Economists Warn Against Hong Kong Tax Hikes, Despite Economic Woes

by Mary Swire, Tax-News.com, Hong Kong

18 October 2002

Regional economists have warned this week that Hong Kong Financial Secretary, Anthony Leung Kam-chung's aim of balancing the jurisdiction's budget by fiscal 2006-07 is becoming increasingly unlikely as time goes on.

Speaking at a question-and-answer session of the Legislative Council last week, the Financial Secretary hinted at tax hikes in order to help the authorities achieve their pledge, stating that the SAR authorities would 'review all the existing tax rates, study the possibilities of levying new taxes and review all the government charges,' in order to improve the jurisdiction's financial circumstances.

However, according to experts, Mr Leung's expectations of favourable economic growth, increasing land-related income, and speedy expenditure cuts via civil service pay reductions, are somewhat unrealistic, which leaves tax increases as the only viable alternative.

This solution is not without complications, however, as increasing existing taxes or introducing new charges is likely to damage consumer confidence, and thus economic growth, still further.

Speaking to the Hong Kong Standard on Thursday, National Australia Bank economist, Kevin Lai confirmed this, observing that: 'Raising any tax will be salt in the wounds of the economy.'

Meanwhile, the Standard also reported that international credit ratings agency, Standard & Poors has warned that if the budget deficit continues to increase, Hong Kong's sovereign rating could be cut.

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