Hong Kong's first Budget since the handover will seek to reassure the financial and business communities about the soundness of the SAR's economic fundamentals and strategy rather than aim to re-inflate growth with tax cuts, Hongkong Bank's leading economists say.
They expect Financial Secretary Sir Donald Tsang Yam-kuen to announce a fiscal surplus of more than $25 billion, gross domestic product growth of 4 per cent, unemployment at about 3 per cent and headline inflation of 5.3 per cent.
They said there was unlikely to be any cut in the profits tax rate of 16.5 per cent, while personal taxes would remain at their present rates, with allowances adjusted in line with inflation.
Senior economist Clarence Wong Shek-fai said: 'The financial secretary will maintain a prudent fiscal position. Otherwise, he would send the wrong message [to the financial and business communities].' Targeting specific sectors with grants or programmes would breach the Government's traditional free-market policy of not attempting to pick winners, he said.
Chief economist Jan Lee said the Government could not afford a re-inflationary Budget which risked undermining the stability of the Hong Kong dollar.
Mr Lee said the economy was through the worst of its economic turmoil and that the deflation of asset prices had helped to restore balance between the tradeable and non-tradeable sectors.
'It is a Budget that will position the private sector to capitalise on the opportunities of recovery in the financial markets,' he said.
'We cannot afford to subvert market forces. We are in a post-bubble Asian world, which is sitting in a global environment of deflation, where growth will be sustained on significantly lower rates than during the past 15 years.' Government expenditure programmes would aim to implement Chief Executive Tung Chee-hwa's policy measures covering education, welfare and housing, he said.
Mr Lee said markets would be closely scrutinising expenditure to ensure it enhanced economic efficiency rather than being 'spending for spending's sake'.
He said: 'We are the most important link between Asia and the rest of the world. This is not only in terms of goods and services but also in terms of the financial system.'