HONG KONG: Financial Secretary Henry Tang presented what analysts called a “responsible” budget yesterday, announcing Hong Kong’s first fiscal surplus in five years and abolishing estate duty.
But Tang also said he was sticking with plans to consult the public on an eventual goods and service tax (GST).
“It’s a responsible budget for the longer term,” Rob Subbaraman, senior economist at Lehman Brothers said. “The GST is something Hong Kong needs – its revenue stream is highly geared to the cyclical state of the economy.”
Tang said the government posted a HK$12bil consolidated surplus for fiscal 2004/05, its first surplus since 1999/2000, reflecting higher government revenues as the economy rebounded.
Gross domestic product (GDP) grew 8.1% in real terms last year, for its best performance since 2000 and is poised for 4.5%–5.5% growth this year, higher than many analysts’ targets.
Tang's proposal to abolish estate duty was the big surprise of the day. Many people had been advocating the move but few expected it.
Removal of the tax would cost the government HK$1.5bil a year but should encourage investment in the territory and enhance its position as an international financial centre, analysts said.
Plans for a public consultation on a GST had been expected and the government said it would release further details later in the year. Tang faces a challenge in winning the public over to the idea of a new tax, which would take at least three years to implement, but analysts say it is a necessary step to expand the government’s revenue base in the longer term.
The swing in public finances, from a HK$40bil deficit in 2003/04 to a surplus this year, highlights their vulnerability to economic cycles. Even in fiscal 2004/05, the government will still post a HK$14.1bil operating deficit once revenues from a bond issue and securitised notes – debt that has to be paid – are excluded. – Reuters
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