Hong Kong's Next Chief Executive to Inherit Improving EconomyBy
Government sees GDP growing 2 percent to 3 percent in 2017
Surplus of HK$92.8 billion estimated for current fiscal year
Hong Kong’s next chief executive will take office with an accelerating economy and a budget that provides scope to cut taxes and boost spending in the face of criticisms over income inequality and Beijing’s interventions in local affairs.
The economy is forecast to expand by 2 percent to 3 percent in 2017, faster than the 1.9 percent gain last year, Hong Kong’s Financial Secretary Paul Chan told lawmakers on Wednesday in the annual budget speech. Chan estimated a budget surplus for the current fiscal year at HK$92.8 billion ($12 billion), with revenue from land sales and stamp duty higher than original forecasts.
A committee of 1,200 business and political elites will be voting next month on who will become the next chief executive, with Carrie Lam widely seen as the frontrunner. The former chief secretary vowed to focus on revving up the economy and her main rival, former Financial Secretary John Tsang, has also pledged to open the city’s coffers while trying to bridge political divides.
“Hong Kong’s budget strikes a balance between support to an economy that faces both short-term and longer-term headwinds and continuing fiscal prudence,” said Marie Diron, associate managing director at Moody’s Investors Service based in Singapore. “The cut in salaries tax, profits tax, property rates and the increase in old-age allowance will provide material support to growth this year.”
Hong Kong’s retailers have seen sales fall for another year with fewer Chinese tourists shopping in the city. To help spur tourism, the government plans to waive license fees for a year for 1,800 travel agents, more than 2,000 hotels and guesthouses as well as 27,000 restaurants and hawkers.
Other key measures from the budget include:
- Reducing taxes on wage earners by up to HK$20,000 for this fiscal year ended March, cutting revenue by HK$16.4 billion.
- Cutting taxes that companies pay on profits by up to HK$20,000 for this fiscal year ended March, lowering revenue by another HK$1.9 billion.
- Waiving property rates by up to HK$1,000 per quarter for each property in the 2017-18 fiscal year, reducing revenue by HK$10.9 billion.
- Providing higher monthly allowances to senior citizens in need and loosening eligibility requirements. The government estimates 500,000 elderly persons will each receive about HK$10,000 to HK$30,000 more a year.
- Increasing capital works expenditure to HK$86.8 billion in 2017-18, allowing the construction industry to contribute 4.7 percent to gross domestic product.
“With the Chinese economy stabilizing, the economic outlook for Hong Kong seems to be faring better, however, global risks such as Trump’s protectionism and Fed interest-rate hikes will cloud the market,” said Raymond Yeung, Australia & New Zealand Banking Group Ltd.’s chief economist for greater China based in Hong Kong. “A more proactive stance on infrastructure projects should help improve the city’s long-term competitiveness.”
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