(Corrects to clarify title of Anthony Lau in paragraph eight)
* Hong Kong unveils HK$64.9 bln fiscal surplus in 2012/13
* Modest corporate and salary tax rebates, capped at
* Financial Sec sounds warning on HK's simple and low tax
* Budget steers clear of fresh property cooling measures
By James Pomfret and Alison Leung
HONG KONG, Feb 27 Hong Kong launched a
relatively modest series of economic stimulus and relief
measures in its annual budget on Wednesday to combat an
uncertain external environment with its economy likely to
recover to between 1.5 percent to 3.4 percent in 2013.
"The intricate external environment will remain unstable in
the year ahead," said Financial Secretary John Tsang, warning of
potential instability from currency wars and a trade slowdown to
the financial hub's small and open economy.
A poll of eight banks estimated that Hong Kong's GDP this
year would grow 3.1 percent, accelerating from GDP growth of 1.4
percent in 2012, its slowest rate since 2009 and well below the
financial hub's average 4.5 percent growth over the past decade.
In a budget short on bold steps, Tsang offered a mixed bag
of relief measures for the poor and elderly, a marginal
corporate tax and salary rebate, and moves to bolster the city's
financial sector and private equity industry.
While soaring land revenues and profits taxes swelled public
coffers to a bumper HK$64.9 billion ($8.37 billion) fiscal
surplus in 2012/13, the coming fiscal year that begins on April
1 will likely see a HK$4.9 billion deficit.
Despite registering a large fiscal surplus of HK$64.9
billion, however, Tsang sounded a warning on the sustainability
of the city's feted low and simple tax regime given an ageing
population and slowing long-term economic growth.
"I expect that the growth of government revenue will drop
substantially if our tax regime remains unchanged. Moreover,
expenditure on welfare and healthcare will soar. We may not be
able to make ends meet," Mr Tsang cautioned, adding that a
treasury working group would examine ways of better planning its
Anthony Lau, deputy chairperson of Taxation Committee, CPA
Australia, Greater China, said Hong Kong needed to consider
broadening and evolving its tax base through possible sales
taxes including on luxury goods.
"Instead of just providing one-off measures, we believe the
government should consider performing a comprehensive tax review
to improve the sustainability of government revenue and see how
to enhance our competitiveness here," Lau said.
FINANCIAL SECTOR STIMULUS
To lure more private equity funds amid competition with
Singapore -- that has signed a raft of tax treaties granting
exemptions to the industry there -- Hong Kong said it would
extend profits tax exemption for offshore funds to include
transactions in private companies which are incorporated or
registered outside Hong Kong.
"This will allow private equity funds to enjoy the same tax
exemption as offshore funds," Tsang said.
Hong Kong is also considering laws to allow the Open-ended
Investment Company (OEIC) structure for funds popular in mature
markets such as the United Kingdom. Investment funds established
in Hong Kong can only take the form of trusts presently.
The OEIC structure, allowing managers to create and redeem
shares when money is invested or pulled out, scores over trusts
by being cost effective as well as faster to launch products.
"The OEIC proposal is a direct response to Singapore moving
ahead as a choice of fund domicile but is more problematic as
alternative managers probably want other structures as well,"
said Philippa Allen, head of ComplianceAsia Consulting.
Stressing the importance of continued financial integration
with China, Tsang said it would aim to deepen the city's
offshore yuan market, but gave no specifics of fresh measures.
The government also said it would expand the size of its
government bond programme from HK$100 billion to HK$200 billion
in the next five years, while proposing a new inflation-linked
retail "iBond" issue worth HK$10 billion.
Authorities granted a relatively modest corporate tax rebate
of up to HK$10,000 per business for the 2012/13 financial year.
Individuals, meanwhile, would also enjoy a salaries tax
reduction of up to HK$10,000 for the same period.
With Hong Kong facing one of Asia's worst income gaps, Tsang
pledged a HK$33 billion package of measures including elderly
allowances, poverty alleviation fund, two-month public housing
rent wavers and electricity subsidies, though the handouts were
far less than the previous year's budget.
On the property front, Tsang unveiled no major new cooling
measures in his address, pledging instead to continue bolstering
land supply by offering 28 new sites, while earmarking HK$4.5
billion in the coming five years to explore potential new areas
for land reclamation outside of Victoria Harbour "on an
appropriate scale" in the densely populated city.
Last week, the government announced a new round of property
moves including higher stamp duties and home loan curbs to ease
some of the world's most expensive home prices.
Asian economies are battling against rising inflation partly
caused by hot money flows from loose monetary policies at home
and abroad, with governments raising stamp duties and tightening
lending in response to the threat of a property bubble.
(Additional reporting by Anne-Marie Roantree, Grace Li, Lee
Chyen Yee and Nishant Kumar; Editing by Jacqueline Wong)