Cuts to tax rates win Legco approval

Dennis Eng

The new charges, effective for the current financial year, are estimated to cost the government $1.5b

Cuts of 1 percentage point to marginal tax rates in the top three bands were approved by the Legislative Council yesterday.

Passage of the Revenue Bill sees the rates lowered to 7 per cent, 13 per cent and 19 per cent but there is no change to the standard tax rate of 16 per cent.

The new rates, which take effect in the current tax year, will cost the government an estimated $1.5 billion for a full year. The bill also extends a tax deduction for mortgage interest payments from seven years to 10, but relief is capped at $100,000 a year per taxpayer.

This measure, which also takes effect in the current tax year, will cost the government around $1.2 billion for 2006/07.

Unionist legislator Kwong Chi-kin submitted a motion calling on the government to use its $14 billion surplus for 2005/06 effectively, especially on poverty alleviation, economic development and job creation. This was passed only after an amendment from the Liberal Party.

The Liberals repeated their view that government measures should include returning the salaries tax rate to the 2002/03 level, which would lower the top marginal rate to 17 per cent. The party also wants home loan interest deductions to apply for the entire mortgage period, a 0.5 per cent cut in government rates, and a one-year waiver on duty payable on ultra low sulfur diesel.

Independent Albert Chan Wai-yip warned that one-off tax rebates, such as the one made during the 2003 Sars outbreak, would not necessarily boost consumer spending, as people generally opted to save their refunds.

Lawmakers also proposed a number of other ways for the government to make use of the budget surplus. These include increasing the level of welfare payments for the disabled and elderly to the 2002/03 rate, as well as one-off measures such as establishing a children's development fund targeting low-income families, and waiving government rates for one quarter.

Chan Kam-lam, of the Democratic Alliance for the Betterment and Progress of Hong Kong, calculated that waiving rates for a quarter would cost the government about $3 billion, which was affordable.

However, Secretary for Financial Services and the Treasury Frederick Ma Si-hang said the government needed to save for a 'rainy day' despite the surplus. 'If our economy continues to grow and the government's revenue continues to rise, we will ... consider measures to return wealth to the people and to share the fruits of the economic recovery with the people.'

The $14 billion surplus is more than triple the $4.1 billion estimated by Financial Secretary Henry Tang Ying-yen in February and has spurred a public outcry that the government is being mean.