Hong Kong launches rainy-day fund despite prediction of HK$950b reserves by 2020

Hong Kong is to set up a savings fund for a rainy day, the finance secretary announced yesterday - despite the fact the city's massive fiscal reserves are predicted to reach HK$950 billion in five years.

John Tsang Chun-wah also revived the possibility of broadening the tax base in his budget speech yesterday when he raised the prospect of introducing a goods and services tax. A similar proposal made by Tsang's predecessor Henry Tang Ying-yen in 2006 was shelved after a public outcry.

Tsang said the idea would be explored "in due course" to stabilise government revenue and create room for direct tax concessions.

A government spokesman said the administration would not rule out any options for broadening the tax base, including a goods and services tax. "We have been doing preparatory work but we need to consider whether a proposal is politically acceptable," the spokesman said, adding that it was too early to say when measures to broaden the tax base would be introduced.

According to the government's medium-range forecast, the fiscal reserves by the end of the financial year 2019-20 will reach HK$948.8 billion, representing 33.6 per cent of GDP and enough to cover 22 months of the government's projected expenditure. The figure represents a 16 per cent increase from the present level of HK$819.6 billion, the equivalent of 25 months of government expenditure at the current rate.