HONG KONG: Financial Secretary John Tsang brings down the budget February 25, charting a course through stormy seas in the midst of the current financial tempest. The government already has announced a HK$30.9 billion surplus for the first nine months of 2008-09. Salary and profit taxes will be pouring in to government coffers during the final months of the fiscal year. Academics and experts on economy hope for some surprises next week. They hope Tsang will increase expenditures to ease hard times for taxpayers, while stimulating the economy.

Ho Lok-sang, an economics professor at Lingnan University, says the government, which holds over HK$520 billion in reserves, should not be afraid to bring down a "deficit budget". He proposes job creation and wage subsidies to encourage enterprises to hire staff.

He also recommends a stamp duty reduction to stimulate the sagging property market.

As social welfare agencies find it harder to raise money, the government should provide financial resources so that agencies can continue to provide services for needy people.

Ho opposes tax rebates and direct reductions in taxation. He says these sorts of tax cuts would not necessarily stimulate the economy. He thinks coupons are better, because they offer impetus for people to spend money, stimulating consumption, and providing more business opportunities.

Accounting constituency legislator Paul Chan envisages a surplus of between HK$10 billion and HK$20 billion. With this kind of financial backing, Chan reckons Tsang should spend at least HK$30 billion to make life easier on tax payers and provide a boost to the economy. He thinks last year's tax rebates, exemption from rates and the electricity tariff subsidy are worth carrying over into next year.

He also proposes a government-funded wage subsidy to encourage employers to hire more people. He also believes the home loan interest deduction should be extended indefinitely, beyond the current limitation of 10 years. Home purchases, he notes, are the most important investments most people will ever make.

Peter Kung, president of The Taxation Institute of Hong Kong, does not expect government handouts across the board. He argues cash handouts will not stimulate the economy and there are still many people who don't need them. Kung says distribution of government "candy" should not become a habit or people will come to expect it.

He does call for an increase in government spending, however, to create more job opportunities, expansion of the traffic allowance scheme to cover all people who go to work or school daily, and increased placements for medical school graduates to meet needs of the aging population. To improve the business environment, he says the government needs to sign more agreements to avoid double taxation from other economies.

In the longer term, the government should discuss with the Shenzhen government the matter of whether Hong Kong people working in Shenzhen should pay the mainland city's more lenient tax rate. He said this would tackle unemployment in Hong Kong and broaden the economic spheres of both cities.

(HK Edition 02/21/2009 page1)