Hong Kong's Budget Deficit May Be Significantly Lower Than Feared This Year

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

22 January 2004

According to the latest analysis of the Hong Kong economy, the city’s budget deficit may be much lower this year than the government has been estimating, mainly due to an upsurge in economic activity in recent months.

Whilst the government has predicted a US$10 billion hole in its finances by the end of the fiscal year, consultants at PricewaterhouseCoopers have calculated that the deficit will be much less, at something nearer $7 billion. This is largely due to a boost in investment income and reductions in public sector spending, the regional media reports.

Despite the SARS crisis, which many feared would cripple the city’s economy in the short term, 2003 turned out to be a record year for the government’s promotional agency, Invest Hong Kong. The agency announced last week that 142 foreign companies successfully established or expanded operations in Hong Kong during the past 12 months, representing an increase of 21% compared to 2002.

Moreover, the PwC consultants predict that the deficit will be even lower by March 2005, at $5.8 billion. However, the firm warns that the government’s target of achieving a balanced budget by 2008/2009 is going to be a tall order.

"I don't think the urgency in solving the problem has gone away at all; it's still there and that's what the accrual accounts show us,” Guy Ellis, tax partner at PwC observed, according to Channel News Asia.

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