Hong Kong budget recap: salaries tax to be reduced by 75 per cent, capped at HK$20,000
A bleak outlook for Hong Kong’s economic health was outlined in Financial Secretary John Tsang Chun-wah’s ninth budget speech, with growth slowing to between 1 to 2 per cent this year as the effects of a slump in tourism and exports are felt.
Measures to bolster the economy including tax cuts, tourism industry stimulus packages and support for the city’s innovation and technology sector were outlined in Tsang’s address, which also included commentary on the impact on the city’s economy of the growing tension and turbulence in Hong Kong.
Stay tuned for more budget-related stories and analysis on SCMP.com during the rest of the day.
1.55pm: Business and Professionals Alliance welcomes budget
The alliance’s chairman Andrew Leung Kwan-yuen said: “This is Tsang’s best budget in nine years ... as it is all-rounded, it invests in Hong Kong’s future and for youngsters to become professionals.”
The alliance’s lawmaker Priscilla Leung Mei-fun said a “defect” of the budget however was that Tsang insisted on not waiving rents for public housing tenants amid economic fears.
1.55pm: Lawmaker offers rare praise for Tsang
People Power lawmaker Albert Chan Wai-yip offered rare praise for Tsang, describing the financial secretary’s proposal as “the most localist and politicised budget” ever, and said it strongly highlighted the rift between he and Chief Executive Leung Chun-ying.
He welcomed Tsang’s attempt to acknowledge the value of Cantonese by allocating more resources to the development of local films.
“There is a huge discrepancy [between Tsang and Leung] in terms of direction and emphasis ... and we welcome this difference,” he said.
Chan said Tsang’s concluding remarks almost sounded like an election declaration, but Chan added his party would not back Tsang running for chief executive – though he would be a better candidate than Leung – as they would not support any “small circle” race.
1.28pm: DAB disappointed Tsang refused to waive public housing rents
Starry Lee Wai-king, chairwoman of the Beijing-loyalist Democratic Alliance for the Betterment and Progress of Hong Kong, endorsed the budget as a “comprehensive plan” for Hong Kong, but she was disappointed Tsang refused to waive rents for public housing tenants.
She also said that “since the budget concerns the well being of all people, I hope pan-democrats will not filibuster on the budget bill this year.”
1.20pm: Reaction to budget: ‘One Belt, One Road’ got scant mention
Civic Party leader Alan Leong Kah-kit said the budget Tsang rolled out was in a stark contrast to that of the policy address by Leung Chun-ying earlier.
“The term ‘One Belt, One Road’ has merely appeared four or five times at most, compared to the 44 times in Leung’s policy address,” said Leong. “That has already highlighted their differences. I guess that is also what Tsang wants to highlight.”
Leong said the financial secretary was aware of the economic and political problems the city was facing, but unfortunately he did not show Hongkongers any way out.
1.05pm: Tsang quotes JFK, classic Canto-pop and the Hong Kong football team in his closing remarks
Tsang closed his speech by quoting from John F. Kennedy’s famous speech at American University in 1963: “Our problems are man-made, therefore they can be solved by man,” he said, going on to add that Hong Kong’s problems cannot be solved by anyone else except Hongkongers.
He then quoted a Canto-pop classic from the 1980s, stating: “The road trodden by the people of Hong Kong has been thorny and winding ...”
His final words focused on the Hong Kong football team and last year’s shot at the World Cup, saying he remembered clearly the evening match against Qatar. “We lost the match, but the never-say-die spirit that they exhibited won the hearts of our city ... It has led me to believe that, with our love for Hong Kong, we are able to overcome any challenge ahead of us, no matter how difficult it is.”
1.05pm: Tsang warns of ‘chaos, hatred and malice’ if differences not resolved
Tsang wrapped up his one hour and 25 minute speech by addressing Hong Kong’s internal conflicts, which he said were “suffocating”.
He called for the resolution of a raft of intricately-related factors that are creating conflicts, or future generations “will grow up in the midst of hatred and malice”.
“I believe that many of you would share my feeling that tension and turbulence are mounting in Hong Kong,” Tsang said. “Many of us feel suffocated by and, indeed, helpless with the tiresome confrontations day in and day out.”
He said after he set up a Facebook account last year, he started to observe people’s daily lives from another perspective, “including messages that cannot be accessed through traditional media and views that have not been captured by the mainstream”.
“This highly charged atmosphere has continued to deteriorate since the unlawful Occupy movement a year and a half ago, even after the defeat of the constitutional reform package,” he said. “Confrontations have not eased, and worse still, our society has become even more polarised.”
