Hong Kong Incurs Financial Deficit

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

01 November 2001

Following warnings earlier this month from chief executive Tung Chee-hwa and financial secretary Antony Leung of a worsening economic situation, the Hong Kong government on Wednesday announced a higher than expected budget deficit of HK$ 60.7bn ($7.78bn) for the first six months of the financial year.

Government revenues have been hurt by the delay of a partial sale of a second tranche of the local mass transit system, which was expected to raise HK$15 bn, lower than expected sales of undeveloped land. Although revenues tend to be skewed towards the second half of the financial year as the bulk of salaries taxes come in in January and February, private economists have been forecasting an annual deficit for the financial year ending March 31, 2002 of HK$40 to HK$50bn.

The SAR has huge reserves of HK$370bn, but economists worry that government expenditure as a percentage of GDP has been steadily rising and that the deficit is now structural. This summer, a government advisory panel suggested a goods and services tax as one option to build a more broad-based tax system in Hong Kong. The government has been able to keep taxes low because it has relied on auctions of undeveloped land and revenues from associated real estate taxes to boost revenues.

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