Spotlight on poverty as Hong Kong budget surplus expected to narrow

HONG KONG Tue Feb 25, 2014 4:00pm EST

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HONG KONG Feb 26 (Reuters) - Hong Kong will likely post a far leaner budget surplus this year as the financial hub known for its amped up capitalism debates the sustainability of its longer-term finances amid calls to boost welfare spending and narrow the wealth gap.

Financial Secretary John Tsang is expected to unveil a fiscal surplus of HK$10-20 billion ($25.8 billion) for the financial year 2013/14, far less than the bumper HK$64.8 billion last year, in his budget speech that starts at 0300 GMT, a straw poll of economists and accounting firms showed.

"It's likely to be significantly lower than what we've had in the past few years," said Paul Tang, an economist with Bank of East Asia in Hong Kong, of the budget surplus.

The government previously said it was expecting a mild deficit of HK$4.9 billion.

Economic growth is expected to be steady, according to a Reuters poll of analysts, who forecast Hong Kong's GDP to grow 3.5 percent this year versus an expected 3.0 percent last year, given signs of an improving global economy.

Hong Kong's fortunes are closely tied to the mainland where growth is slowing. Efforts by the Chinese government to boost Shanghai as a financial centre may also pose a drag on the city which has the largest pie of the lucrative offshore yuan business and wants to retain it.

NO BUMPER GIVEAWAYS SEEN

While Hong Kong's government has handed out billions, including tax concessions and cash handouts in previous years, another bumper "giveaway" budget isn't expected this time round. Experts see the government giving away less to middle class families and instead focusing more on the city's poor.

While still one of Asia's richest cities flush with billionaires and gleaming skyscrapers with fiscal reserves of over HK$765.3 billion ($90.21 billion), Hong Kong has struggled in past decades to contain a yawning wealth gap that has seen around 1.3 million of its 7 million population pushed below the poverty line, according to a government-commissioned report.

Last month, Hong Kong's leader Leung Chun-ying announced a multi-billion dollar raft of poverty alleviation measures including a low-income working family allowance, which while lauded as long overdue, also raised concerns the city's reserves might be run down by the new recurrent expenditure.

Soon after Leung's policy address, financial secretary Tsang warned of the need for fiscal prudence and of the risk of surpluses slipping to deficits, in what some saw as a split in views over the direction of Hong Kong's public expenditure.

"The government should plan ahead to address the deep-rooted widening wealth gap and aging population issues, and strive for a balance when addressing the specific needs of the community," said Marcellus Wong, a senior advisor with PwC.

Analysts do not expect the government to loosen a raft of property cooling measures that have begun to show signs of moderating the once red-hot market even as a bulk of Hong Kong's revenue comes from the key real estate sector.

Home prices have more than doubled since 2008 in one of the world's most expensive property markets, putting a strain on business costs and worsening income gaps. (Additional reporting by Grace Li; Editing by Jacqueline Wong)

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