IMF Gives Hong Kong Positive Assessment

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

20 May 2002

Hong Kong's Financial Secretary, Antony Leung Kam-chung has welcomed an IMF Staff Report last week which supported the government's plans to boost the region's economy.

In its consultation discussion paper on the jurisdiction, the International Monetary Fund said that it supported the government's commitment to restore a balanced budget over the next four years, and reiterated its support for the controversial currency peg with the US dollar - often blamed for causing deflation - calling the linked exchange-rate system 'the best option for Hong Kong'.

However, the IMF emphasised that the SAR authorities would need to support their stated aims with concrete measures to reverse the rising trend of spending as a share of GDP, and to strengthen Hong Kong's revenue base.

In this context, the report suggested, Mr Leung Kam-chung should consider other measures in addition to the proposed introduction of a broad-based consumption tax, such as changes to the region's income tax regime.

Responding to the IMF document, the HK Finance Minister chose not to comment on the possibility of changes to the income tax system, announcing that:

'I have outlined in my Fiscal 2002 Budget a clear and credible strategy to restore fiscal balance. We are working on the implementation of this strategy.'

However, he added that: 'It is encouraging to know that the IMF supports the government's approach in dealing with the twin challenges,' referring to ongoing integration with the Chinese mainland and the sharp cyclical downturn which has left the SAR reeling.

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