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Booming Hong Kong Cuts Taxes As Surplus Soars

6 days ago

HONG KONG (AFP) — Hong Kong’s financial chief on Wednesday promised sweeping tax cuts for workers and businesses and abolished duty on wine and beer on the back of a record budget surplus.

In his maiden budget speech, Financial Secretary John Tsang said he would increase spending on health services and introduce measures to bridge the widening wealth gap and reduce air pollution.

Duty on beer and wine will be abolished with immediate effect in a move aimed at creating a regional wine trading and distribution market in the southern Chinese territory, he said.

Wine consumption in Asia has risen sharply in recent years and Tsang said industry forecasts suggested there would be “considerable growth in table wine spending in this region.”

Tsang said the giveaways were made possible by a record budget surplus estimated at 115.6 billion dollars (14.8 billion US) in the year to March, four and a half times the government’s forecast and nearly twice as much as last year’s figure.

The territory’s reserves will reach 484.9 billion dollars, he said.

Tsang, who took over as financial chief last July, attributed the surplus to higher-than-expected tax revenues from the city’s booming stock and property markets as well as company profits and salaries.

Income taxes — already among the lowest in the world — will be cut to 15 percent in 2008-09 from 16 percent, while the corporate tax rate will fall to 16.5 percent from 17.5 percent.

Tsang announced a one-off 75 percent income tax rebate, up to a 25,000-dollar ceiling, and a rise in various tax allowances. Property taxes will also be subject to a one-off 75 percent rebate, up to a 25,000-dollar limit.

To combat worsening pollution, the government will introduce tax concessions for environmentally-friendly commercial vehicles and for companies that use green machinery and equipment.

The huge spending spree means Hong Kong will incur a 7.5 billion dollar deficit in 2008-09, Tsang said.

But credit agency Standard and Poor’s said it would not affect Hong Kong’s rating.

“This stance is prudent in view of the uncertainties over near-term fiscal performance,” said S and P credit analyst Kim Eng Tan.

Tsang said he would use this year’s budget surplus to help elderly or disadvantaged people and those on low incomes who had not benefited from the city’s economic boom but had been hit hardest by rising prices.

He announced one-off welfare payments, an increase in old age and disability allowances and increased spending on health care.

The government also plans to use its swelling coffers to boost tourism, building a new cruise terminal and increasing the capacity of its two runways to meet the expected growth in air traffic, with a third runway being considered.

Looking ahead, Tsang said he was “cautiously optimistic” about the city’s economic prospects for 2008, forecasting growth of between four and five percent in 2008/09 with inflation at 4.5 percent.

Tsang said the impact on Asia and Hong Kong of the credit crunch in the United States and Europe had so far been limited, but warned the city could be hit by the resulting global uncertainty.

“We should be aware of the possibility that the situation might deteriorate in the near future and that the fallout may be prolonged,” he said, adding he would be cautious about future spending in the face of a global economic slowdown and rising inflation.

Tsang said the economies of Hong Kong and China were becoming more closely integrated, with the mainland economy now at a crucial stage of change.

He cautioned that the upgrading of mainland industries would bring more competition to Hong Kong, while measures to cool China’s overheating economy could also impact the city.

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