Hong Kong Economists Would Accept Tax Increases

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

25 January 2002

Leading Hong Kong economists representing major banks and financial institutions told a budget consultation meeting on Wednesday that the government should trim spending to eliminate the projected $60 billion deficit. The economists told Financial Secretary Antony Leung yesterday that a massive tax increase was inadvisable but mild adjustments could not be avoided if the government wanted to get the budget back in the black.

Their views were echoed by Chief Executive Tung Chee-hwa who also ruled out a hefty tax increase after visiting the Eastern District yesterday.. He expressed confidence that the government would be able to balance the books within the next three to five years, adding that the SAR would not end up like Argentina because the financial conditions were different. ''A huge tax rise is impossible. It is not an option amid the economic downturn. It would further hurt the economy,'' Tung said

Standard Chartered Bank regional chief economist Kwok Kwok-chuen said a massive tax increase was unwise, but a cut in individual allowances, for example, could be considered. ``A slight tax increase is inevitable. However, it will be hard for the public to accept in the short term. The government should show that the money will be spent appropriately and efficiently before suggesting tax increases or adding new taxes,'' he said. The basic allowance for individuals in the 1995 fiscal year was $72,000, in 1996 $83,000, in 1997 $100,000 and has remained at $108,000 since 1998.

General Chamber of Commerce chief economist Ian Perkin said the government was not under pressure to touch new taxes or allowances. ''We mainly talked about the need to restrain government spending rather than raise revenue; also how Hong Kong could take advantage of the impact brought by the anticipated recovery of the global and US economies,'' he said.

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