First-half deficit tops HK$48b ... and rising

PUBLISHED : Saturday, 01 November, 2008, 12:00am
UPDATED : Saturday, 01 November, 2008, 12:00am

The government's deficit for the first half of this financial year reached HK$48.6 billion, with financial experts saying it might top HK$50 billion for the full year amid the economic slowdown.

The government announced yesterday that expenditure from April to September was HK$128.5 billion and revenue HK$79.9 billion, resulting in a deficit of HK$48.6 billion.

It was the largest first-half deficit since 2003, when severe acute respiratory syndrome was hitting the city, and was more than eight times the HK$5.61 billion deficit for the same period last year.

A government spokesman said the deficit for the whole of this year was expected to be higher than an original estimate of HK$7.5 billion, but provided no revised estimate.

He said some big revenue items, including salaries and profits taxes, were mostly received towards the end of the financial year.

Raymond So Wai-man, associate professor of finance at Chinese University, said this year's deficit might be more than HK$50 billion, and he was not surprised at the first-half result given worse-than-expected revenue from stamp duty and land premiums. However, the HK$11 billion in inflation-relief handouts in July had not contributed much to the half-year deficit because the spending had yet to be entered into the government's books.

He said revenue from profits tax and salaries tax would drop, due to the present economic turmoil, leading to a bigger deficit.

Professor So advised the government not to raise taxes to plug the gap because it might hit market sentiment and consumer confidence. Chief Executive Donald Tsang Yam-kuen said earlier that there was no need to raise taxes in the coming financial year, even if the economic downturn made the deficit bigger.

Yvonne Law Shing Mo-han, former chairwoman of the Institute of Certified Public Accountants' taxation committee, estimated the deficit might reach HK$70 billion.

She said gross domestic product might fall by 2 per cent to 3 per cent between July and December but overall economic growth might still reach 4 per cent this year.

The institute called on the government to control administrative costs and cut spending.

Meanwhile, the Monetary Authority announced yesterday that total assets of the Exchange Fund amounted to HK$1.42 trillion at the end of September, up HK$22.4 billion in a month.

Foreign-currency assets increased by HK$21.1 billion and Hong Kong-dollar assets increased by HK$1.3 billion. An authority spokesman said the rise in foreign currency assets was the result of purchases of foreign currencies with Hong Kong dollars, interest and dividend income from foreign-currency assets, increases in repurchase agreements outstanding and certificates of indebtedness.

The rise in Hong Kong-dollar assets was due to an increase in bank borrowings, the balance of the banking system and Exchange Fund Bills and Notes issued but not yet settled.

The Exchange Fund's accumulated surplus at the end of September was HK$486 billion, down HK$52.4 billion from the end of August.

In the red again

This year's first-half deficit was the largest since 2003

The deficit at the same time last year was (in HK dollars): $5.61b