Balanced budget possible given spending controls: Ernst & Young

HONG KONG: Lead accounting firm Ernst & Young yesterday predicted a small deficit or even a balanced budget for the financial year ending March 31, 2010.

In view of the improving economy and huge fiscal reserves kept by the Hong Kong SAR government, the firm proposed a range of long-term tax initiatives to help small & medium enterprises and individual taxpayers. The company's proposal would cost about HK$12 billion.

Financial Secretary John Tsang will deliver the budget speech on February 24. A couple of days ago, he said income from land premiums and stamp duties has been satisfactory and he therefore envisaged a smaller deficit than HK$39.9 billion budgeted.

Reportedly, Tsang is mulling a number of measures to ease the lives of working people including a traffic allowance, medical allowance for the elderly, allowances for the handicapped people and help for students using Internet services, as proposed by political parties.

A budget deficit between HK$4.9 billion and HK$9.9 billion could arise, Ernst & Young tax partner Owen Chan said yesterday. However, if the government maintains effective expenditure control in the last months of 2009-10, it can eliminate the deficit or even achieve a balanced budget, Chan said.

In view of the resurgent economy and a reserve level of around HK$487 billion, the equivalent of 19 months of government expenditure, he reckoned there is enough room for the government to offer tax concessions and enhance the tax system.

However, the firm does not propose any "one-off" measures or what are commonly referred to as "sweeteners".

For the benefit of individual taxpayers, the firm proposed reduction of the standard rate from 15 percent to 14.5 percent, and extension of the home loan interest reduction period from 10 to 15 years. To tackle the issue of an aging population and alleviate pressure on the public health system, a tax allowance for medical insurance up to HK$20,000 per year is proposed.

To encourage more people to buy property the firm proposed reducing the stamp duty from 1.5 percent to a fixed rate of HK$100.

As for business, the firm proposed reduction of the corporate tax rate from 16.5 percent to 16 percent to enhance Hong Kong's competitiveness. Related proposals include 100 percent tax reduction for acquisition of intellectual property rights, and incentives for foreign investors to open regional headquarters in Hong Kong.

The firm also said it is a good time to revisit the possibility of introducing a kind of consumption tax in Hong Kong with a view to broadening the tax base and stabilizing revenue income.

(HK Edition 02/04/2010 page1)