Hong Kong's Tsang May Boost Budget Handouts to Give Relief From Inflation

Hong Kong Financial Secretary John Tsang may expand handouts and increase land supply in tomorrow’s budget after rising inflation and real-estate prices spurred lawmakers to demand relief measures.

Tsang may announce HK$25 billion ($3.2 billion) of giveaways, including electricity subsidies, for the year starting April 1, compared with HK$20.4 billion in the previous 12 months, according to Ernst & Young LLP. The economy probably grew an annual 5.5 percent in the fourth quarter, according to the median estimate of 13 economists in a Bloomberg News survey.

Hong Kong would join Singapore in increasing benefits to its citizens as accelerating inflation in Asia threatens to erode purchasing power. Hong Kong’s property prices have advanced more than 60 percent since the start of 2009, and inflation may quicken to 3.7 percent this year, the fastest since 2008, according to a Bloomberg survey.

“We are seeing increasing inflationary pressure that will impact the lives of low-income earners and the middle-class,” said Jennifer Wong, a Hong Kong-based tax partner at KPMG Tax Ltd. “We have got better-than-expected revenue from land sales and stamp duties because of the booming property and stock markets. Why couldn’t we give out some to help?”

Photographer: Jerome Favre/Bloomberg

John Tsang, Hong Kong's financial secretary. Close

John Tsang, Hong Kong's financial secretary.

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Photographer: Jerome Favre/Bloomberg

John Tsang, Hong Kong's financial secretary.

Chief Executive Donald Tsang said last month that Hong Kong is “on guard against” inflation. His government, which Hang Seng Bank Ltd. says has a record HK$579.3 billion in fiscal reserves, may adopt measures to help the poor. Consumer prices climbed at a 3.1 percent annual pace in December, the fastest in 23 months.

Property Curbs

The government may raise the cap on a salary-tax rebate to HK$8,000 from HK$6,000, and give one-off allowances for the elderly and the poor, according to KPMG. Radio Television Hong Kong on Feb. 21 reported that the city will increase land supply by auctioning at least 10 sites, and the Hong Kong Economic Times said Feb. 18 the government plans to hold land auctions almost once a month.

The Hang Seng Property Index, which tracks the city’s seven biggest builders including Sun Hung Kai Properties Ltd. and Cheung Kong (Holdings) Ltd., has declined 9.5 percent since the government announced sales taxes and increased deposits for mortgages in November.

Financial Secretary Tsang has said he may introduce more property measures if needed. Home prices gained 2.1 percent in the week ended Feb. 13 from the previous seven days, according to Centaline Property Agency Ltd, the city’s largest closely held real-estate broker.

Tightening Measures

“Protracted housing-price inflation, despite a slew of heavy-handed tightening in November, means that more policy actions can be expected,” said Kevin Lai, a Hong Kong-based economist at Daiwa Capital Markets.

The city is the world’s most expensive place to buy a home, because of a supply shortage, according to a study released by Savills Plc. last month.

Hong Kong is benefiting from growth in China, which last year overtook Japan to become the world’s second-biggest economy. Visitor arrivals from China jumped 26 percent last year to 22.7 million, helping retailers including Chow Sang Sang Holdings International Ltd. and Sa Sa International Holdings Ltd. sell more jewelry and cosmetics.

While inflation is fueling concerns, Hong Kong households are benefiting from an improved labor market. The jobless rate was 3.8 percent in the three months ended January, a more than two-year low.

Fiscal Surplus

Hong Kong’s fiscal surplus will rise to at least HK$60 billion in the 12 months through March this year, from HK$25.9 billion the previous fiscal year, KPMG said. Reserves may climb to HK$598 billion by March, or 34 percent of gross domestic product, according to Daiwa.

“The government is just holding on to its money and won’t spend on the residents,” Lee Cheuk-yan told his fellow lawmakers last month. “Now in Hong Kong the officials are rich, whereas residents are poor.”

Singapore last week said it will spend S$6.6 billion ($5.2 billion) on benefits including tax cuts and rebates as the government prepares to face elections within the next year.

Hong Kong is unlikely to cut tax rates for individuals and companies, said Joseph Lau, an economist at Societe Generale SA in Hong Kong.

“They are still very cautious because of the narrowness and the volatility of the Hong Kong’s fiscal tax base.” he said.

-- With assistance from Michael Munoz. Editors: Tan Hwee Ann, Paul Panckhurst

To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net

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