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  • In view of the unforeseen circumstances, the Young Members Conference scheduled for 23 November will be postponed until further notice.

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Commentary on the 2009 Budget

The financial secretary ("FS") delivered the 2009/10 budget speech on 25 February 2009. In order to explain its position on the measures contained in the budget, and to enable members to understand the background to this year's budget and to express their views, the Institute held the following activities on budget day:

media briefing hosted by taxation committee chair, Ayesha Macpherson
   
members' forum attended by the Secretary for Financial Services and the Treasury, Prof K.C. Chan, Legislative Councillor Member (Accountancy), Paul M.P. Chan, and the taxation committee chair (also forum chair) and deputy, Ayesha Macpherson and Florence Chan, respectively.

 

The Institute expressed the overall view that, while the principles on which the budget was based, namely job creation, international competitiveness and sustainable development, should be welcomed, in terms of specific proposals, the budget could have done more to boost confidence and soften the impact of the current financial crisis and economic downturn.

The Institute gave support to the initiatives to reinforce Hong Kong’s status as an international financial and business centre, including expanding the exchange of information to enable more double taxation agreements to be negotiated, and developing the market for Islamic products.

However, there was some disappointment that no reference was made in the budget to looking again at the merits of introducing group relief and loss carry-back. Measures such as these, which the Institute has been advocating for a long time, and which are available in a number of other jurisdictions, would help to improve Hong Kong’s competitive position and could also assist companies experiencing cash flow problems during the economic downturn.

The Institute considered that the government could have been more generous in terms of tax rebates and rates concessions in the budget, given Hong Kong’s underlying fiscal position, which remains quite robust, and the global consensus on the need for governments worldwide to stimulate economic activity:

In the budget, the FS announced rebates of salaries tax and tax under personal assessment of up to 50%, with a ceiling of $6,000, whereas the Institute's proposed a rebate of 75% of the tax payable, including profits tax and property tax, with a ceiling of $25,000.
   
Rates will be waived for the first two quarters of 2009/10, subject to a ceiling of $1,500 per quarter per rateable tenement, whereas the Institute suggested a full-year waiver, subject to a ceiling of $5,000 per quarter.
   
The Institute also proposed changes to the progressive rates under salaries tax that would have benefited middle- and lower-income taxpayers, as well as increases in the allowances for dependants.


While the budget contained various good initiatives in relation to employment, it was noted that these focused on job creation rather than retention of existing jobs. Some of the Institute’s proposals, on the other hand, such as those on group relief and loss carry-back, and the tax and rates concessions referred to above, in improving cash flow, could have assisted companies to retain further jobs.

Amongst the other recommendations made by the Institute, which were not taken up in the 2009/10 budget were:

Proposals aimed at strengthening Hong Kong's competitiveness, including measures relating to the insurance and fund management sectors, and concessions for intellectual property development and usage.
   
Measures that would have been of benefit to those made jobless including:
   
  - Allowing deductions for monies spent on self-education, up to the annual limit of $60,000, to be carried forward for one year where they could not be used in the year in question.
   
  - Increasing the amounts of redundancy and severance payments that would automatically be treated as non-taxable to twice the current statutory thresholds for such payments.


Reporting on Hong Kong’s economic and fiscal performance over the past year, the FS announced GDP growth of 2.5% in real terms for 2008, and a small estimated deficit of $4.9 billion in the consolidated account for 2008/09. Fiscal reserves are expected to be $488 billion at the end of March 2009 (equivalent to 19 months of government expenditure). In 2009, GDP growth is forecast to fall to between minus 2% and minus 3%, and a budget deficit of $39.9 billion is projected. As regards the medium term outlook, the government estimates an annual average growth rate of 3.5% in real terms for the period 2010-13.

More information can be found through the following links:

 

Budget highlights
   
Budget speech
   
Economic performance 2008
   
Economic prospects 2009
   
Institute's budget proposals
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