Visionary budget with long term investment

Published: 26 February 2014

The Financial Secretary today delivered a visionary budget, which prepares to invest for the future competitiveness of Hong Kong, but could have included more tax measures to address prevailing social and economic challenges. It provides specific plans to build local infrastructure and to strengthen the development of key industries – trading and logistics, financial services, tourism, as well as business and professional services.

In view of the aging population, additional funding of more than HK$660 million has been allocated for elderly services. A long term plan to improve and expand health care facilities has also been developed to address the community's long term demand for medical services.

"It is a pragmatic and forward-looking budget, which highlights the importance of talent development and provides specific measures to sustain Hong Kong's position as one of the major international hubs. There is also a "Future Fund" which can be used to finance future strategic infrastructure projects at time of structural deficit arising from aging population and to address potential social challenges," said Yvonne Law, Vice Chairman, Deloitte China.

"The Budget also lays down proposals to support the development of the key industries. In particular, there are recommendations on how to strengthen Hong Kong as the premier offshore RMB business centre. The Financial Secretary also proposed to waive the stamp duty for the trading of all exchange traded funds (ETFs) and establish a taskforce to review the requirements for interest deductions in the taxation of corporate treasury activities," she added.

Mrs Law said the government has continued to offer supportive measures for small and medium enterprises (SMEs), which make up over 90 per cent of local enterprises and employ 1.3 million people, or half of the number of employees in the private sector. Deloitte believes that the government is also making the right move to further increase the duty on cigarettes by 20 cents per stick.

According to the latest update, the government projects a budget surplus of HK$12 billion 2013-14, versus the original forecast of HK$4.9 billion. As the government had previously warned, the Budget has cut many immediate "sweeteners" for citizens and only includes relief measures such as rates waiver for the first two quarters of 2014-15, an extra allowance to Comprehensive Social Security Assistance (CSSA) recipients, and a reduction for salaries tax and tax under personal assessment and reduction for profits tax.

"As a responsible government, it is not incorrect to adhere to fiscal prudence and to adjust the scale of one-off relief measures for its citizens. These measures appear to have gradually become recurrent in nature. The Financial Secretary also reiterates the importance to control public expenditure at 20 percent of local GDP growth. However, the government could consider other tax relief measures aimed at addressing the needs of the middle class and businessmen," said Davy Yun, Tax Partner, Deloitte China.

To boost the city's business attractiveness, Deloitte believes that the government may consider providing tax incentives to companies setting up their regional headquarters in Hong Kong, along with reduction of profits tax to 16 percent from 16.5 percent. To alleviate pressure of the middle class, the government may also allow homebuyer for personal use to claim deduction on mortgage principal and interest repayments and partial refund of stamp duty paid for properties held over three years.