Tsang unveils HK$33b worth of relief measures in budget

Live coverage of Tsang's sixth budget speech, his first under the Leung Chun-ying administration

PUBLISHED : Wednesday, 27 February, 2013, 7:51am
UPDATED : Thursday, 29 August, 2013, 4:13am


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Hong Kong Financial Secretary John Tsang Chun-wah delivered his sixth budget speech on Wednesday morning, saying his measures are aimed at a stimulating a 1.3 per cent growth for the year 2013.

Relief measures, amounting to HK$33 billion, should help ease the pressure on middle-class, grass-roots and small and medium-sized businesses, he said.

Economists and analysts from Hong Kong’s top banks and accounting firms joined SCMP.com’s live budget coverage and shared their real-time commentary below.

Links for the budget speech:

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We are pleased to hear the government is maintaining a strong focus on combating tax evasion and avoidance.

-Davy Yun, Tax Partner, Deloitte China


For 2012-13, a revised forecast of a surplus of about HK$64.9 billion by the government, beating expectations. A mildly expansionary budget for 2013-14, with a 15.6 per cent year-on-year increase in expenditure expected, is said to translate into a mostly balanced fiscal balance projected over the same period. Beyond 2013-14, the government assumes an annual average growth rate of 4 per cent in real terms for the four-year period between 2014 and 2017. This, together with an underlying inflation rate average of 3.5 per cent assumed, appear reasonable, if not slightly on the conservative side in view of China’s continued rise and urbanisation likely to positively spill over across the border.

– Kelvin Lau, Standard Chartered HK


Overall no surprises; all measures are “tried and tested”. The forecasted deficit of HK$4.9 billion is questionable, given the higher projected GDP growth for 2013/14, plus the government’s track record in fiscal projection.

-Alice Leung, tax principal, KPMG China

While the budget mentions projects to address Hong Kong's increasing demand on elderly and public healthcare services due to an aging population, we are disappointed the government has not taken on board our suggestion to provide a personal deduction with a ceiling of HK$20,000 per year to help Hong Kong citizens purchase their own personal medical insurance. We believe this measure would more adequately relieve the burden of public medical spending.

-Davy Yun, tax partner, Deloitte China


In his concluding remarks, Tsang says wealth redistribution seems to be a quick fix to improve the livelihood of the grass roots, but the lesson in Europe in recent years tells us that welfarism is not sustainable.  He says he believe the city can provide everyone opportunities to change his life through developing the economy, creating quality employment opportunities, investing in education and training to increase social mobility.  


For 2013-14, Tsang expects a small deficit of about HK$4.9 billion. He forecast that total government expenditure will reach HK$440 billion, an increase of 15.6 per cent compared with the revised estimate for 2012-13.  Total government revenue for 2013-14 is estimated to be HK$435.1 billion.  Earnings and profits tax, estimated at $189.4 billion, will be the major source of revenue, Tsang says. Land revenue is estimated at HK$69 billion.

On medium range outlook,  Tsang says the annual average growth rate will be 4 per cent in real terms for the four-year period between 2014 and 2017, while the underlying inflation rate will average 3.5 per cent. He says fiscal reserves are estimated at HK$850.3 billion by end-March 2018, representing 31 per cent of GDP or 21 months of government expenditure.


Tsang revises the estimate for government revenue for 2012-13 to HK$445.5 billion - HK$55.2 billion higher than the original estimate.  He says these resulted from higher-than-expected revenue from land sales and profits tax. He revises the estimated expenditure to HK$380.6 billion, 3 per cent or HK$13.1 billion less than the original estimate. Tsang forecast a surplus of about HK$64.9 billion for the 2012-13 financial year. 

The difference between the original estimate and the revised estimate is huge, from a deficit of HK$3.5 billion to a surplus of HK$64.9 billion.

-Alice Leung, tax principal, KPMG China

Eleven relief measures, mostly being extensions of existing concessions, contained little surprises, but should be welcomed nonetheless. The continued reiteration of fiscal prudence is comforting, as any deviation from the soft-cap of public expenditure at or below 20 per cent of GDP would require tax reform which could undermine Hong Kong’s competitiveness.

– Kelvin Lau, Standard Chartered HK


Tsang says 11 relief measures for the coming financial year will involve HK$33 billion. He says these should be able to help ease the pressure on our middle-class, grass-roots and small and medium-sized businesses.


We welcome the set up of the task force to review Hong Kong’s fiscal management and government finance. We agree that tax audit is a cost-effective tax administration.

-Alice Leung, tax principal, KPMG China

Made good of the promise given by the Mr CY Leung in the chief executive election. A welcome move to reduce the tax burden of many middle-income groups and hopefully an incentive for people when considering whether to have children.

