Moody's Urges Hong Kong Government To Tackle Deficit

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

28 January 2003

International ratings agency, Moody's Investors Service recently urged the Hong Kong government to begin reducing its growing budget deficit, but warned that given the current fragile state of the economy, the timing of any tax changes must be perfect.

Speaking last week, Moody's Sovereign Risk vice-president and senior analyst, Steve Hess announced that the Hong Kong government's 'Aa3' domestic currency rating will remain in place. According to the Hong Kong Standard:

'He said Hong Kong's substantial fiscal reserves allowed it time to adopt measures to reduce its budget deficit, estimated by officials to hit a record HK$70 billion in the year ending March'.

However, Mr Hess acknowledged the need for caution, revealing that: There's a timing question. Higher taxes would probably have a negative impact on the performance of the economy.'

Speaking with regard to the possibility of imposing a sales tax, an option which the SAR government has so far ruled out, the Moody's analyst stated:

'That doesn't mean they won't impose a sales tax in the future. Even at a low level, [a sales tax] would make a significant dent in the budget deficit and that's a very common tax in many countries and is considered a very stable source.'

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