A Santa Claus Budget in HK
No taxes on wine and beer, tax cuts, handouts to help tackle challenges
— AGENCIES
HONG KONG — No more taxes on wine and beer. Permanent cuts in company, personal and hotel room taxes. Handouts for the poor.
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With plenty of cash to spare due to a record budget surplus of HK$115.6 billion ($21 billion), Financial Secretary John Tsang (picture) can afford to play Santa Claus in his first annual Budget speech — with something for everyone even as he warned of challenging times ahead for Hong Kong.
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Like Singapore, its perennial economic rival, Hong Kong is trying to contain inflation, which is near a nine-year high, while providing jobs as global demand falters.
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Mr Tsang said the slowdown of the United States economy, rising global inflation and new measures to cool China's economic growth could have a negative impact on Hong Kong.
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Still, Mr Tsang told lawmakers he was "cautiously optimistic" about the economic outlook since China would provide the territory with a cushion. He predicted that growth would slow to 4 to 5 per cent this year, from 6.3 per cent last year.
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Mr Tsang's bag of Budget goodies included several permanent tax cuts, such as dropping the territory's hotel room tax to boost tourism.
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Taxes on salaries and companies' profits will also be cut by 1 percentage point to 15 per cent and 16.5 per cent, respectively.
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The Budget also included a one-off 75-per-cent rebate on salaries tax for 2007-08, up to a limit of HK$25,000 per person. The government will waive property rates for the year through March next year, up to a maximum of HK$5,000 per quarter for each property.
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And to turn the city into a wine-trading hub, alongside London and New York, all taxes and administrative controls on wine and beer will be dropped.
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Abolishing the 40-per-cent tax on wine and the 20-per-cent duty on beer will cost the government HK$560 million in annual tax revenue.
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The Financial Secretary also announced a slew of measures, including a one-month waiver in public housing rents, to help the city's poor. To ease the impact of rising power costs on lower-income households, the government will offer a one-off subsidy in utilities charge, amounting to HK$1,800 for every residential electricity account in the territory.
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The government will also allocate some HK$50 billion from its reserves for healthcare reform initiatives amid rising medical expenses and an ageing population.
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Mr Tsang said some of the tax cuts and payments are aimed at reducing the impact of inflation, which is expected to rise to about 3.4 per cent this year, up from 2 per cent last year on rising food costs.
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"I hope this Budget will lessen people's burden and help them handle their various challenges," Mr Tsang said.
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And amid growing concerns about Hong Kong's poor air quality, the government will change depreciation rules to encourage spending on environmentally friendly facilities, and offer a tax concession on environmentally-friendly vehicles.
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Partly as a result of the increased spending, Mr Tsang said, the government expects a HK$7.5-billion deficit in the fiscal year ending in March next year.
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The Budget was welcomed by many quarters, including Hong Kong's biggest opposition party.
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"The Budget responded to our demands with the injection of medical fund and other policies benefiting the unemployed population," said lawmaker Albert Ho, head of the Democratic Party.
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Ms Agnes Chan, a partner at Ernst and Young Tax Services, said: "This is a 360-degree budget, the first that actually benefits everybody. Who wouldn't be unhappy?"
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But economist Kevin Lau said that while the one-time grants can be justified, they may have a negative effect.
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"With all these tax concessions and low interest rates, I am worried that the driver of the inflation rate will gradually shift from food to domestic sectors later on in the year," said the Standard Chartered economist.
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Still, Mr Lau added: "it's reasonable and justifiable given that Hong Kong people are likely to face higher costs of living".
No taxes on wine and beer, tax cuts, handouts to help tackle challenges
— AGENCIES