-Agnes Chan, managing partner, Hong Kong and Macau, Ernst & Young


Tsang announced one-off relief measures, including:

1) waiving rates for 2013-14, subject to a ceiling of HK$1,500 per quarter for each rateable property. Tsang says around 75 per cent of properties will be subject to no rates in the year. The proposal will cost the government HK$11.6 billion;

2) reducing salaries tax and tax under personal assessment for 2012-13 by 75 per cent, subject to a ceiling of HK$10,000. The reduction, benefiting 1.53 million taxpayers in the territory, will be reflected in the taxpayers’ final tax payable for 2012-13. This measure will cost the government HK$8.4 billion;

3) granting each residential electricity account a subsidy of HK$1,800. This will cost the government HK$4.5 billion;

4) providing an extra allowance to Comprehensive Social Security Assistance (CSSA) recipients, equal to one month of the standard rate CSSA payments; and an extra allowance to Old Age Allowance, Old Age Living Allowance and Disability Allowance recipients, equal to one month of the allowances. This will involve an additional expenditure of HK$2.7 billion;

5) paying two months’ rent for public housing tenants. The government will pay two months’ base rent for tenants who are required to pay extra rent to the Hong Kong Housing Authority. For non-elderly tenants of the Hong Kong Housing Society’s Group B estates, the Government will pay two-thirds of their rent for two months. This measure will involve an expenditure of HK$2.2 billion;

6) when necessary, the government will allocate another HK$100 million to enhance short-term food assistance services. The services obtained HK$100 million in last years’ budget.

7) giving all student loan borrowers who complete their studies in 2013 the option to start repaying their student loans one year after completion of studies. This will alleviate the financial burden of fresh graduates.

Welcome the proposal to grant each residential electricity account a subsidy of HK$1,800.  Would be better if it includes measure to encourage energy saving.  For example, we proposed that a further subsidy of HK$600 should be granted if the total usage for the six months ending September 30 is at least 5 per cent less than the same period in 2012.

Regarding the environmental protection and conservation, we believe it will be more effective to raise the duty on motor use leaded petrol and increase first registration tax concession for environment-friendly commercial vehicles and environment-friendly petrol private cars.

We welcome the profits tax reduction as it could relieve many small and medium-sized enterprises (SMEs) to cope with the rising business operating costs. Would be better if the cap is raised to 18,000 as we proposed.

-Agnes Chan, Managing Partner, Hong Kong and Macau, Ernst & Young


Tsang rules out cash hand-outs proposed by some political parties. He says one-off hand-outs are undesirable and the allocation of resources is based on the principle of "policy leads and financial resources follow".  


An additional HK$15 billion is proposed to add to the Community Care Fund, Tsang says.

Same/similar measures as last year to alleviate middle-class and SMEs pressures 

-Alice Leung, tax principal, KPMG China

We welcome the waiver of business registration fees as it will relieve many SMEs to cope with the rising business operating costs.

-Agnes Chan, Managing Partner, Hong Kong and Macau, Ernst & Young


Welcome the proposal to waive rates for the whole year to assist households to cope with the rising cost of living. Would be much better if the cap is raised to HK$2,500 per quarter as we proposed.

-Agnes Chan, managing partner, Hong Kong and Macau, Ernst & Young


Apart from the old age living allowance approved early this year, Tsang announces five new and improved measures on elderly care.

Unavoidable given the political pressure and public expectation. A welcome move to relieve the tax burden of many people in face of inflation and the uncertain economic conditions ahead. Would be much better if the cap is raised to HK$18,000 as we proposed.

-Agnes Chan, managing partner, Hong Kong and Macau, Ernst & Young


In 2013-14, expenditure on social welfare is estimated to reach HK$56 billion, an increase of 31 per cent over that for last year, Tsang says.


A welcome move and hopefully the use of the CCF would become part of the ongoing efforts to relieve poverty.

-Agnes Chan, managing partner, Hong Kong and Macau, Ernst & Young


The government will expedite the development of the Kowloon East core business district, Tsang says.  Upon completion, it will provide an office floor area of four million square metres.

It will also consider speeding up the release of two clusters of government sites for commercial development in Kowloon East, including studying relocation of the government facilities there.  The two clusters of sites will provide a floor area of 500 000 sq m.


A total of HK$4.5 billion will be used in the coming five years to increase manpower to speed up land supply. 

We welcome the government's measure to extend profit exemptions to offshore funds by including transactions in private companies incorporated outside Hong Kong, something the industry has long been seeking.

The move will help position Hong Kong as an international asset management centre. However, we believe the government can consider further extending the exemption to include local funds as well, in order to truly enhance the industry in the territory.

