HK Budget – Plenty of One-off Handouts – Updated =2

ADDITIONAL REPORTING BY MONAMI YUI

Hong Kong — Wealthy Hong Kong posted an HK$13.8 billion surplus for fiscal 2009-2010 and predicted a solid GDP growth of around 4-5% for 2010-11, but Financial Secretary John Tsang resisted temptation for structural reform.

UPDATED TO INCLUDE REACTION FROM POLITICIANS

Right: Pro-Democrat lobbyists vie to attract John Tsang’s attention ahead of his budget speech. They argue the needy, especially the elderly and disadvantaged, need to wait a lifetime to receive real, substantial government assistance, hence the white wigs. Photograph by Alex Hofford

Tsang announced a series of populist give-aways in his budget speech on Wednesday, including a salary tax rebate, rent relief for public housing tenants, a rates waiver, one-off welfare and old age allowance payments and assistance for poorer school children and students.

Recurrent expenditure on education, healthcare and social welfare would increase to around $130 billion in the 2010-2011 financial year, accounting for some 56 pct of the total, he said.

He increased duties on sales at the luxury end of the property market to curb speculators and promised to encourage developers to increase supply at the lower end of the market.

He made no move towards any structural changes in Hong Kong’s taxation or economic system despite concerns about a widening gulf between rich and poor.

“The administration didn’t try hard to fill the wealth gap,” said legislator Emily Lau, vice chairman of the Democratic Party.

“More than a million of people are living in poverty. We expected the government to do more for those people.”

Her views were echoed by fellow pan-Democratic politicians.

Legislator Lee Cheuk-yan said Tsang was over-cautious. Lee, a pan-democrat who is also General Secretary of the Hong Kong Confederation of Trade Unions, criticised Tsang for short-termism.

“The budget focuses on small government and big market ideology too much. It brought in a lot of short-term measures but nothing is long term. Especially the government should take measures to support young people and children from poor families,” Lee said.

Pro-government, pro-Beijing politicians rallied in support of John Tsang’s budget. “Hong Kong has some deep problems such as the big gap between the poor and the rich. But I think those should be solved not only by budget but also by other schemes,” said Lau Kong-wah, a member of Chief Executive Donald Tsang’s Executive Council — or cabinet — and a leading member of the largest pro-Beijing party in Hong Kong, the DAB (Democratic Alliance for the Betterment and Progress of Hong Kong).

Lau Kong-wah praised Tsang’s handouts.

“I think the budget is very welcomed by people because the government will waive the property rates. Public housing tenants will get a waiver, too.”

The surplus compared with a forecast deficit for the year of $39.9 billion.  Tsang said he expected smaller deficits in the years ahead, and said he expected to see a balanced budget in 2013-14.

Tsang said the Hong Kong economy had recovered faster than most countries from the recession first triggered by the US subprime mortgage crisis.

GDP growth, which fell 7.5 pct in the first quarter, recovered towards the end of the year, resuming year on year growth of 2.6 pct in the fourth quarter. Overall, GDP fell by 2.7 pct for the whole of 2009.

“Both the job market and the overall economic performance indicate that our economic fundamentals are stronger than before and have shown greater resilience to withstand external shocks,” he said.

He said the concessions, which follow a number of similar sweeteners in last year’s budget, had helped Hong Kong people weather the effects of the “financial tsunami” but warned against becoming overly dependent on hand-outs.

“I must stress that these exceptional means employed at exceptional times cannot continue for long,” he said.

“Otherwise, they will affect the health of our public finances and dampen the enthusiasm for economic progress.

“In the long run, we must maintain fiscal discipline to ensure our children will not be burdened by our spending today. I believe this is what a responsible government should do.”

Handouts:

• A two-month rent holiday for public housing tenants — cost $1.8 billion
• One additional month of  payments to welfare recipients and to recipients of  old age and disability allowances – cost $1.8 billion.
• A grant of $1,000 to students on welfare or receiving student financial assistance – cost $570 million.
• Reduction in salaries tax by up to $6,000 — cost $4.5 billion.
• Waiver of  property rates for 2010-11, capped at $1,500 per quarter – cost $8.6 billion
• Waiver of  business registration fees for one year — cost $1.8 billion

Education:

Tsang increased spending on education, including subsidies for Hong Kong’s poorest schoolchildren to help them go on-line.

Eligible families — those on welfare with children of primary and secondary school age — will be entitled to claim $1,300 for per family for broadband access, he said. The funding is part of the more than $50 billion allocated to education in the coming financial year. A total of $500 million has been earmarked for start-up capital for collaboration between the non-governmental sector and private companies to provide economical Internet services.

General expenditure on education has increased by 18 pct of the past 10 years. The government estimated that recurrent expenditure on education, health and social welfare for 2010-11 will reach around $130 billion, taking up the largest share of recurrent government expenditure. Education alone accounted for $52.2 billion.

Hong Kong’s 12 universities and tertiary institutions were allocated $1 billion for a fifth Matching Grant Scheme (MGS), a scheme launched in 2003 whereby the government partly or fully matches funds raised by the colleges.

Since its inception, institutions have so far secured about $10.8 billion, comprising $3.9 billion in government matching grants and $6.9 billion in private donations.

Property:

Tsang said the government would seek indirectly to to increase the supply of smaller, more affordable flats by increasing land sales, encouraging statutory bodies to incorporate a higher ratio of smaller flats in property developments and stimulate a secondary market in subsidized housing.

However, concerned about the possibility of an property market bubble emerging, it would seek to curb speculation in the luxury home market by increasing stamp duties on properties selling for $20 million or more from 3.75 pct to 4.25 pct.

Emily Lau said this did not go far enough. She said the administration should act to reduce the cost of home ownership. Overcrowded Hong Kong has among the highest property prices in the world. Government sales of land are a major source of revenue. Hong Kong’s property cartels dominate government land auctions.

“Property prices [are] skyrocketing now — it’s a question of supply and demand. I’m not talking about only luxury houses. But for middle class people, even a 300-square-foot flat is not affordable,” she said.

Property analysts said buyers who could afford to spend $20 million or more on an apartment were unlikely to be deterred by a stamp duty increase.