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Hong Kong Budget Raises Growth Estimate To 5% - No New Taxes

Mary Swire, Tax-news.com, Hong Kong

03 September 2000

Announcing a budget deficit below even the lowest advance estimates at only HK$1.6bn, Hong Kong Financial Secretary Donald Tsang Yam-kuen said that the recent bounce-back by the Region's economy meant there would be no new taxes this year. He expected 5% growth in the current year: "The storm has now passed and our economy is back on a growth track although Government finances are still in the red. On balance, I have decided that this is a year for consolidation rather than dramatic steps. This does not mean that we are bereft of ideas. It is our considered view that the interests of the community are best served at this time by a gentle hand on the tiller."

Economic growth for last year has now been revised up to 2.9% from 0.5% and trend growth for the four-year period between 2000-03 has been revised up to 4% from 3.5%. Mr Tsang said that the improvement in the deficit position was largely due to growth in the financial reserves in the Exchange Fund. Investment earnings had come in at $44bn, mostly reflecting the administration's successful punt on the Stock Exchange.

Mr Tsang said the higher income was exceptional, but that new taxes would be postponed until he could gain a better understanding of whether the deficit was structural or cyclical. He said he had never considered raising profits tax, because of the competition from Singapore. "I still believe a land departure tax is fair. I have not given up on a land departure tax. There are still many different views. We have yet to have a full discussion."

An internal task-force would study whether recurrent revenue will rise with economic growth, which will help identify whether deficits are short-term or chronic. An independent committee comprising tax experts, professionals and academics, including foreign experts, will examine whether new taxes, such as a consumption-based tax, should be levied.

Other main points from the budget speech include a reduction of 10,000 in the number of civil servants over the next three years, a cut in stamp duty on share transactions from 0.25% to 0.225%, and the publication next month of a Securities and Futures Bill.

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