Consumer tax ruled out as stable budgets forecast

Top News | Phoenix Un 4 Mar 2019

Hong Kong will have balanced budgets over the next five years - meaning there will be no new taxes in the short term - says Financial Secretary Paul Chan Mo-po.

Chan's budget predicted a de facto deficit of HK$4.4 billion next year, but the deficit will become a surplus of HK$16.8 billion as the government transfers HK$21.2 billion from the housing reserve back to the public fund.

The HK$82.4 billion housing reserve will be brought back to the government's reserves in the coming four years.

Critics, however, say Chan is merely playing with numbers and that it is just a game to prevent a deficit in budgets in the coming years.

In a television interview, Chan said the government could still achieve a balanced budget in the next five years and although the reserve transfer will end in 2023, the economy by then "would generally be stable."

He denied any necessity or pressure to levy new taxes, such as a consumer tax, in the near future.

"The government doesn't need a large amount of surplus, as it's not really a clever way of administering," Chan said.

He said the government's fiscal surplus will be HK$1.16 trillion by the end of March and the figure will only vary within a HK$100 billion range, providing Hong Kong with sufficient fiscal power to deal with possible external impacts.

Hong Kong will spend HK$646 billion in the next fiscal year, which starts on April 1, and Chan explained the increased expenditure is due to the belief the government should spend more on society, including on hospitals, as well as place more input into innovation and technology.

But he said the rise in government expenditure is higher than economic growth. "There are those who believe that public expenditure should not exceed 20 percent of gross domestic product, and that we broke the limit in these two years, by 21 or 22 percent, but we have to be vigilant later."

The significant drop in surplus from HK$148.9 billion in 2017-18 to HK$58.7 in 2018-19 was mainly due to the decline in revenues from land sales and stamp duty.

Potential supply of private flats next year is expected to mark a drastic year-on-year drop next year, following the decrease in public-private housing supply ratio from 6:4 to 7:3, which might also affect government revenues.

However, Chan said land sale revenues should remain stable over the next two to three years if the market does not fluctuate a lot, given premium plots, including a site above the West Kowloon express rail station, will be auctioned.

Some also blamed the government for not helping people buy homes with the budget, but Chan said this is not the right moment for measures such as increasing maximum loan-to-value ratio or providing mortgage guarantees for first-time flat buyers.

"We supervise the market from time to time. The timing must be correct, as we don't want to further heat up the housing market and give people the impression that the government is preventing the price from dropping," Chan said.

He added the government will not withdraw the stamp duties to increase land sales income.

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