Hong Kong Budget Overview February 2017
Thursday 23 February 2017
In the outlook of his first Budget, Mr Chan presented a cautious view, referencing 'modest and patchy' growth of advanced economies in 2017, as well as rising populist and protectionist sentiments globally.
Undoubtedly, these were veiled references to Brexit and the political shifts in the United States in the wake of the election of President Donald Trump. Yet, and in spite of the 'volatile' global condition, disruption to Hong Kong appears limited, as Mr Chan forecast GDP growth of 2 to 3% in the year ahead, or considerably more upbeat than the 1 to 2% forecast last year.
The Budget was delivered at a time of political transition in Hong Kong, with elections for the territory’s leadership scheduled to take place on 26 March 2017. Mr Chan’s own future is uncertain, as his tenure as Financial Secretary is due to expire on 1 July 2017, unless he is re-appointed by the city’s incoming Chief Executive.
The Government achieved a higher-than-expected budget surplus of HK$92.8 billion versus its HK$11 billion estimate, which is a record high since the 2008 crisis. One reason is buoyant government land sales driven by aggressive bidding from mainland developers, and revenue from stamp duties. Hong Kong’s fiscal reserves are expected to reach HK$935.7 billion by the end of March 2017.
In an apparent nod to the need for more accurate forecasting of government revenues, Mr Chan set out a new model for land revenue estimates. For the year ahead, the model would assume land revenue based on the average proportion to GDP over the last 10 years, which is equivalent to 3.3% of GDP. This is a more aggressive assumption than the previous model, which was referenced to a 30-year average of 2.8% of GDP.
Furthermore, Mr Chan forecast that Hong Kong’s fiscal position would remain 'broadly balanced' during the next five years, although they would slip slightly into deficit during the final two fiscal years. Nevertheless, fiscal reserves should rise to HK$942.9 billion by March 2022, equivalent to 30% of GDP or 18 months of government expenditure.
Notwithstanding the transitional nature of this Budget, it makes for interesting reading.
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