-Davy Yun, tax partner, Deloitte China 

"Unstable external environment" has been a cliche explanation commonly used by John Tsang for his conservative financial management

-Brian Fong Chi Hang, vice-chairman, SynergyNet


Tsang says the estimated capital works expenditure for 2013-14 exceeds HK$70 billion.

We are glad to hear that funds will be set aside for developing talent in shipping and air transportation services. This will help to enhance Hong Kong as a trading and logistic hub.

-Agnes Chan, managing partner, Hong Kong and Macau, Ernst & Young


Tsang proposes to establish a HK$100 million a training fund to support training for the local shipping and aviation industry.

We are not sure if it is appropriate to get the scholarship awardees to undertake to teach in Hong Kong for at least two years after their graduation. People who are excellent in their studies may not have the necessary skills to be a teacher.

-Alice Leung, tax principal, KPMG China


A total of HK$10 million will be allocated every year to vocational training schemes. 


Tsang also proposes two other separate injections of HK$20 million each into the Government Scholarship Fund and Self-financing Post-secondary Education Fund to award scholarships to 100 outstanding tertiary students with special education needs every year.


Six support measures attempt to address a number of key challenges faced by SMEs that are also identified by our Standard Chartered Hong Kong SME Leading Business Index – our survey respondents identified funding and market expansion as two of their top challenges as they look into Q1-2013

-Kelvin Lau, Standard Chartered HK


Estimated recurrent expenditure on education for 2013-14 is HK$63 billion – more than one-fifth of recurrent government expenditure, Tsang says.  It is the biggest expenditure area among policy areas.

Tsang proposes to inject an additional HK$480 million into the HKSAR Government Scholarship Fund to set up scholarships for outstanding local students to take degree courses or teacher training programmes in prestigious overseas universities. 


Repeating SMEs measures that worked before are welcomed, in light of the uncertain economic environment.

-Alice Leung, tax principal, KPMG China

The Hong Kong government finally listened to the industry's view to extend the profits tax exemption for offshore funds to include transactions in private companies which are incorporated or registered outside Hong Kong. This will allow private equity funds to enjoy the same tax exemption as offshore funds. The Gov't also introduce the Open-ended Investment Company, which at present can only take the form of trusts. This should put us on a more level playing field with other regional competitors."

-George Leung, adviser, strategy and economics, HSBC (Asia Pacific) 


Tsang says the Hong Kong Export Credit Insurance Corporation will introduce a "Small Business Policy" (SBP) scheme for Hong Kong enterprises with an annual business turnover of less than HK$50 million, providing exporters with more flexibility in taking out insurance cover.  Participants will enjoy waiver of the annual policy fee and up to 20 per cent premium discount in the two years from March 1.


To support small-and-medium sized enterprises, Tsang proposes to increase the cumulative amount of the grant for these enterprises under the SME Export Marketing Fund from HK$150,000 to HK$200,000,


Tsang says the government is considering introducing a licensing regime for stored value electronic money and to empower the Hong Kong Monetary Authority to supervise the relevant retail payment systems. He says this will help establish a sound regulatory regime on the increasing popular platforms.

Only limited tax measures have been introduced for consolidating the financial services industry. More extensive tax policies can be considered and implemented for specific segments in this sector.

-Angus Ho, partner of SHINEWING Tax and Business Advisory 

Allowing private equity funds to enjoy the same tax exemption as offshore funds is a nice touch. Plans to expand RQFII – not just the quota size but more importantly quota eligibility to HK institutions – is also good to know. We see an orderly widening of cross-border channels under the mainland capital account a natural step to take; the well-run RQFII framework is set to lead the way and will be modeled after for other capital account liberalisation initiatives going forward, in our view.

-Kelvin Lau, Standard Chartered HK


Tsang proposes launching a further iBond issue of up to HK$10 billion under the Government Bond Programme. The iBond, with a maturity of three years, will target Hong Kong residents. Interest will be paid to bond holders once every six months at a rate linked to the inflation rates of the last half-year period.


We expect the HK$10 billion iBond will again be very popular given the current low interest rate environment.

-Alice Leung, tax principal, KPMG China

Regarding Fund and Asset Management Business, we welcomed the relaxation which we have been calling for to include transactions in private companies which are  incorporated or registered outside Hong Kong and do not hold any Hong Kong properties nor carry out any business in Hong Kong.

-Agnes Chan, Managing Partner, Hong Kong and Macau, Ernst & Young


Hong Kong will continue talks with mainland authorities expedite an expansion of the RMB Qualified Foreign Institutional Investors (RQFII) Scheme, launched at end-2011, to more qualified Hong Kong financial institutions.


A welcome move as ibonds can assist many people to face inflation.  We have also proposed this earlier.

-Agnes Chan, Managing Partner, Hong Kong and Macau, Ernst & Young

Tsang says the Securities and Futures Commission is studying with mainland authorities an arrangement for mutual recognition of funds across the border.


