Few perks as the lid is kept on spending

Land sales windfall swells government coffers but finance chief says he must be prudent as the economic recovery is still fragile Taxpayers have been given modest relief to help support aged parents and children in the only tax concessions of a budget that shows the government climbing out of its deficit doldrums. Financial Secretary Henry Tang Ying-yen refused to reduce the salaries tax, despite forecasting the robust economic recovery will restore the budget to balance in 2007-08, a year ahead of target. On the face of it, the books show the first annual surplus in six years but Mr Tang acknowledged that after taking out income from the sale of bonds, which must be repaid, a deficit of more than $13 billion remains. This is still a vast improvement on the original estimate of more than $40 billion. Mr Tang also signalled a move to broaden the tax base, with the controversial goods and services tax being put to public consultation after the new chief executive is elected in July. Tabling his second budget yesterday, Mr Tang maintained that it was not the right time to provide more handouts. 'The economy is recovering reasonably well. But it is still a very fragile situation. We are still suffering a lot of volatility. Based on the experience in the past five years, we know what damage it could bring. Therefore it would be prudent for me not to make large tax cuts,' he said. 'Our current position does not allow us to pay the price of a $3.3 billion handout yet,' he said, referring to calls to drop the second stage of salaries tax rises imposed by predecessor Antony Leung Kam-chung. Mr Tang, tipped as a possible contender for the chief executive, denied it was an election budget. 'The budget is a prudent one. There's no intention of paving the way for the chief executive election. Neither have I handed out money, nor have I outlined a grand blueprint for the coming years,' he said. 'As the financial secretary, I have the duty to do what I think is in the long-term interest of the public. I should not make economic decisions [based on] political considerations.' The estate duty, which makes $1.5 billion a year, will be scrapped in a move to boost the city's asset management services. But the budget is short of major relief for taxpayers and the needy. Taxpayers will get some help from an increase in the child allowance by $10,000 to $40,000, benefiting 300,000 people at a cost of $620 million to the public coffers. Another 100,000 taxpayers will gain from two new allowances of up to $30,000 each for taking care of parents or grandparents aged 55 to 59. The concession will cost another $450 million a year. But an increase in rates will take money out of the pockets of many. A 7 per cent rise in the rateable value of properties over the past year will see 65 per cent of homeowners paying $120 more each quarter. Citing internal polls showing 40 per cent public support for a goods and services tax, Mr Tang said consultation would come after discussions with the new chief executive. Rejecting claims he has not achieved much over the past year, Mr Tang said probably no government in the world could have brought down spending as he did last year. For the first time in 50 years, operating expenditure in 2004-05 dropped from the previous year, down to $201.2 billion - just a little above Mr Tang's target for 2008-09 of $200 billion. The consolidated account in 2004-05 turned from the original estimate of $42.6 billion in the red to a surplus of $12 billion, the first surplus since 1999-2000. The improvement is mainly due to spending controls and a $31.3 billion windfall from land sales, more than 21/2 times the estimate. The budget will remain in the red in 2005-06, with an operating deficit of $15.4 billion. Fiscal reserves stand at $287.3 billion, enough for 14 months' spending. Acting Chief Executive Donald Tsang Yam-kuen said he fully supported the budget, describing it as solid, comprehensive and made in Hong Kong's long-term interest. NEW MEASURES Taxes: - New basic and additional allowance of $15,000 each for taxpayers caring for parents or grandparents aged 55-59. About 100,000 taxpayers to benefit - Child allowance to rise from $30,000 to $40,000 for each child. Over 300,000 taxpayers to benefit - Estate duty to be abolished, tax on wine and tobacco unchanged - Green tax, goods and services tax, and medical tax allowances still under study Spending: - $500 million to promote tourism - $830 million to remove illegal structures and improve old buildings - $500 million to help small and medium-sized enterprises