Budgeting for these taxing times

Editorial | Mary Ma 18 Jan 2021

It's more likely than not that Financial Secretary Paul Chan Mo-po will tighten the purse strings in his upcoming budget after spending tens of billions of dollars in desperate attempts to bail out local businesses and workers from the pandemic trap.

Chan may still wish to extend the support programs.

However, in light of cautious remarks he made recently, he appears to be trying to play down public expectations for more handouts to be rolled out.

This horrific pandemic is dragging on longer than expected.

Worse still, as Hong Kong drags its heels on launching a vaccination program to protect citizens from the coronavirus, the city may fall behind others in recovering economically.

Chan recently said that some people had proposed to him that taxes might be raised to increase government revenues to fill the hole that has left the government's fiscal position nearly 20 percent worse off than previously forecast.

Some political figures, including Liberal Party lawmaker Felix Chung Kwok-pan, were quick to take this as a serious warning.

Probably out of fear that Chan might indeed raise taxes, Chung and his peers suggested that, if he is going to raise taxes at all, he could instead increase the stamp duty on stock trading.

Given the grim business environment here and globally, it is unlikely that Chan will go ahead with any tax increase.

His mention of prospective tax raises was more like a smoke screen to manage people's expectations ahead of next month's budget.

It could also have been aimed at silencing government allies in the pro-establishment-turned-opposition over likely demands for further handouts.

Following several rounds of bailouts, it is predicted that the SAR's financial health will deteriorate to a record deficit of HK$331 billion at the end of the 2020/21 financial year.

Chan had anticipated a deficit at the start of the year, but not as dire as that.

The pandemic has blown the lid off fiscal prudence, even though it is constitutionally mandated by the Basic Law.

At such a juncture, it was disgusting to hear the Government Disciplined Services General Union and Hong Kong Civil Servants General Union suggest a reduction in salaries tax. They argued that this could spur consumer spending, but their argument is fallacious.

With unemployment set to hit a new high since the SARS epidemic and many workers suffering deep pay cuts, salary tax cuts would benefit just a few.

But the civil servants, despite facing political pressure, have been economically immune to the Covid pandemic. They should be condemned for putting themselves before others.

Although this may not be the best time to emphasize the need for fiscal prudence given that the SAR has not yet been able to inject the first vaccine jab, Chan must start putting together a roadmap to gradually guide the SAR back to fiscal prudence once the pandemic is over.

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