S&P Urges Hong Kong To Strengthen Fiscal Revenues
by Mary Swire, Tax-News.com, Hong Kong
04 October 2004

Global ratings agency Standard & Poor’s has recommended that Hong Kong widens its tax base in a bid to preserve dwindling fiscal reserves, Dow Jones Newswires has reported.

In a report that contrasts the fiscal system of Hong Kong and rival Asian financial centre Singapore, S&P advised the government of the SAR to diversify away from property taxes in order to protect its HK$221 billion (US$28.3 billion) reserves.

“Without further reform, Hong Kong's fiscal reserves could be run down, especially in a trough of the next economic cycle," warned the report.

By contrast, S&P noted that the huge surplus on the Singapore government’s cash books estimated at SGD$231 billion (US$136.63 billion) actually enables it to comfortably cut taxes.

"Singapore has a wide tax base - one can argue more than it needs,” observed Paul Coughlin, S&P's managing director for Asian-Pacific corporate and government ratings.

However, the report noted that Singapore could take a leaf out of Hong Kong’s book when it comes to the transparency of its cash reserves, and allow more private firms to manage the surplus.

The SAR is also more adept at managing its smaller reserve: Singapore's investment returns have underperformed Hong Kong's by 2%-4% in nominal terms, S&P estimates.

Nevertheless, according to the analysis, Hong Kong must continue to strengthen its fiscal position, despite estimated economic growth of 7.5% this year.

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