Hong Kong Budget Summary 2016/2017
Wednesday 24 February 2016
Read an extract from Equiom's Hong Kong Budget Summary 2016/2017
Main Budget Commentary
2016/2017 Hong Kong Budget
In introducing his ninth budget, Financial Secretary Mr. John Tsang warned of the threat to Hong Kong’s economy from growing political tensions. This was a notable detour into politics for Mr Tsang, who also referenced heightened risks in the global economy as he forecast GDP growth of only between 1 and 2% in the year ahead.
This outlook, which represents Hong Kong’s lowest growth in over a decade, came after Hong Kong’s economy grew just 1.9% year on year in the 4th quarter of 2015. The immediate focus of the budget is aimed at helping households and businesses cope with the difficult economy with relief targeted at retail sales and tourism.
The budget included a wide range of relief measures, including a 75% reduction in profits and salary tax (capped at HK$20,000), a waiver on government rates for 4 quarters (capped at HK$1,000 per quarter) and a 10% increase in personal tax allowances. The whole package was estimated to cost HK$38.8 billion or 1.6% of GDP.
If the Financial Secretary had been saving fiscal surpluses for a rainy day, providing stimulus has merit. Yet Mr Tsang remains cautious, still forecasting a fiscal surplus of HK$30 billion for FY15/16, about 20% lower than original estimates.
He announced a number of assistance measures to encourage innovation and technology, as well as new industries in Hong Kong. In a departure from the norm, there was little reference to 'pillar industries,' which perhaps reflects the changing landscape facing Hong Kong. But, as in recent years, our criticism of the budget is its focus on short-term, one-off budget measures at the expense of long-term planning and investment.
Measures to Stimulate the Economy
Some of the key relief measures included:
- For salary and wage earners, a reduction of the salaries tax and tax under personal assessment by 75%, subject to a cap of HK$ 20,000, for the year of assessment 2015/16;
- For property owners, a waiver of the rates for properties for four quarters of 2016/17, subject to a ceiling of HK$ 1,000 per quarter for each rateable property;
- For social security recipients, the provision of an extra allowance to social security recipients, equal to one of month of standard rate Comprehensive Social Security Assistance payments, Old Age Allowance, Old Age Living Allowance or Disability Allowance.
Other measures, which are recurrent, include the increment of:
- the basic allowance and the single parent allowance from HK$ 120,000 to HK$132,000;
- the married person’s allowance from HK$ 240,000 to 264,000;
- the allowance for maintaining or residing with a dependent (grand)parent;
- aged 60 or above: from HK$ 40,000 to HK$ 46,000;
- aged between 55 to 59 from HK$ 20,000 to HK$ 23,000; and
- the deduction ceiling for elderly residential care expenses from HK$ 80,000 to HK$ 92,000 for taxpayers whose (grand)parents are admitted to residential care homes.
While relief measures are welcome, once again the Financial Secretary has not announced any major amendments to address long-term tax challenges in his budget. Although Mr Tsang is known for his gloomy tone, this year he ladled it on particularly thick, warning that the local economy is burdened with risks and the outlook is far from promising in the year ahead.