Hong Kong's Financial Secretary Unveils His Final Budget

Mary Swire, Tax-news.com, Hong Kong

08 March 2001

We expected a cautious Hong Kong budget and we got a cautious budget from financial secretary, Donald Tsang. In his sixth and final budget speech - Tsang will become new chief secretary in May - his small tax concessions came to the aid of those deemed not to have benefitted yet from the SAR's recent economic growth and he provided for some adjustments to enhance government revenue.

Areas that remained unchanged were salaries tax, profits tax and betting duty. Airport departure tax increased to HK$80, stamp duty on stock transactions was cut by 11 per cent to 0.2 per cent and small and medium-sized firms were awarded HK$300 million for training programmes.

Tsang said Hong Kong's economy grew by 10.5 percent in real terms in 2000 which was its highest growth rate since 1987 and he forecast a lower rate of growth for 2001 due to the economic slow-down already seen in some of the SAR's major trading partners.

Despite modest growth and a forecast of zero inflation, said Tsang, the SAR must not be complacent. He said: 'On the downside, I expect our economic performance to be affected by the rapid slowdown of the U.S. economy, continued economic stagnation in Japan and slower growth in domestic demand in East Asia.'

However, Tsang is confident that China's entry into the World Trade Organisation and Europe's continuing economic growth would lead to positive knock-on effects for Hong Kong. Furthermore, domestic consumption and investment is expected to increase.

A small overall deficit is also expected of around HK$3 billion (US$385 million) in the 2001/02 financial year with fiscal reserves decreasing to HK$429.9 billion by end-March 2002. Total government spending is likely to be HK$254.7 billion in the coming financial year with total revenue of HK$251.7 billion. The year 2004/05 is expected to see the budget to return to surplus funds.

Major changes were made to corporate governance in the attempt to bring it into line with international standards. The Companies Ordinance is set to be pushed through, under which company directors are to become more accountable with takeover rules and share repurchases to be reviewed and regulations governing market information to be enhanced. 'High standards of corporate governance are the hallmark of a first-class international financial and business centre,' said Tsang.

He added: 'Our aim is to establish Hong Kong as a paragon of corporate governance, ensuring that those investing in Hong Kong are afforded the best protection and that our listed companies are managed with excellence, complying with the highest international standards including those relating to risk management and disclosure of information. I firmly believe that this is a core area of work that will help us maintain our leading position in financial services in our Asian time zone.'

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