Calm and rational discussions, he said, no longer have a place in the Legislative Council, where he was speaking. “There is not even room for dialogue in our society.”
Tsang said that – as a member of the Hong Kong community – he was “deeply troubled” by the current situation.
1.05pm: Revised forecasts for 2015/2016
The latest surplus forecast is now HK$30 billion, lagging behind Tsang’s previous forecast of HK$36.8 billion, as expenditure grew faster than revenue.
This brings the fiscal reserves to HK$860 billion, or about 24 months’ government expenditure.
The revenue forecast was revised down by 4.2 per cent to HK$457 billion as a result of the provision for the housing reserve. Estimated proceeds from land sales were cut 11.6 per cent to HK$8 billion as some sites were not sold because of a poor response. Despite the roller-coaster stock market, trading was brisk and the stamp duty revenue was likely to be 28 per cent higher than expected at HK$14 billion. Salaries tax and profits tax is 8.9 per cent more than estimated at HK$17 billion.
Expenditure was revised down by 3.1 per cent to HK$427 billion.
1pm: Fiscal reserves to be HK$860b by next month
Tsang said fiscal reserves are estimated to be HK$860 billion by the end of March, equivalent to 24 months of government expenditure.
“In preparing the budget, I have been particularly mindful of the long-term needs of Hong Kong. I have set up the Housing Reserve in support of public housing development, set aside HK$200 billion for the ten-year hospital development plan and established the Future Fund as part of our long-term investment strategy,” he said.
1pm: On retirement protection
Tsang acknowledged the far-reaching implications of Hong Kong’s ageing society.
He said he had earmarked HK$50 billion to improve retirement protection for the elderly in need.
He said the Commission on Poverty was conducting a public engagement exercise on how retirement protection can be improved.
12.50pm: Health care expenses ‘almost double’ that of 10 years ago: Tsang
Tsang said expenditure on health care in the upcoming financial year will be HK$57 billion – accounting for 16.5 per cent of recurrent government expenditure – which is an increase of more than 90 per cent compared with 10 years ago.
Some HK$200 billion has been set aside to facilitate a 10-year hospital development plan to allow the Hospital Authority to provide 5,000 extra hospital beds, an 18 per cent increase. The number of operating theatres will increase by 40 per cent to 320. Specialist outpatient service capacity will increase substantially by 40 per cent from 6.8 million to 10 million attendances a year.
12.50pm: More public housing and commercial space on the way
The government will increase land supply in the coming financial year by putting on sale eight commercial and business sites, which will provide 540,000 square metres of space, and three hotel sites, which will supply 2,100 hotel rooms.
Government offices such as those in Kwun Tong and Kowloon Bay will be rezoned for commercial development, which will provide 560,000 square metres of space.
The Murray Road multi-storey car park in Central, on a 42,000 square metre site, will be converted into a space for commercial purposes.
The 93,000 square metre Queensway Plaza in Admiralty will be redeveloped.
Tsang said the government has a public housing supply target of 280,000 units for the 10-year period starting from 2016-17.
The government estimated that private housing land supply in 2015-16 has the capacity to produce more than 20,000 units.
Tsang said the 2016-17 Land Sale Programme comprised 29 residential sites, including 14 new sites, capable of providing about 19,000 units.
“Taking into account railway property development projects, the Urban Renewal Authority’s projects and private redevelopment and development projects, we estimate that the potential land supply for private housing in 2016-17 will have a capacity to produce 29,000 units,” he said.
Tsang said the Secretary for Development would announce the Land Sale Programme for the next financial year tomorrow.
The government will increase land supply in the coming financial year by putting on sale eight commercial or business sites, which will provide 540,000 square metres of space, and three hotel sites, which can supply 2,100 hotel rooms.
12.48pm: Fund to subsidise local students
While Chief Executive Leung Chun-ying has rolled out the Silk Road Fund to benefit overseas students, Tsang proposed a scheme to fund 5,600 local students, with a HK$200 million pilot scheme to provide tuition fee subsidies for students admitted to professional part-time programmes in the fields of construction, engineering and technology offered by the Vocational Training Council starting from the next academic year.
12.47pm: Hong Kong stock market to reform regulatory regime
Hong Kong Exchanges and Clearing will conduct a public consultation on improving the regulatory structure for company listings as the city recorded 12 per cent more in initial public offerings to hit HK$260 billion last year compared to 2014.
The consultation will review the regulatory regime, streamline procedures and boost market efficiency.
