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Hong Kong May Boost Spending on Poor as Income Gap Widens

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Photographer: Lam Yik Fei/ Bloomberg

Leung Chun-ying, Hong Kong's chief executive, speaks at the foreign correspondents' club in Hong Kong on Dec. 6, 2012. In his first policy address last month, Leung promised to boost the supply of housing, tackle pollution and provide more care for the elderly.

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Photographer: Lam Yik Fei/ Bloomberg

Leung Chun-ying, Hong Kong's chief executive, speaks at the foreign correspondents' club in Hong Kong on Dec. 6, 2012. In his first policy address last month, Leung promised to boost the supply of housing, tackle pollution and provide more care for the elderly. Close

Leung Chun-ying, Hong Kong's chief executive, speaks at the foreign correspondents' club in Hong Kong on Dec. 6,... Read More

Photographer: Jerome Favre/Bloomberg

Pedestrians walk past as an elderly woman collects waste for recycling in Hong Kong. Hong Kong’s Gini coefficient, a measure of income inequality, rose to 0.537 in 2011 from 0.525 in 2001, the city’s Census and Statistics Department said in a June report. Close

Pedestrians walk past as an elderly woman collects waste for recycling in Hong Kong. Hong Kong’s Gini coefficient, a... Read More

Photographer: Brent Lewin/Bloomberg

A restaurant worker eats a bowl of food in an alley in Hong Kong. Close

A restaurant worker eats a bowl of food in an alley in Hong Kong.

Photographer: Brent Lewin/Bloomberg

A market vendor rests at his stall in Hong Kong. Close

A market vendor rests at his stall in Hong Kong.

Hong Kong’s government may boost spending on the poor and elderly in its first budget under Chief Executive Leung Chun-ying tomorrow, as record home prices and falling ratings add pressure to narrow a widening income gap.

The government may report a surplus of HK$55 billion ($7.1 billion), boosting reserves to a record HK$724 billion, according to Marcella Chow, an economist at Bank of America Corp. in Hong Kong. The budget, presented by Financial Secretary John Tsang, will probably trim one-time measures and focus spending on alleviating poverty and helping the aged, Chow said.

Hong Kong’s doubling of a property-sales tax last week underscored Leung’s failure to tame a market that has surpassed its 1997 high, spurring warnings of a bubble and stoking social tensions. Leung, 58, may need to refocus on his campaign promises to make housing affordable and narrow the rich-poor gap as opposition efforts to oust him over illegal additions to his home contribute to record-low popularity ratings.

“The government needs to spend more to tackle the deep- rooted issues in Hong Kong such as the wealth disparity,” said Kevin Lai, an economist at Daiwa Capital Markets Hong Kong Ltd. Leung “still has a long way to go. Most of the pledges he made in his election platform don’t look to be fulfilled soon.”

Tsang tomorrow will give his latest estimate on the budget surplus for the fiscal year ending March 31 and outline the following year’s budget. The government will also announce fourth-quarter and full-year data on gross domestic product.

Growth Pickup

The city’s economy probably expanded 2.4 percent in the final three months of 2012 from a year earlier, up from 1.3 percent in the third quarter, according to the median estimate of 16 analysts surveyed by Bloomberg News. Annual growth may have slowed to 1.4 percent, the weakest rate since 2009, from 4.9 percent in 2011, a separate survey showed.

Estimates of four economists for 2013 expansion range from 2.3 percent to 5 percent.

The benchmark Hang Seng Index fell 1.3 percent today, paring its gain to 16 percent since Leung took office in July.

Tsang will also announce the sale of HK$10 billion worth of inflation-linked bonds, according to a person familiar with the plan. It will be the city’s third issue of the instrument, the person said, asking not to be identified before the speech.

While Hong Kong’s 7.1 million people haven’t escaped the global financial crisis, record-low interest rates and an influx of buyers from China have fueled a doubling in property prices since early 2009. That’s priced average citizens out of the market and left some unable to afford basic necessities.

‘Wealth Disparity’

“The wealth disparity is the most pressing issue,” said Jennifer Wong, a tax partner at KPMG China who follows Hong Kong’s budget. “Resources should be spent on redistributing wealth through measures such as tackling youth unemployment and enhancing welfare coverage.”

In his first policy address last month, Leung promised to boost the supply of housing, tackle pollution and provide more care for the elderly.

“The budget proposal is critically important as the ideas, principles and policy measures spelled out in the policy address cannot be implemented without government funding,” Bank of America’s Chow said in a Feb. 21 note. “One potential bright spot is the increase of public spending to tackle livelihood issues related to poverty, aging and environment.”

Even so, fiscal policy will probably “continue to be extremely conservative,” Chow said. “So the boost to GDP will probably be mildly positive rather than notably stimulating.”

Targeted Spending

The budget may include putting more than HK$10 billion into the city’s Community Care Fund to help the underprivileged, Sing Tao Daily reported on Feb. 22, without saying where it got the information. At the same time, Tsang may announce a reduction in a broader income-tax rebate, the South China Morning Post said, citing a person in government it didn’t identify.

Hong Kong’s Gini coefficient, a measure of income inequality, rose to 0.537 in 2011 from 0.525 in 2001, the city’s Census and Statistics Department said in a June report. The score, at a high for Hong Kong since records started being kept in 1971, is above the 0.4 level used by analysts as a gauge of the potential for social unrest.

Elsewhere today in the Asia-Pacific region, Taiwan’s unemployment rate was 4.2 percent in January, compared with 4.21 percent in December, according to a government report. Singapore’s industrial production unexpectedly declined in January as demand for electronics and pharmaceuticals faltered.

Bernanke Testimony

In Europe, Finland’s jobless rate rose to 8.7 percent in January from 6.9 percent in December and Hungary’s November- January rate increased to 11.2 percent from October-December’s 10.7 percent. In the U.S., Federal Reserve Chairman Ben S. Bernanke will deliver his semiannual testimony on monetary policy to the Senate Banking Committee in Washington.

Leung is the least popular Hong Kong leader after seven months in office and his support is at a record low, according to survey data from the University of Hong Kong’s Public Opinion Program. His rating is of 46.3 on a scale of 0 to 100, according to the survey of 1,005 people conducted from Feb. 1 to Feb. 6. That’s down from 48.9 a month earlier.

Lau Yat-lan, 45, a stall owner in the Central district selling items including cigarettes, bottled water and chewing gum, said she found it more difficult to cope with the rising cost of living.

“The best-selling item at our stall is bottled water,” Lau said. “People spend only when they really need to.” She said she has “spent more on almost everything, but my income didn’t climb accordingly. If the government doesn’t look into this, more people will get more upset.”

To contact the reporters on this story: Stephanie Tong in Hong Kong at stong17@bloomberg.net; Simon Lee in Hong Kong at slee936@bloomberg.net

To contact the editor responsible for this story: Hwee Ann Tan at hatan@bloomberg.net

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