Hong Kong Budget: Slower Growth but Reserves still Expected to Hit US$148B

Image: YiuCheung/iStock

Hong Kong expects a fiscal surplus of HK$58.7 billion (US$7.47 billion) for 2018-19, 57% lower than the previous year’s HK$149 billion (US$18.98 billion), said the SAR’s Financial Secretary Paul Chan during his Budget speech earlier today.

According to Chan, that was partly due to reduced revenue from stamp duties and land sales, after the government withdrew sites to be sold to private developers for building public housing.

However, Hong Kong’s reserves are still expected to hit HK$1,161.6 billion (US$148 billion) by March.

Chan forecast economic growth of 2-3% in real terms for Hong Kong in 2019, citing uncertainties in the global economic outlook and an economic slowdown in mainland China.

Inflation is forecast at 2.5% while the unemployment rate is predicted to stay at 2.8%.

“I have adhered to the new fiscal philosophy of the current-term government of adopting forward-looking and strategic financial management principles to invest for Hong Kong and relieve people’s burden on the premise of ensuring healthy public finances,” he said.

Modest handouts: profit tax to be reduced by 75% with a cap of US$2547

Both salaries tax and profits tax will be cut by 75 % with a cap of HK$20,000 (US$2547), compared to last year’s HK$30,000 (US$3821).

In addition, enterprises will be encouraged to make use of the fund not only in mainland China and Asean countries, but also in all economies that have entered into a free-trade agreement with Hong Kong, according to Chan.

Industry development highlights

In terms of industry development, Chan said the government will allocate HK$150 million (US$19 million) to support the development of an online international dispute resolution platform by NGOs, primarily to serve the wider Belt & Road initiative of China.

The government will also consider introducing tax and related measures to attract ship finance companies to develop ship leasing businesses in Hong Kong and providing a 50% profits tax concession to marine insurance businesses, he added.

The budget also earmarks the following amount for the development of the SAR’s hi-tech industry:

  • HK$16 billion (US$2 billion) to qualifying universities to enhance or refurbish campus facilities, particularly those essential to research and development, including laboratories
  • HK$5.5 billion (US$700.6 million) for the development of Cyberport 5, an expansion of one of the Hong Kong’s tech park, whose construction is expected to start in 2021. This is widely seen as part of the move to meet the needs of China's Great Bay Area development plan
  • a two-tiered enhanced tax deduction for eligible R&D spending
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