12.45pm: ‘Pursue more yuan trade and boost financial services’
Hong Kong will seek to boost yuan trade by pursuing expanding the investment quota for Hong Kong investors to invest in the mainland stock market through the RMB Qualified Foreign Investors Scheme.
The government is waiting for the central government’s green light on launching the Shenzhen-Hong Kong stock connect, a scheme which will allow mainland investors to invest in the Hong Kong stock market and the other way round, which he said all sides are “all set” for with preparation work and which would go ahead as soon as possible when Beijing gives the nod.
The private equity industry will enjoy profit tax exemptions as a government measure to promote its development.
12.40pm: On retail bonds
Tsang said the government would be launching another issuance of inflation-linked retail bonds (iBonds) of up to HK$10 billion with a maturity period of three years in line with the existing practice.
This follows five previous issuances under the Government Bond Programme.
12.40pm: On free-trade agreements
Tsang said the government had conducted five rounds of free-trade negotiations with the Association of Southeast Asian Nations and hoped negotiations would be concluded this year.
12.37pm: On aviation:
Tsang said the capacity of Hong Kong International Airport must be addressed, with the Airport Authority pressing ahead with the third runway project.
When completed he said the airport would be able to handle 100 million passengers and nine million tones of cargo annually in 2030.
The cargo handled by the airport currently makes up 40 per cent of Hong Kong’s exports in value terms.
12.34pm: Measures to boost R&D
Tsang outlined measures to encourage more private enterprises to invest in research and development and applied technology, including:
1. Inject HK$2 billion to launch a Midstream Research Programme for Universities to provide funding support for universities to carry out more midstream and applied research projects in key technology areas
2. Increase the level of cash rebate under the R&D Cash Rebate Scheme to 40 per cent to encourage private enterprises, SMEs in particular, to put more resources into R&D work.
3. Continue with the Technology Start-up Support Scheme for Universities to assist technology start-ups established by university teams in commercialising research results.
Tsang also acknowledged Hong Kong’s vibrant start-up scene, saying there are now 1,600 start-ups in the city.
He said the government will set up a HK$2 billion Innovation and Technology Fund to co-invest with private venture capital on a matching basis in local tech start-ups.
The Science Park will expand to provide an extra 70,000 square metres of floor space by 2020, with the project cost of HK$4.4 billion to be jointly shared by the government and the Hong Kong Science and Technology Parks Corporation.
Cyberport will also earmark HK$200 million to invest in start-ups.
12.30pm: Costs of infrastructure projects to come under tighter scrutiny
The Development Bureau will form a multi-disciplinary office to review guidelines on public works, minimise unnecessary design and contractual requirements, and scrutinise closely the cost estimates of 300 major new projects in the next three years.
The multi-disciplinary office will report to Tsang on progress to regularly control project costs.
12.27pm: Bond to target the elderly
A new bond targeting elderly people will be introduced, Tsang said.
“Many of our senior citizens are looking for investment products with steady returns. The government will launch a pilot scheme to issue ‘silver bonds’ this year and next year, targeting Hong Kong residents aged 65 or above, with a maturity of three years for the first issuance, said the finance chief.
More details will be announced by the Monetary Authority.
12.24pm: ‘Relief measures not a surprise’
Curtis Ng, convenor of the budget proposals sub-committee from the Hong Kong Institute of Certified Public Accountants, said the relief measures announced by Tsang “were not a surprise”.
“I think basically they are in line with our expectations. They are the right thing to do and should be a welcome move.”
“But compared with the previous years, we think the scale of the sweeteners on taxation is smaller, but we need to see whether it is because of the fiscal situation of the government.”
12.20pm: Tsang talks of ‘new economic order’
Tsang dedicated a chapter of his budget speech to what he called the “new economic order”, in which the eastward-shifting economic gravity and IT breakthroughs are contributing to “paradigm shifts in different economic and social spheres”.
“These two new forces have changed the global economic landscape, gradually shaping a ‘new economic order’ globally, offering new directions and providing room for developments for both traditional and emerging industries,” he said. “They have also lowered the threshold for start-ups and created a more open market ecosystem.”
He called on people to take a longer-term perspective and keep an open mind in the face of challenges, but not to “shy away from the challenges in today’s ever-changing world”.
12.17pm: Forecast for growth ‘a bit too optimistic’, says analyst
Ivan Li, equities analyst at Tung Shing Securities, commenting on the budget speech, said the GDP forecast of 1 to 2 per cent was a little bit optimistic ... Usually the government estimates are on the low side.”
