Growth may have slowed to 2.5pc

PUBLISHED : Friday, 14 November, 2008, 12:00am
UPDATED : Friday, 14 November, 2008, 12:00am

Hong Kong's economic growth might have slowed to 2.5 per cent in the third quarter of this year and will probably contract in the fourth quarter, economists say.

This would result in full-year growth of less than 3.5 per cent and affirm Financial Secretary John Tsang Chun-wah's view that the official forecast of between 4 per cent and 5 per cent is probably unattainable. The government will announce third-quarter economic details today.

With slower growth dragging down government finances, it was expected that the budget deficit for the current fiscal year would be far greater than the original HK$7.5 billion estimate.

Financial services firm Deloitte Touche Tohmatsu forecast that the deficit would balloon to a record HK$80 billion and reduce fiscal reserves to HK$413 billion, or roughly 20 months' government expenditure. The government reported a deficit of HK$48.6 billion for the first six months of 2008/09. The fiscal year runs from April 1 to March 31.

The return of deep budget deficits is expected to raise calls for greater relief measures for households and businesses.

Yvonne Law Shing Mo-han, Deloitte's national chief knowledge officer and partner, suggested increasing the HK$108,000 personal allowance to HK$113,000 to account for inflation and re-evaluate the competitiveness of the city's 16.5 per cent profits tax rate. 'If there is no change to the salaries tax rate, the personal allowance should be increased,' Mrs Law said. 'One possible benchmark for the adjustment might be inflation.'

She said she did not expect the higher allowance to significantly narrow the tax base.

She also supported the muchdebated tax-loss carry-back mechanism, in which companies could help offset a previous year's profits tax with the current year's losses.