Hong Kong's Financial Secretary Expected To Unveil Cautious Last Budget

Mary Swire, Tax-News.com, Hong Kong

01 March 2001

Donald Tsang will deliver his last budget for Hong Kong next Wednesday, on the same day that UK Chancellor Gordon Brown will tell the British people how much of their money he plans to give back to them. The Hong Kong Financial Secretary doesn't have quite so much money to spend as his UK colleague, but he reassured Hong Kong today in a radio interview that at least he wasn't planning to soak them for more tax:

''As a manager of finance, the last thing I want is to increase tax," said Donald Tsang Yam-kuen, "I only consider raising taxes when I need to balance the budget. I will not increase them just because I can.'' He said he had heard people complain about slow economic recovery and he would address their concerns in the Budget, to be delivered next Wednesday.

The Financial Secretary ruled out a progressive income tax, and seemed also to say that there would be no sales tax on his watch. His motto at present is probably 'steady as she goes', and his sixth and final budget speech is likely to aim at strengthening confidence in an economy which has seen good recent growth figures, but whose dependence on exports may lead to weakness in the face of a global downturn, if such occurs.

The Economist Intelligence Unit last week downgraded the SAR's ranking from third to twelfth, citing doubts over the future of the business environment. "Confidence is still fragile and the economy is slowing relative to last year so I don't think the government will do anything to upset local sentiment," Standard Chartered regional treasury head Chi Lo told Reuters.

Tsang's recent appointment to the territory's second most powerful post of Chief Secretary, effective in April, also suggests a budget with few surprises, analysts said. Mr Tsang, who will succeed Anson Chan Fang On-sang as the new chief secretary in May, said he would go out of the office more frequently to meet the public face-to-face.

''The budget has a direct relationship with the general public and their livelihood,'' Mr Tsang said. ''I think one cannot work on it behind closed doors. One can't write something in an ivory tower and one can't simply rely on the legislators' comments.''

While this year's fiscal landscape may not change much, the underlying agenda for Government is still the narrowness of Hong Kong's tax base. The government needs to press on with its review of public finances to determine if deficits projected for 2003/04 are structural or cyclical. Hong Kong has had three budget deficits in the past 25 years corresponding largely with its economic cycle.

If deficits are deemed to be structural, and if worries about Hong Kong's vulnerability to China's WTO entry are taken seriously, then it is Donald Tsang's successor Antony Leung who will face the unpleasant prospect of having to introduce new or higher taxes.

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