per cent or HK$104.7 billion higher than the original estimate.
In his budget speech, Chan said the Housing Reserve would swell to HK$78.8 billion and attributed the spectacular government revenue performance to mainly much higher-than-expected revenues from land premium and stamp duties. At the same time, noting that ultra-low interest rates no longer existed, Chan said an extreme shortage of housing supply in Hong Kong had been eased a lot.
He expected the private sector to contribute roughly 97,000 first-hand units in the next three to four years. The public sector could contribute about 100,000 units over the next five years - through 75 000 public rental housing units and sale of about 25,000 subsidized flats.
Hong Kong Financial Secretary Paul Chan (center) speaks during a press conference on the 2018/19 Budget in Hong Kong, Feb 28, 2018. (PARKER ZHENG / CHINA DAILY)
Chan said four commercial/hotel sites would be included in the 2018-19 Land Sale Programme, enabling addition of about 530 000 square-meters of floor area.
Chan announced that the expenditure on public healthcare services will increase by 13.3 percent to HK$71.2 billion in 2018-19, accounting for 17.5 percent of the government's total recurrent expenditure. Also, HK$300 billion had been initially set aside to support the second 10-year hospital development plan.
Chan pledged to ensure that the Hospital Authority absorbed more than 2,000 medical graduates that the city would see in the next five years.
Chan pledged to set aside HK$500 million exclusively for the development of the financial services industry in the coming five years.
In order to encourage local, mainland and overseas enterprises to issue bonds in Hong Kong, Chan proposes to launch a three-year Pilot Bond Grant Scheme. The pilot scheme will cover eligible enterprises issuing bonds in Hong Kong for the first time. The grant will be capped at HK$2.5 million and each enterprise can apply for it for two bond issuances at most. He said the Hong Kong Monetary Aauthority will announce the details in due course.
HK$500 million will be set aside exclusively for the development of the financial services industry in the coming five years
Also, in order to promote green finance, a green bond issuance programme will be launched with a borrowing ceiling of HK$100 billion. The sums borrowed will be credited to the Capital Works Reserve Fund to provide funding for the government's green projects.
In his budget speech, Hong Kong's financial secretary announced the Hong Kong Mortgage Corporation Limited (HKMC) will launch a Life Annuity Scheme in the middle of this year. Purchasers will only have to pay a lump sum in exchange for a stable flow of monthly income. With the public enthusiastic about this product, the HKMC could consider increasing the issuance size.
For the trading and logistics industry, Chan announced to cap the charge for each declaration at US$200. This will considerably lower the cost of importing and exporting high-value goods to and from Hong Kong and is expected to save the industry HK$458 million per year.
Public sector could contribute about 100,000 housing units over the next five years
Boost for small and medium enterprises (SMEs) was pledged by way of raising the cumulative funding ceiling for Export Marketing Fund from HK$200,000 to HK$400,000, and removing a clause on the use of the last grant tranche of HK$50,000.
In order to make the construction industry more technologically advanced and innovative, Chan proposed to set up a HK$1 billion Construction Innovation and Technology Fund.
Chan has also tasked the Hong Kong Monetary Authority to study the idea of establishing an academy of finance (AoF) in Hong Kong as a center of excellence for financial services. It aims to bring together the strengths of the academia, the industry, professional training institutes and regulatory community to promote financial knowledge transfer, capacity building, and applied research collaboration.
The Hong Kong government unveils the 2018/19 Budget on Feb 28, 2018. (PARKER ZHENG / CHINA DAILY)
Norman Chan, Chief Executive of the HKMA, said establishing an academy of finance will not only nurture top notch talents in the field of finance, but enhance Hong Kong’s competiveness as an international financial center.
An additional HK$396 million will be allocated to the tourism industry in the new financial year, of which the Hong Kong Tourism Board (HKTB) will utilize HK$226 million to implement the tourism development blueprint released last year.
Also, Ocean Park will be allocated HK$310 million over the next few years to develop education and tourism projects.
Innovation and technology
According to Chan's statement, the SAR government will set aside HK$50 billion for supporting I&T development, over and above last year's HK$10 billion. This apart, HK$20 billion will be set aside for the development of Lok Ma Chau Loop Innovation and Technology Park.
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According to Chan, since 2009, the SAR government had injected HK$1 billion into the Create Smart Initiative (CSI) and in the new financial year, would inject another HK$1 billion to support the development of creative industries, especially in nurturing youths and helping start-ups.
Education and youth development
Chan said the Youth Development Commission would be set up in the first half of this year with a funding of HK$1 billion.
The SAR government will set aside HK$50 billion for supporting I&T development
Recurrent expenditure on education willl be increased by HK$5 billion with the LegCo already having approved HK$3.6 billion. Chan proposed to commit an additional recurrent expenditure of US$2 billion to achieve quality education.
Also, he pledged HK$2.5 billion for launching the eighth round of Matching Grant Scheme to help Hong Kong's 10 publicly-funded post-secondary institutions improve the quality of education.
Chan announced the government has decided to continue to waive in full the first registration tax for electric commercial vehicles, electric motor cycles and electric motor tricycles until 31 March 2021.
Peter Wong, Deputy Chairman and Chief Executive, The Hongkong and Shanghai Banking Corporation Limited, said "today’s budget outlines a clear set of priorities for strengthening Hong Kong’s economy and financial markets."
Wong believed the initiatives set out in the budget could help enhance Hong Kong's competitive edge as an international financial center.
"Vitally, the budget reinforced the importance of the Belt and Road Initiative and Greater Bay Area to economic opportunities for businesses and individuals in Hong Kong."Residents queue up for a booklet of the 2018/19 Budget in Hong Kong on Feb 28, 2018. (PARKER ZHENG / CHINA DAILY)
Duncan Innes-Ker, Regional Director, Asia at The Economist Intelligence Unit (The EIU), welcomed the government's intension to pursue a laxer fiscal path.
The Association of Chartered Certified Accountants Hong Kong also welcomed the government’s commitment to enhance the city’s sustainable competitiveness in the medium and long run and to reposition Hong Kong as the strategic financial and innovative center of Asia.
"After the introduction of the two-tier profits tax rates regime, in order to cater for fairness amongst taxpayers paying profits tax and salaries tax, ACCA suggests a similar tax relief be given to individual taxpayers by incorporating two principles, two-tier standard rates at 7.5 percent and 15 percent," said Stanley Ho, Co-chairman of Tax Sub-committee of ACCA Hong Kong.