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Despite the improved financial position of the Hong Kong government in 2009-2010, PricewaterhouseCoopers believes budget measures will reflect a prudent attitude in view of the uncertain economic outlook. While the firm is not expecting any major tax reductions, it sees the government providing various one-off revenue and expenditure concessions targeted at meeting the needs of a wide range of sectors in the community.

Following on from the themes of the Chief Executives' 2009 Policy Address delivered in October 2009, the firm predicts that the government will unveil measures to support and facilitate the development of the six industries highlighted by the government as being crucial to the development of Hong Kong's economy. These include product testing and certification, innovation and technology, medical services, education, environmental protection, cultural and creative industries. 

These measures may include exemptions from tax for income from intellectual property derived from research and development activities undertaken in Hong Kong, the reintroduction of the university Matching Grant Scheme, as well as various tax incentives, such as enhanced tax deductions for eligible expenditure, to encourage the development of medical, testing and certification facilities, and environmentally friendly installations in Hong Kong.

"While we expect a modest deficit of around HK$5 billion may be announced on budget day, we expect that the final outcome for the current financial year would likely be a modest surplus of around HK$10 billion.  Currently, we are predicting a small budget deficit for 2010-2011," remarks Tim Lui, Tax Partner at PricewaterhouseCoopers.

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