$23.8b deficit forecast as land premiums slip, growth slows| Avery Chen 9 Nov 2018
Consultants Deloitte has forecast a deficit of HK$23.8 billion for the current fiscal year - compared to a HK$148.9 billion surplus last year - mainly because of a decline in land premiums amid the softening property market and slower economic growth.
Financial Secretary Paul Chan Mo-po's original budget for 2018-19 was a HK$46.6 billion surplus, estimated in February.
Deloitte China's Hong Kong budget team estimates that stamp duties income will fall by HK$10 billion and land premium income will slump by HK$25 billion from October this year to March 2019, compared with the same period last year.
The team also expects government expenditure to rise by HK$50 billion for innovation and technology, building safety, education, improvement of people's livelihood, and countryside revitalization.
Alfred Chan, tax director at Deloitte China, said income has been too dependent on land sales revenue in past years and the fiscal surplus structure is unhealthy.
He suggested the government promote the local economy and attract more talent and enterprises to generate other tax income.
"The government is trying to restructure the Hong Kong economy with different industries," said Sarah Chan, tax partner at Deloitte China. "This is something that they need to do.
"The deficit is what we expected because it is very normal when the government is spending money and investing in something that the return will not be that quick, so maybe two or three years from now, then we will see what is the outcome."
She also said the fiscal reserves were at HK$1.03 trillion on September 30 this year, which is sufficient enough to cover the deficit.
The team suggested the government propose targeted tax measures to support the middle class.
For instance, it added, offer first-time residential property purchasers who are permanent residents a 50 percent reduction on stamp duty and tenants a tax deduction for rental expenses for their principal residence, capped at HK$150,000 a year.
Other measures include increasing the basic allowance to HK$145,000 and the married person's allowance to HK$290,000, which is equivalent to a 9.8 percent increase, as well as offering a tax deduction on the cost of employing a domestic helper, capped at HK$55,000 each year.