'We are taking full advantage of our surpluses rather than salting away even
FINANCIAL Secretary Mr Hamish Macleod pulled the wraps off the biggest giveaway Budget in Hongkong's history yesterday, blending a range of tax cuts with public spending increases across the board.
Nine out of 10 taxpayers will pay less in the year ahead and more than 250,000 others will fall completely out of the salaries tax net under the proposals presented to the Legislative Council.
But the revenue and expenditure plans allow for the Government's accounts for the year to slip into the red, forming the first of a series of forecasted budget deficits in the years running up to 1997.
Some legislators are concerned that the cut in direct taxes is an undesirable departure from the previous philosophy of widening the tax net to ensure a more stable source of income.
Despite assurances from Mr Macleod that his mixture of big-spending and tax concessions would not be inflationary, some economists voiced concern that pressure on prices would rise again.
The stock market took heart from the plans, with the Hang Seng Index putting on more than 40 of the day's 92.4 points rise during the speech to close just 11 points short of its all-time record of 6,447.11.
Labelling his proposals as ''building on success'', Mr Macleod said his new programme would put $23 billion back into the pockets of taxpayers over the next four years, provide an extra $17 billion for spending on infrastructure and community reserves, and still leave an extra $6.8 billion in the reserves by March 31, 1997 - just three months before the transfer of sovereignty.
He said $78.4 billion would be left in the kitty.
In what was also one of the most ''political'' budgets in recent years, Mr Macleod made constant references to the advice and criticisms he had received from legislative councillors in the course of drawing up his plans.
From this had come a recipe that pumps extra funds immediately into health and welfare, education, law and order, public housing, transport systems, the environment, trade and tourism, retraining and arts and sports.
There are no new revenue raising measures other than an inflation-linked 9.5 per cent increase in fuel, tobacco and alcohol duties.
The move towards deficits, first disclosed in Mr Macleod's maiden speech last year, will encounter opposition, but both he and the Governor, Mr Chris Patten, insisted yesterday it was plainly unnecessary to build up reserves above the level ''which prudent judgement and past experience justify''.
''Our robust economy and the surge in government revenues have raised our reserves this year well above that level,'' Mr Macleod said.
His forecast of a $3.4 billion shortfall by March next year had arisen because he was ''taking full and sensible advantage of the higher than expected surpluses of the last two years, rather than salting away even more of the community's money to boost our accumulated reserves''.
''I do not believe either this council or the community would have welcomed a larger increase in our forecast reserves,'' he said.
Under the Airport Memorandum of Understanding, the Government has agreed to leave at least $25 billion in its reserves in 1997.
Mr Macleod said $78 billion might seem high, but spending would be around $200 billion that year and as such, it did not seem an excessive amount to him.
Shortly after the speech, Mr Patten said: ''I think we'd be under a lot of criticism if we just went on piling up the surpluses. The sort of surpluses we've got in Hongkong would make most finance ministers around the world eat their hearts out.'' Apart from the quarter of a million people falling out of the tax net altogether, the proposal to increase basic allowances by 22 per cent for both single people and married couples along with leaps in child allowances and the widening of tax bands to provide direct help to the ''sandwich class'' will mean 1.2 million taxpayers will pay less in the year ahead.
The tax concessions will cost $2.6 billion.
Mr Macleod and the Government now explain the initiatives sector by sector, starting today with works and tomorrow for transport and trade and industry.
THE MAIN POINTS AT A GLANCE Economic outlook GDP to grow by 5.5 per cent, inflation by 9.5 per cent.
Exports to increase 18.5 per cent, re-exports 25 per cent and imports 19 per cent.
250,000 taxpayers exempt from salaries tax and 1.2 million others pay less under increases in allowances and widening of tax bands.
No duty payable on estates less than $5 million.
Stamp duty cut to 0.3 per cent.
30 per cent cosmetics duty abolished, cutting prices about 12 per cent.
Cost of fuel, alcohol and tobacco go up only by 9.5 per cent inflation. New initiatives 3,000 first-time home buyers to benefit from a $2 billion discount purchase scheme within three years.
$1.1 billion to build a 600-bed North District hospital.
An extra $1.9 billion to clean up the harbour.
$2.4 billion for extension to Convention Centre. $3.1 billion more on related reclamation and infrastructure.
A new $4 billion road to the border. $1 billion improvement for the Tuen Mun Highway.
100,000 people get more on social assistance.
$350 million for HIV-infected haemophiliacs and $100 million for workers with pneumoconiosis.
32,000 families benefit under kindergarten fee remission.
$100 million to improve sports performance at the Games.