We very much welcome the FS’ proposal to extend the offshore fund exemption to private companies incorporated in Hong Kong. This would encourage more private equity funds to be domiciled in Hong Kong, which would help the legal and professional sectors in Hong Kong.

-Alice Leung, tax principal, KPMG China


The Hong Kong government appears to be quite pessimistic about the economic prospects for 2013, with forecast of real GDP growth at 1.5-3.5 per cent (which includes the fiscal boosting effect of 1.3 per cent).  The number is at the low end of market forecast, which should provide the government a base to spend the sum as outlined in policy address, as well as opportunity to make an impression of a better than expected outcome in case the actual growth figure is much higher.

-George Leung, adviser, strategy and economics, HSBC (Asia Pacific)

To attract more private equity funds to domicile in Hong Kong, Tsang proposes to extend the profits tax exemption for offshore funds to include transactions in private companies which are incorporated or registered outside Hong Kong and do not hold any Hong Kong properties nor carry out any business in Hong Kong. 

He says this will allow private equity funds to enjoy the same tax exemption as offshore funds.  


Tsang says it is crucial for Hong Kong to diversify its financial services business and products. 


Some 10 000 new hotel rooms are estimated to will be completed this year and next year, Tsang says.

Contents notwithstanding, refreshing to see that housing is not the first main item in the budget speech for a change, but logistics and tourism. This is of course not that surprising, after both the government and the Hong Kong Monetary Authority announced another round of market-cooling measures last Friday. It will take time to gauge the effectiveness of these measures; the hope is that this will buy the government time to introduce more supply to restore market balance.

-Kelvin Lau, Standard Chartered HK


Tsang says the government will offer a HK$2.3 billion loan to Ocean Park to expedite a project to build an all-weather Water World at Tai Shue Wan. 

Updated at 11.25am

On tourism, which accounted for 4.5 per cent of GDP, Tsang says Hong Kong has to sustain the buoyant tourism by stepping up efforts to enhance infrastructure, hotel supply, market promotion and service support.

Updated at 11.20am

The Customs Department will inject more resources into a programme to facilitate clearance and simpler inspection procedures internationally.


Tsang says Hong Kong is transforming into a regional distribution centre for high-value goods and has to build dedicated facilities to help the development of high value-added logistics services to shorten operating time and reduce logistics and inventory costs.

He says a logistics site with an area of about two hectares at Tsing Yi will be put on the market in the first half of this year. There are also plans to designate about ten hectares of land at Tuen Mun West for the development of logistics facilities.

He says that upon completion of a link between Tuen Mun-Chek Lap Kok in 2018, it will only take ten minutes to travel from Tuen Mun West to the Airport. He says the Tsing Yi and Tuen Mun West sites will provide more than 300,000 sq m of floor area and 7,500 new jobs in various trades, yielding over HK$3 billion worth of economic benefits annually.


Full year GDP growth of 1.4 per cent for 2012 is pretty much in line with expectations, and the 1.5 to 3.5 per cent range expected for 2013 corresponds to the government’s still cautious (albeit recovering) view on the economy. We at Standard Chartered Research are calling for 3.4 per cent GDP growth this year, before fully returning to trend growth in 2014.

-Kelvin Lau, Standard Chartered HK


The forecasted GDP growth is in the range of 1.5 to 3.5 per cent. Since the range is quite wide, it suggests that there are still a lot of certainties. Further, the upper end of 3.5 per cent is still lower than the averaged growth rate of 4.5 per cent over the past 10 years, which means the economy outlook is not expected to be as good.

-Alice Leung, tax principal, KPMG China


Tsang identifies four “pillar” industries Hong Kong should focus on developing. They are logistics, tourism, financial services and commercial and professional services.


As it was expected that the stimulus measures would give a GDP growth of 1.5 per cent, while the actual GDP growth for the current year is 1.4 per cent, this suggests that the GDP growth would be zero or even negative if the stimulus measures had not been put in place.

-Alice Leung, tax principal, KPMG China


Economic growth for 2013 is estimated at a range between 1.5 per cent and 3.5 per cent, Tsang says. He adds the intricate external environment will remain unstable in the year.


Tsang says Hong Kong’s economy underperformed in 2012, with a GDP growth of 1.4 per cent which was much lower than the average of 4.5 per cent over the past 10 years. He attributed the subpar performance to an unfavourable external environment which led to reduced exports.

Updated at 11am

Financial Secretary John Tsang Chun-wah opens the budget speech at the Legislative Council. This is his sixth budget blueprint and the first after he was reappointed under Leung Chun-ying’s administration.

He says his measures are aimed at a stimulating a 1.3 per cent growth for the year 2013.