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Ambrose Leung

Financial chief Henry Tang says the increased revenue is needed to help balance the books by 2008-09

The financial secretary yesterday said there was  no room to drop tax-raising measures planned for this year by his predecessor.

The government's target of balancing its books by the 2008-09 financial year could not be realised without such measures, Henry Tang Ying-yen said.

But in a post-budget seminar organised by Baptist University, academics attacked government plans to introduce a goods and services tax in or after 2007, saying it would add to the burden on the middle class and deepen social discontent.

Speaking on Metro Radio, Mr Tang said recent calls by some politicians to halt the second stage of tax-increase measures - introduced last year by his predecessor, Antony Leung Kam-chung  - would not help the government balance its books.

'If the second stage of tax increases is not going to be implemented, we would receive $3.5 billion less in the 2004-05 financial year. If this is to accumulate for five years, it could easily reach $10 billion to $20 billion,' he said.

Mr Tang said such losses  could lead to a shortfall of more than $20 billion in the 2008-09 operating account, as it was predicted there would still be an operating deficit of about $5.2 billion at that time.

'I believe this point would not help us fulfil our target to solve the deficit,' Mr Tang said.

In last year's budget, Mr Leung raised salaries tax by 1 percentage point to 16 per cent. Personal tax allowances were lowered, while  marginal tax rates and tax bands were raised.

These measures were estimated to fetch an annual $3.5 billion.

Under the second stage of the measures, to be introduced next financial year, the basic tax allowance - the amount of earnings on which no tax is levied - will drop from $104,000 to $100,000.

Mr Tang also defended his plan to allow personalised vehicle registration plates, dismissing concerns it would drastically reduce the profits being channelled to charities.

At present, money generated by the sale of special licence numbers is given to the Lottery Fund for  charities.

Criticising Mr Tang's plan to introduce a sales tax, Professor Tang Shu-hung, head of Baptist University's economics department, said top earners would not mind paying additional sales tax so much, while the underprivileged would receive exemptions. But he warned that negative middle-class sentiment would rise.

He also said he had serious doubts about a planned public consultation next year over 'these very complicated economic issues'.

'Another problem is the lack of democracy. Without universal suffrage, the government has no credibility to deal with the tax issue,' he added.

Economist Professor Tsang Shu-ki said rather than introduce a sales tax, the government should consider other measures, such as highway tolls, to minimise the impact on livelihoods.

Both academics believed it would be difficult for the government to introduce a sales tax, especially during the election year of 2007 - the date indicated by Mr Tang as the earliest possible for implementing it.



Tax-raising measures here to stay