On Tsang’s estimate that underlying inflation will be 2 per cent, Li said: “I think inflation figures are tricky to predict. His prediction is a bit too high, I think. We see the rental rate coming down, oil prices coming down. Basically, we see that there are some deflation measures in mainland China, too, so I think Hong Kong will not face that much inflation.”
12.10pm: Tsang pledges support for Cantonese films
Against the backdrop of fear of “intrusion” by Putonghua into Hong Kong public life, Tsang called Cantonese “a common dialect shared by Guangdong and Hong Kong” as he rolled out plans to encourage the production of Cantonese films.
“Locally-produced Cantonese films, a key component of the local culture, have all along been well-received by audiences in the mainland and Southeast Asia … Guangdong province has a population of over 100 million with box office receipts exceeding 4 billion yuan in 2014, offering an extensive market for our locally-produced Cantonese films,” Tsang said.
The government will inject an additional HK$20 million into the Film Development Fund to subsidise the expenses incurred by locally-produced Cantonese films in distribution and publicity work on the mainland. Funding is being proposed to double to HK$500,000 per film, Tsang said.
12.04pm On technology
The government said it would strive to protect consumer rights in its push to develop technology.
The Hong Kong Science and Technology Parks Corporation will set up a HK$8.2 billion project, which will promote “smart” production and research at the Tseung Kwan O industrial estate. Robots and IT solutions will be used to help promote value-added industries.
The government has also earmarked HK$500 million to set up an innovation and technology fund to encourage different sectors to use innovation and technology solutions to improve quality of living.
11.59am: One Belt, One Road
Tsang said he will lead a business delegation to Central Asia this year to enable delegates to gain first-hand knowledge of the development potential of the One Belt, One Road development initiative.
The Hong Kong Monetary Authority will set up an office to facilitate the financing of infrastructure projects and pool together investors, banks and the financial sector to offer comprehensive financial services for various infrastructure projects.
The Hong Kong Trade Development Council will launch a series of measures such as a web portal and a summit on the “One Belt, One Road” initiative, a trade strategy in which the central government is encouraging mainland firms to go global.
11.56am: On e-cars
On electric cars, Tsang said the government is “actively installing more and better charging facilities”. To promote the use of such cars, he said Hong Kong will organise an international competition this year to encourage the sector to explore ways to make good use of retired batteries.
11.50am: On tourism
Tsang said Hong Kong needed to review the development strategy of the tourism industry, and look at diversified high-value services, as well as how to increase visitor numbers.
He unveiled a raft of short, medium and long-term measures to support the tourism industry.
These included HK$140million to waive licence fees for travel agents, hotels, restaurants and hawkers.
He also put HK$240million towards five measures:
1. Expanding the scale of major events to be held this year, including holding the Formula E Championship for the first time
2. Re-packaging Hong Kong’s tourism image with new promotional videos, and launching a new round of publicity for short-haul markets
3. Through the Tourism Board, assist the industry to open up new visitor sources through various means, including implementation of the matching fund for promoting tourist attractions, promotion of shopping and spending, promotion of MICE tourism and “fly-cruise” tours
4. Through the Travel Industry Council, subsidise small and medium-sized travel agents, on a matching basis, to make use of information technology to enhance the competitiveness of the industry.
5. Continue to promote Hong Kong’s natural scenery as well as unique history and culture, including enriching the contents of the Dr Sun Yat-sen Historical Trail with the theme of “Art across Time”.
11.45am: Tsang hits out at ‘irrational and uncivilised tactics’ affecting city’s image
Tsang said tourism contributed 5 per cent of GDP and employed 270 000 people. For 10 years, tourism and other related industries had experienced rapid growth but are facing competition due to a number of factors, he said.
Tsang also said recent incidents in Hong Kong were causing concern, hitting out at destructive acts by a “handful of people”.
He said people were choosing to express their views and political demands using “irrational and uncivilised tactics”, such as “hurling abuse at visitors and kicking their suitcases”.
“These destructive acts have not only damaged the economy, but have also severely tarnished Hong Kong’s reputation as a welcoming city internationally,” he said. “While some have claimed that the acts were committed out of concern for “local” interests, their actions are in fact not the kind of behaviour that reflects love for Hong Kong. If they truly care about the development of Hong Kong, they should by no means exercise their right to freedom of expression at the expense of peace in our society and livelihood of innocent citizens.”
11.39am: Help for SMEs
The government will reduce profits tax in 2015-2016 by 75 per cent, at a cap of HK$20,000, for SMEs, which will reduce government revenue by HK$1.9 billion.
Business registration fees for 2016-17 will be waived, which will benefit 1.3 million business operators. This proposal will reduce government revenue by HK$2.5 billion.
