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2018-19 Hong Kong government budget: too forward-looking?

March 2018


Curtis Ng,, Convenor of the Institute’s Budget Proposals Sub-committee, on the Hong Kong 2018-19 budget



 

The budget, announced on 28 February, continued the recent trend of the government underestimating its expected revenues and ending up with a lot more income than expected. However, reflecting on a positive economic performance over the past 12 months and an upbeat medium-term forecast, it was good to hear Financial Secretary Paul Chan lay out his fiscal strategy for the use of the surplus by announcing that 40 percent would be spent now and 60 percent invested in the future. The new philosophy, of forward-looking and strategic financial management, will maximize the use of the surplus by investing in Hong Kong and relieving people’s burdens.

 

Fiscal sweeteners continue

As we expected, the government continues to grant one-off sweeteners like the tax rebates and rate waivers. These policies have been commonplace in recent years. However, we would have liked to see some form of tax relief for residential tenants who have to rent from the private housing market alongside the announced support for rates waivers for property owners, including owners of multiple properties. Meanwhile, the Institute is pleased to see new measures such as tax deductions for premiums paid for the voluntary health insurance products – in fact, this was one of the pre-budget proposals we recommended – and support for the hard-pressed middle-income group.

 

Boosting innovation

While we are fully supportive of increased day-to-day spending and tax concessions benefiting innovation and technology (I&T), the effective implementation of the substantial funds earmarked for I&T requires funds to be easily accessible, with speedy decision-making processes and easy applications. This will help to boost I&T investments and enhance commercialization. We hope the government will streamline the application process while also ensuring its investments provide value-for-money.

The financial secretary also significantly increased the money available for improving healthcare. This year, we have seen unprecedented strain on the public health system in Hong Kong and the HK$6 billion increase in recurrent funding of the Hospital Authority should help to alleviate some of this burden. We are glad to see new and increased funding for manpower training, increases in the limit of Elderly Health Care Vouchers, subsidies for highly expensive drug treatments for those in need, and further support for the development of Chinese Medicine. We hope that the development of new pools of funds will, like the new I&T funds, be easily accessible and make funding decisions quick and efficient.


Establishing the tax policy unit was a good move. Ensuring that it is adequately resourced and starts to look at some of the structural issues facing Hong Kong is something else.

Environmental benefits

Hong Kong’s roads should benefit from the “one-for-one” replacement scheme, offering a generous First Registration Tax (FRT) concession of up to HK$250,000 for replacing an internal combustion engine vehicle with an electric vehicle, even though this does not reinstate the full FRT waiver on electric cars in place before the 2017-18 budget. This will hopefully improve roadside air quality without increasing traffic on the roads, but it remains to be seen whether private car owners would be willing to scrap their existing diesel and petrol cars in favour of electric cars. At the same time, as the Institute suggested in its pre-budget submission, the government needs to do more to encourage expansion of the charging station infrastructure.

 

Looking to the future

While these improvements will help alleviate some societal issues, we feel the government could have gone further to help alleviate the burdens faced by the so-called “N-nothings,” as well as asking the Community Care Fund to develop short-term relief measures. These are low-income households not living in public housing but in sub-divided flats or in other precarious circumstances. These people, who are unable to benefit from reduced salaries tax and not covered by government support to those in public housing, are among Hong Kong’s neediest, and government policy needs to do more to help them. The government has spoken recently of extending the special allowances scheme to cover them, and we hope that there will be some timely follow up.

The financial secretary also reiterated the setting aside of HK$15 billion to effect the abolition of the Mandatory Provident Fund (MPF) offsetting arrangement. This is a lingering issue that needs to be resolved soon, hopefully by reaching a consensus within the community as to the best way forward. With increased longevity, retirees will need to ensure they have enough to live on during their retirement. Initiatives such as further issuances of “silver bonds,” the proposed Life Annuity Scheme, to be launched by the Hong Kong Mortgage Corporation, tax concessions for other deferred annuity schemes and equivalent concessions for voluntary contributions to MPF accounts, should all help to improve the quality of life for retirees in the long run.

One topic on which the Institute expected to hear more is tax policy and the future work of the tax policy unit that the financial secretary announced in the budget last year. Establishing the unit was a good move. Ensuring that it is adequately resourced and starts to look at some of the structural issues facing Hong Kong is something else. We have long called for a more holistic review of the competitiveness of the tax regime and a more committed analysis of possible long-term measures to broaden the tax base and so we look forward to seeing progress in the next budget.