Middle-income families see sunshine behind Macleod

Andy Ho

THE Government has sent out so many promising signals that even the more aggressive political parties have not attempted to mount pre-Budget campaigns this year.

Many are convinced that the Financial Secretary, Mr Hamish Macleod, is poised to make substantial tax concessions in his second Budget speech on March 3.

In a briefing paper to legislators, Mr Macleod pledges to stand by last year's commitment to improve salaries tax allowances and the tax bands. He has made it clear that the Government will adhere to the following principles in formulating the budgetaryproposals: To generate enough income to cover expenditure and to maintain adequate reserves to deal with possible contingencies over the 1992-97 five-year planning period; Where affordable, to consider concessions to carefully targeted groups of taxpayers; Not to add unnecessarily to inflation while maintaining the real value of fees, charges and duties.

The paper also notes that: ''While these concessions will be significant in terms of the benefit to taxpayers, they must also be carefully focused and affordable.

''Suggestions, for example, that salary tax allowances should be increased by many times the present rate of inflation are most unlikely to be practicable.'' Although the guidelines are couched in prudent terms, many councillors are convinced that Hongkong's huge reserves would make it necessary for the Government to offer major tax-breaks for the lower and middle classes.

This year's surplus was projected at $4 billion in the 1992-93 Budget, but the administration has admitted it has been grossly underestimated.

The Government was embarrassed when the 1991-92 surplus reached a record $22.5 billion, or 16 times above the original estimate. In fact, ever since 1985 officials have only managed to make one accurate prediction on the surplus.

The final surplus for the current financial year has yet to be revealed. Legislator Reverend Fung Chi-wood of New Territories North suggested that it could be as much as $30 billion.

The figure was denied by the Secretary for the Treasury, Mr Yeung Kai-yin. He admitted, however, that delays in public works projects have left about 30 to 40 per cent of the funds designated unspent. This would translate into about $10 billion in public savings.

Mr Fred Li Wah-ming of Meeting Point has recently accused the Government of trying to use up the funds by bypassing normal scrutiny of the Legislative Council.

He is sceptical that the authority is eager to reduce the size of the surplus before the accounts are closed for the current financial year. In a year-end press briefing, the Commissioner of Inland Revenue, Mr Antony Au-yeung, stated the tax revenues for the year had been larger than expected.

Mr Au-yeung declined to release the figures ahead of the Budget speech. But a 10 per cent deviation from the original figures will mean an extra $7 billion for the public purse.

Income generated from land sales as well as properties and stock stamp duties also turned out to be better than expected. By putting the pieces together, it is reasonable to presume that the surplus for the year will at least match the amount last year.

Coupled with the $236 billion in the Exchange Fund announced last year, officials can hardly put up a case that the Government is not in a position to be more generous.

This partly explains the relative serenity in the run-up to Budget Day. Last February in contrast, newspaper headlines were full of demands by rival political factions for tax-breaks.

Following the bumpy passage of his previous Budget, the Financial Secretary has been more willing to listen to the councillors this time.

Mr Macleod's initiative to consult the political groups has helped defuse public pressure. He has held two rounds of consultations on both public expenditure and revenue measures since last July.

In contrast to last year, political parties made their views public as early as half a year ago during the consultation exercise.

The concerned groups have by and large adhered to their previous positions. They are particularly concerned about the heavy tax burden on the so-called sandwich class.

They are primarily those who cannot afford a private flat but yet considered too wealthy to qualify for public housing. It is understood the Financial Secretary has this particular social group in mind when he refers to the ''carefully targeted groups of taxpayers'' to benefit from the upcoming tax-breaks.

Official statistics indicate that profit tax has provided by far the largest single source (22 per cent) of revenue to the Government.

It is followed by salaries tax which contributes to 15 per cent of the total public income, even though less than 54 per cent of 2.8 million employees have to pay in 1991-92.

Four per cent of salary taxpayers are paying the maximum 15 per cent standard rate, which despite the small proportion, contributes over half of the total salaries tax revenue, which is equivalent to the entire land sales revenue for a year.

The Co-operative Resources Centre has asked for a special tax allowance of $5,000 a year for those who pay rent or live in premises paid for through a mortgage. It called the allowance a token in recognition of the community's housing needs.

The Centre, however, remains relatively conservative in its demands on how the current $46,000 personal tax allowance should be revised. It suggested that the level be raised by $9,000 to $55,000.

The Confederation of Trade Unions asked for $72,000 and the United Democrats demanded $70,000. The bottom line for Meeting Point is $60,000.

While their suggestions for tax allowance vary, there is a close consensus among the groups that the tax bands should be widened.

Their position has been bolstered by the professional bodies, including the Society of Accountants and the Taxation Institute of Hongkong.

The most popular position is for tax bands to be widened from $20,000 to $30,000, while the specific rates for each band should be reduced.

Unless the authorities have deliberately misled the councillors, middle-income families can look forward to meaningful tax relief on March 3.