The government will launch a HK$500 million voucher scheme for SMEs which use technological services and solutions to improve productivity and reform their businesses.
11.38am: On food trucks
Tsang said an initial scheme for food trucks will be rolled out this year. The number of parking spots for trucks will be increased to 16, he said, due to the “wide interest”. He made no mention of the hawker issue that allegedly gave rise to the Mong Kok riot.
11.33am: Tsang proposes three relief measures
1. Reduce salaries tax and tax under personal assessment for 2015/16 by 75 per cent, subject to a ceiling of HK$20,000. This proposal will benefit 1.96 million taxpayers and reduce government revenue by HK$17 billion.
2. Waive rates for four quarters of 2016-17, subject to a ceiling of HK$1,000 per quarter for each rateable property. This will benefit 3.17 million properties and reduce government revenue by HK$11 billion.
3. Provide an extra allowance for social security recipients, equal to one month of the standard rate of comprehensive social security assistance payments, old age allowance, old age living allowance or disability allowance. This will involve an additional expenditure of HK$2.8 billion.
Tsang is also raising the basic allowance and the single parent allowance from HK$120,000 to HK$132,000 and the married person’s allowance from HK$240,000 to HK$264,000. These proposals will benefit 1.93 million taxpayers and reduce tax revenue by HK$2.9 billion a year, he said.
11.20am: Sluggish economy, bleak outlook, Tsang says
The Hong Kong economy grew 2.4 per cent last year, faster than the 2.3 per cent in 2014. Tsang expects it will grow 1-2 per cent this year on the back of sluggish external economies and the mainland’s economic slowdown.
Exports of goods recorded the first annual decline since 2009, down by 1.7 per cent in real terms, Tsang says.
Retail sales were disappointing and recorded their first annual decline for the first time since 2009.
Joblessness averaged at 3.3 per cent.
The pressure of inflation eased last year with the underlying inflation rate clocking in at 2.5 per cent last year compared with the government’s forecast of 3.5 per cent. In 2014, it was 4.4 per cent.
11.15am: ‘Long Hair’ mocks fiscal ‘imbalance’
Just before the budget speech, League of Social Democrats lawmaker “Long Hair” Leung Kwok-hung said he would like to give Financial Secretary John Tsang Chun-wah a set of scales he made.
It carried a picture of Tsang, and showed a plane on the heavier side and a picture of two elderly residents on the other side.
“The government is using HK$150 billion to build an unnecessary third runway, instead of spending on the toiling elderly. This is totally insane and shameful,” he said. “But I cannot be expelled today because we will continue scrutinising the copyright bill after the budget speech, and I have to continue filibustering to block the bill.”
11.13am: Tsang ‘distressed and angry’ over Mong Kok riot
Financial Secretary John Tsang Chun-wah started his budget speech with the Mong Kok riot, saying the recent violent event had turned Hong Kong into a “strange and alien place”.
“ I believe many people share my feelings towards the incident. Distressed and angry, I was perplexed as to why violence had flared in Hong Kong,” he said.
“I was shocked that our city could have turned overnight into such a strange and alien place that I hardly recognised. I was troubled why the core values that we long cherished had been devoured by violence and hatred.”
He added: “Acute social conflicts will add uncertainties to the already adverse economic environment.”
As this year will be an election year, the government “anticipates that political disputes will only intensify over the coming months”, Tsang said.
10.49am: Protesters gather outside Legco
Before the budget rolls out this morning, several pressure groups are making final efforts to urge the government to spend more on retirement protection.
At the protest area outside the Legislative Council building, where financial secretary John Tsang Chun-wah will announce his budget, several elderly members from the Alliance for Universal Pension called for a HK$100 billion seed fund.
The alliance’s organiser Nick Chan Hok-Fung said with more than HK$900 billion in fiscal reserves, Tsang should be doing much more.
“It was reported that the secretary will propose creating government bonds for the elderly, but it will not really improve old people’s lives,” Chan said.
Also outside the Legco building this morning were ethnic minority members from AIM Group, a body under the Diocesan Pastoral Centre for Workers Kowloon branch.
The branch’s project officer Li Ka-shu told the Post they were there to urge Tsang to provide more resources for the Labour Department, because ethnic minorities were finding it difficult to look for jobs.
“Local residents can find a job from advertisements on the Labour Department’s notice boards, but when ethnic minority people go there, they find it difficult because they cannot read Chinese,” Li said.
He believes that with more resources, the department can set up a special division dedicated to ethnic minorities.