Hong Kong Posts Record Surplus, Unveils Budget

Hong Kong announced a record fiscal surplus in its annual budget on Wednesday, enabling Financial Secretary John Tsang to offer tax concessions and handouts, but forecast a temporary return to a fiscal deficit in 2008/09.

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Vincent Yu

Tsang said he was "cautiously optimistic" about Hong Kong's economic outlook, but said economic growth this year would slow to 4-5 percent from 6.3 percent in 2007.

"The external environment is still going to be challenging, and there's no doubt it's going to have quite a negative impact on Hong Kong," said Eli Polatinsky, an economist at Macquarie Securities. "But the domestic side, particularly in terms of consumers, is still very strong."

In his maiden budget as financial secretary, Tsang said the government would run up a record HK$115.6 billion (US$14.8 billion) fiscal surplus for the year ending March 2008 -- four times the government's original estimate -- as a strong economy boosted tax and land revenues.

However, he forecast a HK$7.5 billion fiscal deficit for 2008/09 as slower economic growth will curb tax income and land sales revenue, although Tsang said the government finances would be back in the black by 2009/10.

With the government flush with so much cash this year, Tsang spread tax concessions across the population, including a one-off tax rebate and help for the elderly.

He also extended a waiver on quarterly property rates -- a tax on homeowners -- this year and adjusted marginal tax rates and bands.

Standard salary and profit taxes were cut by one percentage point to 15 percent and 16.5 percent, respectively, as announced in Chief Executive Donald Tsang's annual policy address in October.

The Financial Secretary also abolished duty on wine and beer, aiming to make Hong Kong a wine hub.