A holistic budget that addresses a wide range of economic and welfare measures for the future
Published: 28 February 2018
Today, Financial Secretary Paul Chan Mo-po delivered the first budget under the new government led by HKSAR Chief Executive Carrie Lam Cheng Yuet-ngor. It is a holistic budget that not only addresses a wide range of economic and welfare measures, but also braces the city for emerging challenges, boosts Hong Kong's overall competitiveness, and improves its living environment. While the budget provides measures to bolster innovation and technology industries, there remains a lack of tax incentives to support start-up companies, who play a pivotal role in driving the development of new technologies.
"This year, the budget carries three overarching objectives, including achieving economic diversification, investing for the future and showing care for citizens. Leveraging our abundant financial surplus, the government has responded to many immediate requests from the community, while ensuring adequate resources to strengthen our economy through diversification, improve our competitiveness, optimize our living environment, and prepare for unprecedented challenges such as the aging population and shortages in medical services," said Sarah Chan, Tax Partner Deloitte China.
Deloitte welcomes the government's three-pronged vision, in particular its proposed specific measures to bolster strategic traditional and new pillar industries, including innovation and technology, financial services, tourism, trading and logistics, business and professional services, creative and construction. Among them, HKD 50 billion will be earmarked for driving the innovation and technology development, with another HKD 500 million as dedicated provision for the development of the financial services industry.
"Without a doubt, a lot of technological innovation comes from start-up companies. Although the government has already reserved considerable resources to support start-up companies, implementing tax incentives would be a more direct way to encourage research and development, which is not included in this year's budget. Also, the budget has not covered measures to promote Hong Kong as a leading regional headquarters (RHQ) locale," said Ms Chan, who notes that Hong Kong is currently the headquarters for around 1,400 global companies, compared to the city's close competitor, Singapore, which has over 4,000 RHQs.
To reduce tax burden on individuals, the government has also increased tax allowance for children, dependent parents or grandparents, while raising the ceiling for one-off tax reduction for salaries tax and profits tax for 2017-18, as well as rates waiver for 2018-19. Given the soaring property prices in recent years, it is surprising that the Financial Secretary did not put forward new measures to alleviate the housing burden for the general public. For one, the government could have considered stamp duty reduction for first-time homebuyers who are permanent Hong Kong residents.
In this year's budget, one of the major expenditure items is related to healthcare services, where the government has proposed to increase spending by 13.3 percent to HKD 71.2 billion for 2018-19. It also includes a second 10-year hospital development plan amounting to HKD 300 billion, and studies for further increase in publicly-funded training places for health care professionals in the coming three years.
"I applaud the investment in science and technology and the increase in healthcare expenditure. However, the authorities would need immediate and specific action plans to cope with the growing demand for medical services and the more frequent outbreak of infectious diseases, such as seasonal flu," said Yvonne Law, Senior Advisor, Deloitte China.
Regarding the income composition of the government's budget, Alfred Chan, Tax Director, Deloitte China said, "Hong Kong continues to rely heavily on land sale and stamp duty for revenue, which are somewhat unstable in nature, but contribute to over 40 percent of its total revenue. To compensate for the increase in expenditure, the government should consider conducting consultations on broadening the city's tax base, as well as review Hong Kong's land reserve to see if there are adequate land lots for sale – at least for the medium term. It remains necessary for the government to review our tax system, to prioritize the upkeeping of Hong Kong's long-term competitiveness, and to strengthen the local economic environment, which will help boost the other two major income sources for the government, i.e. profits and salaries taxes."